From Tariffs to “Fair Tax”: Exploring Proposals to Eliminate Income Tax

No one likes paying income tax. However, it is structured, or however high or low the rate, someone always feels cheated. Much of the resentment stems from the fact that income tax is compulsory, you pay whether you want to or not, and whether or not you agree with how the government spends your money.

This frustration has fueled proposals to replace the system with something more voluntary in appearance. Advocates suggest revenue models that still fund government operations while giving taxpayers the option to “opt out.” Two of the most prominent alternatives are tariffs and the FairTax movement, both seeking to reduce or eliminate compulsory income taxes by shifting the burden to consumption.

President Trump has repeatedly floated the idea of replacing or reducing federal income taxes with tariff revenues. His proposals aim to cut reliance on income taxes, sometimes even suggesting elimination, by funding government operations through import duties. Supporters argue this would free disposable income, reduce paperwork, and centralize tax collection at the point of sale, allowing businesses to redirect resources toward growth and job creation.

Trump has also cast tariffs as tools to protect domestic industries, reduce dependence on foreign goods, and strengthen America’s negotiating position. He ties them to a nostalgic vision of the past, noting that from 1790 to 1860 tariffs supplied about 90 percent of federal revenue. Shortly after taking office, he said: “We were at our richest from 1870 to 1913. That’s when we were a tariff country. And then they went to an income tax concept. It’s fine. It’s OK. But it would have been very much better.”

During his 2024 campaign, Trump promoted an “all-tariff policy,” telling Republican lawmakers it could allow the U.S. to abolish income taxes. In an April 15 Fox interview, he claimed tariff revenues might even be “so great that it would replace” the income tax, at least for Americans making under $200,000. Proponents argue that unlike income taxes, tariffs are “voluntary” because consumers can avoid them by not purchasing imports, a classic pro-tariff position even if Trump has not stated it outright.

The FairTax proposal takes a different route. It would replace all federal income, payroll, estate, and gift taxes with a single national sales tax, typically proposed at a 23 percent inclusive rate, about 30 percent as a traditional sales tax. Proponents argue that shifting taxation from earnings to consumption would simplify the system, broaden the base, and even introduce a “voluntary” element, since individuals could lower their tax burden by consuming less.

Supporters contend that the FairTax would eliminate compliance costs, increase transparency, and prevent double taxation. A monthly “family consumption allowance,” or prebate, based on family size and poverty guidelines, would offset the burden of necessities for lower-income households, making the system more progressive. Advocates also argue that abolishing the IRS would reduce government intrusion while ensuring that everyone, including illegal immigrants and those in the underground economy, contributes to federal revenue.

As Ron DeSantis said in 2013, “From a policy perspective, I think the IRS is really past its point of usefulness. I think we need to move to a fair or flat tax and give the government less power.”

The Fair Tax Act would abolish individual and corporate income taxes, payroll taxes, and estate and gift taxes, with states responsible for collecting and remitting the sales tax to the Treasury. It also includes a safeguard clause requiring repeal of the 16th Amendment, which authorizes income tax, within seven years or else the law terminates. Advocates say this system would encourage saving and investment, since income and capital gains would no longer be taxed.

The Fair Tax Act of 2025 (H.R. 25) has been introduced in the 119th Congress by Rep. Earl L. “Buddy” Carter of Georgia, with 11 co-sponsors, down from 26 two years ago. It is not new legislation, having been reintroduced every session since former Rep. John Linder first proposed it in 1999. Over the years, Republicans including Ron DeSantis, Mike Pence, and Nikki Haley have supported versions of the bill.

Trump has not endorsed the FairTax, and it has not figured into his tax agenda, but it remains a long-standing Republican idea with a small but persistent base of support.

Although both tariffs and the FairTax are offered as alternatives to the income tax, they differ in scope. The FairTax would replace the income tax entirely, while tariffs would only supplement or partially offset it. Sales taxes reach all consumption, while tariffs target imports. Both share the goal of simplifying the law, reducing compliance costs, promoting growth, and broadening participation in funding government. In both cases, the burden shifts to consumption, which advocates argue is fairer and less intrusive than taxing earnings.

Still, both systems raise concerns about regressivity, since lower-income households spend a larger share of their income on consumption. And the economic reality diverges sharply from the theory. While the FairTax has never been implemented nationally, it is framed as a complete replacement for the current system.

Some analysts argue that tariffs cannot generate nearly enough revenue to cover federal needs. In the most recent fiscal year, the government collected $2.4 trillion from individual income taxes, nearly half of all federal revenue.

However, under President Trump the U.S. has earned record tariff revenue, with collections projected to reach as much as $200 billion in FY 2025. Theoretically, additional tariffs could close part of the $2.4 trillion gap, while the remainder could be offset by maintaining a smaller income tax, adding sales tax revenue, or reducing government expenditures. For example, cutting the IRS, as Trump has suggested, would not only change how taxes are collected but also reduce the size of government and its funding needs.

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