Trump's ERS Plan Sparks Debate: Unnecessary Tariff Bureaucracy?
Tariffs are paid by domestic importers, even though they are levied on foreign nations.
President Donald Trump announced plans to create a new government agency called the External Revenue Service (ERS) to collect tariffs and other duties from foreign nations, but his plans have faced immediate backlash.
The proposed government agency would support Trump’s bold tariff plans on all imports, which he failed to expand upon in his inaugural address. To date, the Trump administration has levied 10% duties on Chinese imports and temporarily paused 25% tariffs on Canada and Mexico.
The Trump administration is also holding off tariffs on Colombia.
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One glaring concern: Tariffs are already collected by an existing federal agency, the U.S. Customs and Border Protection (CBP). It should be noted that the so-called External Revenue Service is a ‘play on words’ to mask who pays for tariffs — which are domestic importers.
As U.S.-based importers take on steep tariffs to pay for goods imported from other nations, some of that expense is passed onto the consumer. That means shopping for everyday goods could become more expensive, warn economists.
“For far too long, we have relied on taxing our great people using the Internal Revenue Service (IRS),” President Trump said in a post on Truth Social days before his January 20 inauguration. “Through soft and pathetically weak Trade agreements, the American Economy has delivered growth and prosperity to the World, while taxing ourselves. It is time for that to change” Trump added.
Historically, creating a new government agency requires an act of Congress. It's worth noting that Trump hasn't specified whether this agency will be federal.
Trump’s announcement comes days after House GOP lawmakers introduced a bill proposing to abolish the IRS and rewrite the tax code as we know it. Here’s what we know about the ERS so far.
Related: Five Tax Traps to Avoid in Trump's Second Term as President
What is the External Revenue Service?
As President Trump suggests, the External Revenue Service would be implemented to collect “tariffs, duties, and all revenue” that come from foreign sources. As implied, the agency would focus on collecting the major tariffs the Trump administration aims to impose.
Problem number one: the U.S. already has federal agencies that collect these fees.
Trump hasn't specified whether the proposed agency would replace the U.S. Customs and Border Protection collections of tariffs, duties, fees, and fines or the collection of taxes on foreign income by the IRS.
Problem number two: Calling the new agency an ‘External Revenue Service’ won’t change who pays for tariffs, which are U.S.-based importers. Though tariffs are ‘imposed’ on foreign countries, the tax is ultimately paid domestically.
For most of his campaign, Trump has pitched a steep 20% blanket tariff on all imports and an extra-punitive 100% fee on Chinese goods entering the U.S. He believes that tariffs will import taxes, or crucial revenue into the economy — allowing the government to lower food prices, inflation, and reduce the national deficit.
At one point, Trump also floated replacing income taxes with tariff revenue, adding that tariffs would allow the government to subsidize childcare.
While the proposed tariffs would raise about $2.8 trillion over the next decade, government agencies and multiple non-partisan economists warn the revenue wouldn’t come close to replacing income tax or funding other tax cuts.
Trump ERS plans face immediate backlash
President Trump’s proposed External Revenue Service faced instant backlash from social media and top Democrats.
Sen. Ron Wyden of Oregon, a top Democrat on the Senate Finance Committee said the proposed External Revenue Service was a “silly rebranding” that would fail to hide “a multitrillion-dollar tax hike on American families and small businesses to pay for another round of tax handouts to the rich.”
In another post on social media platform X, a White House Correspondent for the Independent said Trump appeared “ignorant” to the fact there’s been an “external revenue service” since July 31, 1789. In other words, the U.S. Customs Service, now known as the U.S. Customs and Border Protection.
Of note, the proposed External Revenue Service seems somewhat at odds with the mission of Trump’s newly created Department of Government Efficiency (DOGE).
The non-governmental entity led by Tesla CEO Elon Musk aims to “dismantle government bureaucracy, slash excess regulations, cut wasteful expenditures, and restructure federal agencies,” according to Trump.
The creation of a new government entity appears to add more bureaucratic hoops to its pile.
The new Trump administration may continue to develop plans for what lies ahead as they tackle the first 100 days in office. Some plans may cause an immediate impact on your finances or tax experience, so stay informed.
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