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Tariffs, Revenue, and Structural Change: A Comparative Historical Analysis of the Use of Tariffs to Replace Income Taxation in the USA

Mikkelsen, Paul LU (2025) EOSK12 20251
Department of Economic History
Abstract
This thesis investigates why tariffs, once the backbone of U.S. federal revenue, cannot replace income taxes as the primary revenue source in the modern American economy. Using a systematic literature review and secondary data analysis approach, the study contrasts the structural conditions of the pre-1913 tariff regime, characterized by a goods-dominated economy and minimal federal spending, with today’s service-driven, high-expenditure state. Drawing on Brownlee’s tax regimes framework and Rodrik’s political trilemma, as well as empirical data from the Bureau of Economic Analysis, Congressional Budget Office, and an analysis of econometric forecasting in the secondary literature, the study demonstrates that structural shifts, notably the... (More)
This thesis investigates why tariffs, once the backbone of U.S. federal revenue, cannot replace income taxes as the primary revenue source in the modern American economy. Using a systematic literature review and secondary data analysis approach, the study contrasts the structural conditions of the pre-1913 tariff regime, characterized by a goods-dominated economy and minimal federal spending, with today’s service-driven, high-expenditure state. Drawing on Brownlee’s tax regimes framework and Rodrik’s political trilemma, as well as empirical data from the Bureau of Economic Analysis, Congressional Budget Office, and an analysis of econometric forecasting in the secondary literature, the study demonstrates that structural shifts, notably the rise of services to 77% of GDP, expanded federal obligations, and heightened import elasticity have undermined the effectiveness of tariffs as a means to generate fiscal revenue, in a manner that makes any proposal to replace income tax with tariff revenue largely unfeasible. Even the most ambitious modern tariff proposals would create less than one-third of the revenue currently provided by income taxes, imposing regressive burdens and risking economic retaliation. The findings underscore that the “viability gap” is not a matter of policy design but a structural outcome of economic transformation. This research offers a replicable framework for evaluating fiscal populism and highlights the imperative for evidence-based tax policy in advanced economies. (Less)
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author
Mikkelsen, Paul LU
supervisor
organization
course
EOSK12 20251
year
type
M2 - Bachelor Degree
subject
keywords
tariffs, income tax, fiscal policy, structural change, U.S. economy, populism
language
English
id
9192163
date added to LUP
2025-06-03 09:43:34
date last changed
2025-06-03 09:43:34
@misc{9192163,
  abstract     = {{This thesis investigates why tariffs, once the backbone of U.S. federal revenue, cannot replace income taxes as the primary revenue source in the modern American economy. Using a systematic literature review and secondary data analysis approach, the study contrasts the structural conditions of the pre-1913 tariff regime, characterized by a goods-dominated economy and minimal federal spending, with today’s service-driven, high-expenditure state. Drawing on Brownlee’s tax regimes framework and Rodrik’s political trilemma, as well as empirical data from the Bureau of Economic Analysis, Congressional Budget Office, and an analysis of econometric forecasting in the secondary literature, the study demonstrates that structural shifts, notably the rise of services to 77% of GDP, expanded federal obligations, and heightened import elasticity have undermined the effectiveness of tariffs as a means to generate fiscal revenue, in a manner that makes any proposal to replace income tax with tariff revenue largely unfeasible. Even the most ambitious modern tariff proposals would create less than one-third of the revenue currently provided by income taxes, imposing regressive burdens and risking economic retaliation. The findings underscore that the “viability gap” is not a matter of policy design but a structural outcome of economic transformation. This research offers a replicable framework for evaluating fiscal populism and highlights the imperative for evidence-based tax policy in advanced economies.}},
  author       = {{Mikkelsen, Paul}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Tariffs, Revenue, and Structural Change: A Comparative Historical Analysis of the Use of Tariffs to Replace Income Taxation in the USA}},
  year         = {{2025}},
}