President-elect Donald Trump’s proposal to create an “External Revenue Service” (ERS) focuses on shifting some of the U.S. government’s revenue collection from domestic income taxation to tariffs and duties imposed on foreign imports. Here are more detailed aspects based on available information:
- Purpose and Function: The primary function of the ERS would be to collect tariffs, duties, and other revenues from foreign sources. This would theoretically reduce the reliance on the Internal Revenue Service (IRS) for domestic tax collection, which Trump has criticized for being overly intrusive and burdensome to U.S. citizens.
- Tariff Policy: Trump has advocated for high tariffs, mentioning in the past a 10% tariff on global imports and even higher punitive duties on specific countries like Canada and Mexico. The idea is that this could serve as a significant source of revenue, potentially offsetting the need for income taxes or at least reducing them.
- Economic Implications:
- Benefits: Proponents argue that an ERS could lead to a decrease in domestic taxes, potentially benefiting U.S. manufacturers by making their products more competitive against foreign goods. This could stimulate domestic production and employment in certain sectors.
- Challenges: Critics, including many economists, warn that tariffs would increase costs for U.S. importers, which would likely pass these costs onto consumers, leading to higher prices. There’s also the risk of trade partners retaliating with their own tariffs, which could harm U.S. exports. Moreover, the administrative burden of creating a new agency would be significant.
- Legislative and Operational Hurdles:
- Congressional Approval: Setting up a new federal agency would require congressional legislation, which could face opposition given the partisan divide on fiscal policy.
- Implementation: There are logistical questions about how this new service would operate, including whether it would be a new department or an expansion of current customs operations under U.S. Customs and Border Protection or another existing agency.
Public and Political Reaction:
- On platforms like X, there’s been a range of reactions. Some see it as an innovative way to restructure taxation, focusing on leveraging international trade for revenue. Others view it as potentially inflationary and disruptive to global trade relations.
- Historical Context: Trump has previously expressed interest in using tariff revenue to replace some forms of domestic taxation, but his first-term administration did not implement such a system. The idea of shifting tax collection emphasis to foreign trade has been part of his rhetoric for years, often linked to his “America First” economic policies.
- Potential Structure: While specifics are sparse, some suggest the ERS might involve renaming or restructuring parts of existing agencies within the Treasury Department, though this hasn’t been officially confirmed.
The concept of an ERS is still in early stages, with much of the detailed planning and implementation yet to be seen, depending on legislative action and further policy development by Trump’s incoming administration.
President-elect Trump to create external revenue service to collect tariffs, duties, and foreign revenues