Let’s analyze the Trump administration’s proposal to replace the IRS with an “External Revenue Service,” and the underlying economic issues.

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1. Proposal Background and Key Content
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   • President Trump proposed the concept of "external revenue," imposing tariffs on all imports to replace the IRS (Internal Revenue Service).
   • The administration aims to convert approximately $3 trillion in annual income tax revenue into tariff revenue.
   • The US imports goods worth approximately $3 trillion annually; the plan seeks to replace income tax revenue by taxing all these imports.

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2. Tariff Conversion Figures and Economic Challenges
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• Basic Calculation: Replacing $3 trillion in annual income tax with tariffs requires a minimum 100% tariff on imported goods.
• Problem: Prices doubling would drastically reduce consumer demand; to compensate for this, tariff rates might need to rise to 200% or more.
• Basic Economics: Higher prices lead to lower consumption; excessive tariffs cause import reductions and consumption stagnation.

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3. Impact on Consumers and Businesses
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• High tariffs will cause overall price increases for consumers.

• The cost of imports, including electronics, automobiles, clothing, and even energy products, will significantly increase, raising the overall cost of living.
  • Intended Manufacturing Revitalization and Counterproductive Effects
• The Trump administration expects tariffs to boost US manufacturing, but excessive import restrictions may shrink the domestic consumer market or cause supply chain issues.
  • Corporate Taxation Issues
• Replacing income tax with tariffs might partially compensate for corporate taxes, but corporate taxes currently account for a small percentage (around 6%) of total US tax revenue compared to individual income tax.
• The Trump administration's corporate tax cut policy adds further uncertainty to this plan of replacing income tax with tariffs.

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4. Policy Development and Future Outlook
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• The administration is considering a 25% tariff on lumber, along with additional tariffs on automobiles, semiconductors, pharmaceuticals, and is preparing countermeasures against trade with Canada and Mexico.
• Experts warn of consumption stagnation due to rising import prices, stressing the need for careful evaluation of the tariff policy's effectiveness in actual tax revenue conversion.
• News of IRS staff reductions, coupled with policy changes, suggests a re-evaluation of the IRS's role; however, the impact on tax revenue remains uncertain.

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5. Summary and Implications
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• The Trump administration's external revenue proposal is a revolutionary attempt to overhaul the existing tax system, but the consumption reduction and market instability caused by tariff increases are significant issues.
• Replacing the income tax-reliant financial system with tariffs is theoretically possible, but practically difficult due to anticipated demand reduction and price increases.
• Close observation of the administration's tariff policy implementation and its overall economic impact is needed; both consumers and businesses must respond cautiously.

The Trump administration's tariff proposal entails complex economic repercussions that go beyond simply eliminating the IRS. It's crucial to monitor related news and expert opinions to assess economic trends.

*Source URL:
https://edition.cnn.com/2025/02/20/economy/trump-abolish-irs/index.html