Trump Again Raises the Issue of Replacing the Income Tax with Tariffs.

As he did on the campaign trail, President Trump has again raised the idea of replacing the federal income tax with tariffs on foreign imports.

Addressing Congressional Republicans at the Trump National Doral Golf Club to discuss, and hopefully decide on, a legislative agenda, Mr. Trump again “floated” the idea of tariffs on foreign-made goods replacing the income tax.

The United States had no income tax until the 16th Amendment was ratified in 1913. The United States Constitution, until then, specifically made an income tax illegal (though there was a brief income tax from 1861-1872 to fund the Civil War and Reconstruction). In 1894 Congress again flirted with an income tax, but by 1895 it was struck down by the Supreme Court in a case known as Pollock v. Farmers’ Loan & Trust Co. In the Pollock decision, the Supreme Court held that the unapportioned income taxes on interest, dividends, and rents (that had been imposed by the Income Tax Act of 1894) were, in effect, “direct taxes,” and were unconstitutional because they violated the constitutional rule that all “direct taxes” be apportioned.

The Constitution empowered the federal government to raise taxes only at a uniform rate throughout the nation, and also required that “direct taxes” be imposed only in proportion to the census population of each state. It was this clause that required the Constitution to be amended in order to assess an income tax.

The 16th Amendment provides:

“ARTICLE XVI. The Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

Upon the Amendment’s ratification, Congress passed the Revenue Act of 1913, and that’s all it took to bring in the income tax and make it legal. An interesting sidenote: The income tax was widely supported, but then again, it established a 1% tax rate on income above $3,000 per year. Income in the amount of $3,000 per year in 1913 is equivalent to an income of $95,637 in 2025. Only about 3% of the population were effectively subject to the income tax. (The Revenue Act also adopted a separate excise tax setting a corporate tax of 1%). It is perhaps because 97% were not subject to the tax that likely accounted for its popularity.

So what provided revenue into the United States Treasury for all those years when there was no income tax? It was, pure and simple, tariff revenue. The tariff revenue was more than sufficient (except during the Civil War) to support the costs of government, and the U.S. was quite rich during the tariff years. When the income tax was imposed in 1913, the U.S. lowered the average tariff rates from 40% to 26%.

Listen to Mr. Trump talking about reinstituting tariffs and cancelling the income tax:

AmericanVantagePoint.com last covered Mr Trump’s suggestion that tariffs replace income tax shortly after the election in November. See our article, “Will Trump Replace the Income Tax with Tariffs?” to learn more.