Trump wants to ‘abolish’ the IRS and replace it with tariffs. Can it work? | CNN Business

CNN - Feb 20th, 2025

Commerce Secretary Howard Lutnick announced President Donald Trump's plan to establish the External Revenue Service (ERS) to replace the IRS by generating revenue through tariffs on imported goods. This ambitious plan suggests that tariffs would raise sufficient revenue to eliminate the need for American income taxes. However, the proposal faces significant economic challenges, as analysts indicate tariffs would need to be exceedingly high to match current income tax revenue. Economist Torsten Slok noted that tariffs might need to be as much as 200% to compensate for lower demand due to increased prices, potentially quadrupling the cost of imported goods.

The plan's feasibility is further questioned as it could discourage imports, thus reducing potential tariff revenues, and relies on uncertain corporate tax adjustments. Moreover, Trump's strategy includes imposing various new tariffs, including a 25% lumber tariff and forthcoming tariffs on goods from Canada and Mexico. The announcement coincides with the firing of 6,000 IRS workers, primarily auditors and compliance support, amidst tax season. The ERS concept, though mentioned in Trump's inaugural address and executive orders, remains vague in its operational details and purpose, beyond collecting trade-related revenues.

Donald Trump Tariffs Us Economy Irs Howard Lutnick Trade Ers Tax Policy Commerce Secretary

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RATING

5.6

Moderately Fair

Read with skepticism

The article provides a timely and engaging exploration of a controversial proposal to abolish the IRS and replace it with tariffs. It raises important questions about economic feasibility and policy implications, making it highly relevant to public interest. However, the story's reliance on speculative analysis and limited source diversity impacts its overall accuracy and balance. While it effectively captures attention and stimulates discussion, further transparency and a broader range of perspectives would enhance its credibility and depth. The potential for controversy and debate is high, given the significant shifts in policy that the proposal entails.

Accuracy

The story contains a mix of factual claims and speculative analysis. The claim that Donald Trump announced the External Revenue Service and aims to abolish the IRS is based on a statement by Commerce Secretary Howard Lutnick, which aligns with the story's portrayal. However, the feasibility of replacing income taxes with tariffs is presented with speculative analysis, citing economic principles that would need further verification. The story accurately presents figures, such as the $3 trillion revenue from income taxes and the potential need for 100-200% tariffs, but these are contingent on economic assumptions. The report on IRS layoffs is a factual claim that requires confirmation from credible sources. Overall, while the story includes accurate data, it relies heavily on economic projections that are not definitively verifiable.

Balance

The story primarily presents a viewpoint that is critical of Trump's tariff plan, highlighting the economic challenges and potential negative outcomes. While it includes statements from officials and economists, it lacks perspectives from those who might support or provide alternative views on the plan's benefits. The narrative leans towards skepticism, which could be balanced by including more diverse opinions or expert analyses that might see potential advantages in the proposed changes. The story does not sufficiently explore the arguments in favor of the ERS or the potential benefits of reduced income taxes, leading to a somewhat unbalanced representation.

Clarity

The article is generally well-structured and uses clear language to convey complex economic concepts. It logically progresses from introducing the idea of the External Revenue Service to discussing the economic implications and challenges. However, some sections could benefit from further explanation, particularly the economic analysis, which might be difficult for readers without a background in economics to fully grasp. The tone is neutral, but the speculative nature of some claims could be more clearly distinguished from factual reporting to enhance clarity.

Source quality

The story cites Commerce Secretary Howard Lutnick and economist Torsten Slok, which lends some credibility to the claims made. However, the reliance on a single economist's projections and the lack of direct quotes from Trump or other government officials weakens the source quality. The story would benefit from a broader range of sources, including independent economic analysts or policy experts, to provide a more comprehensive view of the situation. Additionally, the mention of a 'source familiar with the IRS's plans' is vague and lacks the specificity needed to assess reliability.

Transparency

The article does not provide clear context or methodology for some of its claims, particularly the economic projections related to tariffs and revenue replacement. While it mentions economic principles, it does not explain the basis for the economist's calculations or the assumptions underlying the revenue figures. The lack of clarity about the source of some information, such as the IRS layoffs, further detracts from transparency. There is also no disclosure of potential conflicts of interest or biases in the sources cited, which would be important for readers to fully understand the context and potential motivations behind the information presented.