Trump’s second term has barely just started and there are already a myriad of protests about how he is deciding to govern and the new rules he is implementing. One of the more outlandish ideas that are being considered is the replacement of the Internal Revenue Service (IRS) in favor of an External Revenue Service (ERS).
The purpose would be similar, as the ERS would be created as a tariff-collecting agency, but instead of collecting from Americans, they would collect from foreign companies trying to sell their goods in the US as well as from American companies importing some of their goods manufactured abroad. This would in theory eliminate taxes on Americans and alleviate some of their burden, but while this could potentially sound like an interesting idea, it would cause an enormous amount of problems for the same taxpayers he seems to be trying to spare.
The impact of a potential External Revenue Service (ERS) on American taxpayers
As of right now, the IRS is the government’s main revenue-generating agency, collecting money from both Americans, residents and, yes, illegal immigrants that work in the country, in order to support the road infrastructure, cover some healthcare needs and support the government structure amongst many other expenses. Since everyone contributes, everyone benefits, and taxpayers get a say on how the money is spent, but the new ERS would have different expectations and current taxpayers would have effectively no say on the new system.
At a cabinet meeting held on March 24, 2025, Commerce Secretary Howard Lutnick discussed plans for this new potential government entity, which he claimed would be launched soon. He also referred to April 2 as America’s “Independence Day”, despite these statements, there has been no confirmation or supporting evidence to show that the ERS became operational on April 2 so now citizens are waiting to see whether it comes to fruition after April 15, the last day to file taxes, so as to not disturb the regular order of operations.
While we do not know much about how this new entity would work, reports say that the proposed ERS would be tasked with gathering tariffs, duties, and other trade-related income from foreign sources. President Trump has suggested that this revenue stream could eventually replace income and possibly even corporate taxes, however, historical data presents a challenge to this idea. Over the past seven decades, tariffs have contributed minimally to federal revenue. In 2024, they generated approximately $77 billion, accounting for just 1.57% of the government’s total income and this amount falls significantly short of what would be needed to eliminate income taxes entirely.
While paying taxes is cumbersome and most Americans hate it, mostly because they do not feel that they get enough in return for the amount they pay, it is a guaranteed way to fund the government and all the services that they use. Should they choose to eliminate these taxes, the whole country would depend on companies importing goods, which would not guarantee a minimum amount of yearly income to budget around.
This lack of funds would finally give Republicans enough reasons to eliminate all programs, including Social Security, and privatize the entire country, with one massive drawback. With taxes, the necessary expenses are covered by millions of people, which makes them cheaper, plus labor costs are usually somewhat subsidized as they are counted as public works. Individuals will never be able to save enough on taxes to pay the difference in costs for all the services they receive, making this ERS a terrible idea as the substitute for the IRS.
The President seems convinced though, and we will now have to wait and see how this new idea is implemented and whether or not it works.