Nobody enjoys paying taxes, and the IRS is generally unpopular among Americans. However, as the old adage goes, death and taxes are inevitable. So, it seems like the IRS is here to stay… or is it?
Commerce Secretary Howard Lutnick suggests otherwise. In a recent interview on Fox News, he revealed President Donald Trump’s proposal to eliminate the Internal Revenue Service and introduce the External Revenue Service, where non-Americans would bear the tax burden.
Essentially, the plan hinges on the idea that the revenue generated from Trump’s tariffs would be substantial enough to obviate the need for income taxes in America. While this concept sounds promising, it comes with a host of challenges.
Currently, the U.S. collects approximately $3 trillion annually from income taxes, which aligns closely with the nation’s total import value of $3 trillion per year. To entirely replace income taxes with tariffs, imported goods would need to face tariffs of at least 100%, according to Torsten Slok, the chief economist at Apollo Global Management.
However, the practical implications of such a drastic shift are complex. As prices soar due to tariffs, consumer demand is likely to plummet. Finding the delicate balance between revenue requirements and consumer spending could lead to significantly higher prices across the board.
Moreover, the plan could face additional hurdles if companies start producing goods domestically in response to the tariffs, causing a decline in imports. This shift could severely impact government revenues, as corporate taxes contribute only a fraction compared to individual income taxes.
Despite these challenges, Trump remains committed to his tariff strategy. He has already imposed tariffs on various products and is considering further tariffs on lumber, autos, chips, and pharmaceuticals. The upcoming implementation of tariffs on goods from Canada and Mexico underscores his dedication to this approach.
While the idea of an “External Revenue Service” may sound intriguing, its feasibility and long-term implications remain uncertain. As with any significant policy change, careful consideration and assessment are essential to ensure its success.
The Executive Orders that President Trump signed on his first day in office have raised some questions about the purpose of the ERS. Despite the collection of tariff revenue being a clear function, the overall objective of the ERS has not been entirely defined. Even after remarks made by Lutnick, the purpose remains ambiguous. The executive order has directed the Secretaries of Treasury, Commerce, and Homeland Security to explore the feasibility of establishing the ERS for the purpose of gathering tariffs, duties, and other revenues related to foreign trade.
In the midst of these developments, the IRS is preparing to terminate approximately 6,000 employees on Thursday, as per an insider familiar with the agency’s strategy. The impending job cuts at the IRS predominantly target auditors and support staff engaged in compliance activities. It is noteworthy that these layoffs are occurring during the peak of tax season.
CNN’s Katelyn Polantz has contributed to this report. Stay up to date with the latest news and newsletters from CNN by signing up for an account on CNN.com.
