Everyone is aware of what the Internal Revenue Service does, especially when they file their tax returns, but what exactly is an External Revenue Service and how would this impact you?
Proposed Agency
An External Revenue Service would be responsible for collecting tariffs from foreign goods that are sold in the U.S. Tariffs are expected to increase significantly under the new President.
What is a Tariff?
A tariff is a tax that is paid by foreign companies and countries that sell goods in the U.S. It can be based upon weight, volume or a percentage of the price. Tariffs have been around for a long time and the United States passed its first tariff legislation called The Tariff Act of 1789 centuries ago.
Do We Currently Have Tariffs?
Yes, we currently have tariffs, but they have decreased significantly over the years. According to the Congressional Research Service update on December 19, 2024, over the last 70 years, tariffs have never accounted for much more than 2% of federal revenue. During 2024, $77 billion in tariffs were collected, which accounted for approximately 1.57% of total federal revenue.
Who Collects Tariffs Now?
The U.S. Customs and Border Protection administers and collects tariffs.
How Will This Impact You?
We will see how this will plays out, especially due to the law of unintended consequences. Here are potential outcomes:
- Increased cost of imported goods subject to tariffs
- Lowered individual and/or corporate taxes if the tariffs offset federal revenues enough
- Incentive for more domestic manufacturing
Another way of figuring out the impact of legislation is to see if there are examples from the past and what the outcome was. President McKinley had very high tariffs and the economy saw rapid growth during that time. Times are different now, but we will see what happens.
Fun Fact
According to fiscaldata.treasury.gov, from 1868 until 1913, 90% of all federal revenue came from taxes on liquor, beer, wine, and tobacco. 1913 was the infamous year of the 16th amendment, when Federal income tax started.
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