President-elect Donald Trump plans to create a new federal agency, the External Revenue Service, to collect tariff revenue despite creating an outside advisory group to look at ways to cut the federal government down to size.
Trump made the announcement on Truth Social, saying he wants to move away from taxing Americans.
“I am today announcing that I will create the EXTERNAL REVENUE SERVICE to collect our Tariffs, Duties, and all Revenue that come from Foreign sources,” the president-elect wrote. “We will begin charging those that make money off of us with Trade, and they will start paying, FINALLY, their fair share. January 20, 2025, will be the birth date of the External Revenue Service.”
Federal agencies, including the Congressional Budget Office, expect deficit spending to continue despite promises from Trump and others to cut the federal budget.
Trump promised to cut “hundreds of billions” in federal spending in 2025 through the reconciliation process, a parliamentary procedure that allows Congress to expedite the passage of some federal budget legislation.
Trump’s Department of Government Efficiency, run by Tesla boss Elon Musk and entrepreneur Vivek Ramaswamy, also promised to cut the federal government down to size.
Musk previously estimated DOGE could trim $1 trillion from the federal budget, a sizable amount considering discretionary spending totaled $1.7 trillion in 2023. Generally, Congress spends about half of its discretionary budget on the U.S. Department of Defense.
Trump said DOGE pave the way for his administration to “dismantle government bureaucracy, slash excess regulation, cut wasteful expenditures and restructure federal agencies.”
The U.S. Customs and Border Protection, which is overseen by the Department of Homeland Security, currently collects tariffs, which are paid by importers, not foreign companies. Importers are often able to pass the added costs to consumers, driving up prices.
Trump’s tariffs could generate $450 billion in revenue a year, according to adivsor and investor John Paulson. That estimate is in line with estimates from other groups. Just how much such tariffs would ultimately bring in depends on multiple factors, including how other nations respond to U.S. tariffs.
That makes it “highly uncertain,” according to credit-rating agency Moody’s.
“While such measures could raise several trillion dollars in revenue over the next decade, they could also lead to revenue losses from potential retaliatory actions from other countries and other economic losses,” Moody’s noted in a recent report. “Therefore, the net effect on future revenues and fiscal deficits from such measures is highly uncertain.”
On the campaign trail, Trump proposed imposing a 10% to 20% across-the-board tariff on all imports and tariffs up to 60% on China to help offset the costs of keeping the 2017 Tax Cuts and Jobs Act tax provision in place. After winning the election, Trump said he’d hit both Mexico and Canada with 25% tariffs and add another 10% to China’s bill on his first day in office. Trump said that those tariffs wouldn’t be eliminated until Mexico and Canada secure their borders and China stops the export of fentanyl precursors.
On Tuesday, Trump said tariffs should ease tax burdens on other Americans.
“For far too long, we have relied on taxing our Great People using the Internal Revenue Service (IRS),” Trump wrote on Truth Social. “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 previously said he couldn’t guarantee that his tariff plans will not raise prices for U.S. consumers.
Tariffs could raise prices for U.S. consumers and slow economic growth. S&P Global, a credit-rating agency, reported that Trump’s proposed tariffs could boost inflation by 1.8% and lower U.S. economic output by 1%, according to a post-election report.
