Could Trump Eliminate The IRS?

Over the past two months, there has been a lot of speculation on the assessment of tariffs with US trading partners. Legislators and economists have clashed on the impact of this change in trade policy, and markets here and abroad have seen a roller coaster-style reaction to the seemingly on-again, off-again status of tariffs. On April 2, 2025, President Donald Trump announced a broad range of tariffs on our international trading partners, putting to bed the speculation on this topic. The announcement was met with immediate reactions by stock markets around the world, with all major indexes trading lower than typical. World leaders logged negative responses to this announcement and expressed plans to prepare countermeasures immediately. While the initial reactions to Trump’s tariffs have focused on its short-term consequences, the broader question remains on how this may impact the US in the long term. President Trump has offered his expectations on their impact by proposing that the revenue generated by tariffs will serve to replace the revenue the US has historically relied on from American taxpayers in income taxes. In short, he’s suggesting that the Internal Revenue Service (IRS) could be replaced by the External Revenue Service (ERS), a new government agency that could be established to oversee the collection of tariff revenue. This proposal leaves taxpayers with the burning question, could we be approaching the end of the IRS and income taxes in the US? While there is not a clear answer, here are the key things taxpayers need to know about the impact of tariffs on income taxes.

Can the President abolish the IRS?

While the thought of abolishing the IRS and eliminating income taxes may sound good, the practicality of fully replacing tax revenue with tariff revenue is very complex.

Abolishing the IRS would require an act of Congress. The president cannot initiate this process, as it requires a member of Congress (either in the House of Representatives or the Senate) to introduce a bill to abolish the agency. Once introduced, the bill would be debated in committees to assess its viability and practicality before being presented to the legislators. If it is able to pass through a committee, it is then brought before both the House and the Senate for a vote. The proposal would need to pass both chambers of Congress. From there, it would proceed to President Trump for presidential approval.

Historically, it is relatively rare for Congress to vote to abolish a federal agency. The last time legislators abolished an agency was 30 years ago when they voted to eliminate the Office of Technology Assessment (OTA). This decision was part of a broader push by the Republican-led Congress under Speaker Newt Gingrich and the “Contract with America,” which aimed to reduce government spending and cut what some viewed as unnecessary or redundant agencies. Now, similar motivation exists with Presidents Trump’s initiative to reduce the size of the federal government and abolish the IRS.

The effort to eliminate the IRS has already been taken up by a group of Republican legislators. A week before Inauguration Day, a dozen GOP lawmakers introduced the Fair Tax Act of 2025. The proposal, spearheaded by Representative Earl L. “Buddy” Carter, would dismantle the current federal tax code and replace it with a single national sales tax. That “consumption tax” would be paid by everyone in the country, including illegal immigrants. It’s not the first time the Fair Tax Act has been heard of in Congress, but it has never moved far. Now, the Trump administration appears to favor the idea — by suggesting that a tariff-led revenue system would replace the IRS but preclude the need for implementing a consumption tax.

Can the proposed ERS replace income taxes?

President Trump has directed his administration to explore the feasibility of creating the ERS. One of his executive orders on inauguration day included the America First Trade Policy. This order instructs “the Secretary of the Treasury, in consultation with the Secretary of Commerce and the Secretary of Homeland Security, shall investigate the feasibility of establishing and recommend the best methods for designing, building, and implementing an External Revenue Service (ERS) to collect tariffs, duties, and other foreign trade-related revenues.” Currently, this effort is managed by the Customs and Border Protection (CBP) Agency. If the ERS is established, the CBP would likely see a shift in its responsibilities, potentially losing its revenue collection functions, while retaining its border security and enforcement roles. The feasibility work is expected to assess the cost for establishing and running the ERS and the potential offset to that cost derived from the reduction in responsibilities of the CBP.

Trump-appointed Secretary of Commerce, Howard Lutnick, is an outspoken supporter of the potential ERS. He notes the revenue currently generated from income taxes could be replaced by tariff income. “Donald Trump announced the External Revenue Service, and his goal is very simple: to abolish the Internal Revenue Service and let all the outsiders pay,” Lutnick said in a cabinet meeting on March 24. In other words: America will raise so much money from President Donald Trump’s tariff plan that Americans will no longer need to pay income taxes.

According to the Tax Foundation, a nonpartisan tax policy research organization, the projected revenue from tariffs that could be collected by the ERS will be substantial, but insufficient to fully replace the revenue currently collected by the IRS. Their research indicates, on a conventional basis, before incorporating the negative effects of tariffs on the US economy, we estimate all the tariffs together would increase US federal tax revenue by nearly $2.9 trillion over the next decade. The April 2 tariffs on their own increased tax revenue by $1.5 trillion. It’s important to note that this projected new revenue would be collected over a decade and is based on tariffs remaining unchanged over that time period. In contrast, the single-year revenue derived from income taxes is nearly double the amount projected from tariffs in a 10-year time span. According to data published by the Treasury Department, in Fiscal Year 2024, the US federal government collected approximately $5.1 trillion in tax revenue, with individual income taxes contributing about $2.4 trillion, or roughly 49% of the total. Their projections indicate that tariff revenue would fall well short of replacing income tax revenue.

How will this impact taxpayers?

In the short term, taxpayers and business owners will continue to be assessed income taxes as normal. Any changes to the IRS will not impact the current tax season and filings for the 2024 tax year. Similarly, current year estimated tax payments should proceed as normal, as well as processing of quarterly payroll tax filings. To date, all changes are speculative in nature and are unlikely to be applied retroactively.

As legislators explore the possibility of relying on tariff revenue rather than tax revenue, some economists warn that this plan could be damaging to economic growth, and not monetarily feasible. The tariffs on imports are paid by US companies, and that added cost is generally passed on to the consumer. That means taxpayers are expected to experience an increase in the cost of buying ordinary goods in the coming weeks. According to the Tax Foundation, rather than hurting foreign exporters, economic evidence shows American firms and consumers felt the brunt of the impact by President Trump’s tariffs during his first term. Plus, the Foundation notes that tariffs are often classified as “regressive” taxes because they disproportionately impact low- and moderate-income households. In short, taxpayers and business owners alike should prepare for an increase in the cost of their purchases.

Meanwhile, other economists suggest that the increase in tariff revenue could be used to reduce our reliance on income tax revenue and support an overall reduction in income taxes in the US. On Saturday, April 5th, Senate Republicans, led by Senate Majority Leader John Thune, approved a framework to extend Trump’s tax cuts established by the Tax Cuts and Jobs Act (TCJA) from his first term, and add new tax cuts including ending taxes on Social Security income. The tax cuts established by TCJA are set to expire at the end of 2025, and most democratic legislators argue the US cannot afford to extend the provisions of TCJA. The framework from this weekend illustrates how tariff revenue helps to fund the proposed tax cuts. The framework now goes to the House, where Speaker Mike Johnson, could bring it up for a vote as soon as next week. Legislators aim to work toward a final bill to be approved by Memorial Day. This means taxpayers should have a clear picture of the tax landscape for 2025 and beyond within the next couple of months.

This season may leave taxpayers with more questions than answers on how the Trump administration may impact their taxes. Remaining informed and proactive on tax matters is the best approach to navigating the uncertainty of the current economic climate.