President Trump announced the External Revenue Service (ERS), intending to abolish the Internal Revenue Service (IRS).His goal is simple: replace all tax revenue collected by the IRS with another agency that willcollect our Tariffs, Duties, and all Revenue from foreign sources. Can Trump do that?
The short answer is yes, but only if he has congressional cooperation. No U.S. president has the constitutional authority to create a new federal agency like the ERS; only Congress does.
This proposal to abolish and replace the IRS with tariffs is undoubtedly ambitious but riddled with challenges. The U.S. government raises about $3 trillion annually from income taxes. To replace this revenue with tariffs, the government would need to impose tariffs of at least 100% on all imported goods. This could lead to significantly higher prices for consumers and potentially lower sales.
Moreover, one of Trump’s stated reasons for tariffs is to incentivize companies to manufacture in America. If this happens on a large scale, imports could decrease, further complicating the revenue replacement. Economists have questioned the feasibility of this approach in modern times. So, while it’s an interesting idea, it’s not as simple as it sounds and would face significant economic and practical hurdles.
Is the ERS necessary?
The concept of an External Revenue Service (ERS) is a significant departure from the current tax system. It may appear to duplicate the role played by the U.S. Customs and Border Protection (CBP). As a federal law enforcement agency under the Department of Homeland Security, its primary mission is to safeguard America’s borders, ensuring the security and safety of the nation. CBP regulates and facilitates international trade, collects import duties, and enforces U.S. regulations, including immigration and drug laws. CBP officers work at various points of entry, such as airports, seaports, and land borders, to inspect and monitor the flow of goods and people into the country. They play a crucial role in preventing illegal activities, such as smuggling and trafficking, while also promoting lawful trade and travel.
What is the impact of CBP policies on trade?
U.S. Customs and Border Protection (CBP) policies have a significant impact on trade in several ways:
- Facilitation and Security: CBP plays a crucial role in facilitating lawful trade while ensuring the security of the U.S. borders. By implementing policies that streamline the import and export processes, CBP helps reduce delays and costs for businesses.
- Tariffs and Duties: CBP is responsible for collecting import duties and enforcing trade remedies, such as antidumping and countervailing duties. These measures help protect U.S. industries from unfair competition and ensure a level playing field.
- Priority Trade Issues: CBP focuses on high-risk areas that can cause significant revenue loss or harm the U.S. economy. These include agriculture and quota, import safety, intellectual property rights, textiles, and trade agreements.
- Environmental Impact: CBP’s Green Trade Strategy aims to combat climate change and promote environmentally sustainable trade practices. This includes enforcing laws against environmental crimes and incentivizing green trade.
- Tariff Changes: Recent changes in U.S. tariffs, such as those on steel and aluminum imports, have a direct impact on global trade. These tariffs can affect the cost of goods, supply chain dynamics, and international trade relationships.
CBP vs. ERS comparison
CBP (U.S. Customs and Border Protection)
- Primary Function: Safeguards America’s borders, regulates and facilitates international trade, collects import duties, and enforces U.S. regulations, including immigration and drug laws.
- Focus: Border security, international trade facilitation, and law enforcement.
- Operations: Inspects and monitors the flow of goods and people at various points of entry (airports, seaports, land borders).
- Revenue Collection: Collects import duties and tariffs as part of its trade facilitation role.
ERS (External Revenue Service – Hypothetical)
- Primary Function: Proposed to replace the IRS and shift the tax burden from U.S. citizens to foreign entities through tariffs and fees on foreign trade.
- Focus: Revenue collection through tariffs and international trade.
- Operations: Would focus on imposing and collecting tariffs on imported goods.
- Revenue Collection: Relies primarily on tariffs and fees from foreign trade to generate government revenue.
Comparison
- Role in Trade: CBP plays a critical role in facilitating and securing international trade, while ERS would primarily focus on generating revenue through tariffs on trade.
- Scope: CBP has a broader scope, including border security, trade facilitation, and law enforcement, whereas ERS would be focused solely on revenue generation through tariffs.
- Impact on Consumers: CBP policies impact trade dynamics and security, whereas ERS would likely lead to higher prices for consumers due to increased tariffs on imported goods.
In conclusion, CBP engages in international initiatives and partnerships to enhance global trade security and efficiency. This includes working with organizations like the World Customs Organization (WCO) to develop and implement international customs standards. While CBP is a well-established agency with a multifaceted role in border security and trade, the hypothetical ERS would be a specialized entity focused on revenue collection through tariffs, which comes with its own set of challenges and implications.
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