In a recent announcement, President Donald Trump has unveiled plans to establish a new governmental body, the External Revenue Service.
This initiative aims to collect revenue from international sources, laying the groundwork for new import tariffs as Trump prepares his second term as President. Read on to discover more details of the plan and the potential consequences.
Shifting Tax Burden: Trump's Vision
In a statement shared on social media, Trump emphasized the necessity for change, highlighting that the Internal Revenue Service has overtaxed Americans for too long. He criticized current trade agreements, arguing they primarily benefit the global economy while placing a heavy tax burden on American citizens.
According to Trump, the new agency would ensure that foreign entities contribute fairly to the American economy through trade. "The time has come for those benefiting from trade with us to pay their due share," Trump declared in a post on Truth Social.
However, specifics on how the External Revenue Service would operate remain unclear, with his transition team yet to provide further details.
Unclear Operational Structure
The announcement did not specify if this new agency would take over the existing responsibilities of US Customs and Border Protection or the IRS concerning collecting tariffs, duties, or taxes on foreign income. There is also uncertainty about whether this move might lead to increased government bureaucracy.
It could potentially contradict the objectives of the informal Department of Government Efficiency, led by Elon Musk and Vivek Ramaswamy, which focuses on reducing governmental expenses by streamlining operations.
Feasibility Of A Tariff-Based Taxation System
Throughout his campaign, Trump hinted at replacing traditional income taxes with revenue from tariffs. However, economists have raised concerns about the financial viability of such a shift.
The Tax Foundation, a conservative think tank, projects that a 20% universal tariff on imports could raise $4.5 trillion over a decade, but economic repercussions might reduce net collections to $3.3 trillion. This figure is significantly lower than the IRS's annual tax collections, which range between $16 trillion and $18 trillion.
Political And Economic Implications
Senator Ron Wyden, a key Democrat on the Senate Finance Committee, criticized Trump's proposal, arguing that it disguises a significant tax increase on American families and businesses to fund tax benefits for the wealthy.
Trump's tariff strategy includes a proposed 10% tariff on global imports, a 25% punitive tariff on goods from Canada and Mexico—intended to pressure these countries to address drug trafficking and immigration issues—and a 60% tariff on Chinese products. However, trade analysts warn that such measures could disrupt international trade, increase costs, and provoke retaliatory actions against American exports.
While Trump's proposed External Revenue Service aims to shift the tax burden from domestic sources to international ones, the lack of detailed plans and potential economic impacts raise significant concerns and skepticism among experts and political opponents.
