On Feb. 24, President Donald Trump delivered his highly anticipated State of the Union address to a joint session of Congress. His speech outlined accomplishments and milestones reached since taking office -- e.g., the Dow Jones Industrial Average (^DJI 1.56%), S&P 500 (^GSPC 1.52%), and Nasdaq Composite (^IXIC 1.78%) have all hit several record-closing highs -- as well as laid out select policy proposals for the upcoming year.
Of note, Trump championed tariffs as "one of the primary reasons for our country's stunning economic turnaround." He went so far as to proclaim that tariffs could one day prominently replace the income tax:
[As] time goes by, I believe the tariffs, paid for by foreign countries, will, like in the past, substantially replace the modern-day system of income tax, taking a great financial burden off the people that I love.
But can tariffs really replace the income tax? Diving into the data tells the whole story.
President Trump speaking to a joint session of Congress. Image source: Official White House Photo.
Statistically, tariffs make up only a small portion of federal revenue
According to data from the U.S. Treasury, the federal government collected $5.23 trillion in revenue for fiscal year (FY) 2025 (the government's fiscal year ends on Sept. 30). Approximately 51% ($2.66 trillion) was traced back to individual income taxes.
By comparison, customs duties, which include tariffs on goods imported into the country, accounted for about 4% of FY 2025 revenue.
Based on data from the nonpartisan Penn Wharton Budget Model, the tariffs recently struck down by the Supreme Court that President Trump implemented under the International Emergency Economic Powers Act (IEEPA) resulted in roughly $175 billion in revenue for the federal government. Meanwhile, in June 2025, the Congressional Budget Office (CBO) projected annual tariff revenue would average $300 billion over the next decade.
Statistically, actual and estimated tariff figures are miles apart from income tax revenue. Even if the CBO's average annual estimate proved accurate, it would only make up 11% of the revenue brought in from the individual income tax in FY 2025.
What's more, even with added tariff revenue, the federal government ran a $1.78 trillion deficit in FY 2025. The data make clear that there's virtually no chance of tariffs replacing the income tax anytime soon, if ever.
Image source: Getty Images.
Tariffs may do more harm than good for Wall Street
Moreover, two comprehensive studies from four New York Federal Reserve economists writing for Liberty Street Economics suggest tariffs may be doing more harm than good for consumers and the stock market.
Less than two weeks ago, the four economists examined who's ultimately been paying for the tariffs established under IEEPA. According to "Who Is Paying for the 2025 U.S. Tariffs?," U.S. importers bore the cost of Trump's tariffs between 86% and 94% of the time (the authors broke their analysis into three separate periods, ranging from January through November 2025).
A separate study ("Do Import Tariffs Protect U.S. Firms?") released in December 2024 examined the impact of Trump's China tariffs in 2018-2019 on the public companies impacted by them. The economists found that, on average, public companies experienced declines in employment, labor productivity, sales, and profits from 2019 to 2021 due to Trump's China tariffs.
Not only are tariffs unlikely to substantially replace the income tax, but they appear to be more of a hindrance than a help to the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite.
