One of the nice things about tax policy is that it’s constrained by math. You can push any tax policy you want, but at some point the underlying math will win out.

So while Commerce Secretary Howard Lutnick might argue that we could replace our income tax with tariff receipts, the math says something else. Here’s The Spectator on the numbers:

…Americans reported $15 trillion in income in 2021, on which they paid $2.2 trillion in income taxes for an average tax rate of 14.9 percent. In the same year, goods imports were $2.8 trillion, generating $80 billion in revenue on an effective tax rate of 2.9 percent. The tariff rate would need to be much, much higher to replace lost income tax revenue, so high that it would easily destroy the import business upon which the taxes are collected.

Those “much higher” tariffs would need to be 60 or 70 percent of the imported good’s value. That’s not gonna happen.

An Alternative to Tariffs

What could happen, however, is an alternative to tariffs that encourages domestic production and job creation without punishing consumers. Border‑adjusted taxes (BATs) offer a smarter, fairer, and WTO‑compliant framework for trade reform.

A BAT exempts exports from tax while taxing imports—shifting the focus to where goods are consumed, not where they’re made. A recent Brookings analysis highlights why this framework is more appealing than traditional tariffs:

  • Revenue & Growth vs. Protectionism: Brookings estimates that implementing a symmetric 21% import tax and offsetting export subsidy could generate approximately $1.4 trillion over 10 years—while shrinking the trade deficit by nearly one-third and boosting GDP accordingly.
  • Economically & Legally Sound: A BAT aligns more closely with international norms and avoids the trade wars typical of tariffs. As Brookings puts it, pairing tariffs with export subsidies “would be justifiable under international trade rules, avoid costly trade wars, and limit effects on consumer prices and inflation.”
  • Targets Distorted Incentives: Even with the adoption of the TCJA, our tax system still rewards profit-shifting and offshoring. BAT flips the script. By taxing consumption, BAT would remove incentives to reallocate profits abroad. As they argue, “by subsidizing the full value of exports and taxing the full value of imports, these price manipulations no longer affect U.S. taxes.”

Brookings makes clear that a border-adjustment approach not only reduces economic distortions—it also avoids punishing businesses that both import and export. Roughly 84% of exporters also import, so a symmetric BAT would largely neutralize net financial burdens for them. A well-designed BAT “would reduce the trade gap, increase GDP, raise significant revenue, and make America the world’s best place to invest and build businesses.”

Past Debates

So the math on the BAT works out.  The politics do too. Tax policy folks might remember that a BAT was vigorously debated in the lead up to the Tax Cuts and Jobs Act. It was seen as a constructive means of raising revenue while eliminating incentives for off-shoring production activities and headquarters. If the tax depends on where you sell, there’s no incentive to move things off-shore.

The effort ultimately failed, however, in the face of fierce opposition from the retail industry. Confronted with no alternative taxes, they argued incorrectly that a BAT would raise prices on consumers and hurt their businesses.

Well, we now have a very clear idea of what the alternatives might look like. It’s high tariffs combined with the GILTI, the BEAT, and the FDII. These are real policies imposing real costs on industries and consumers right now.

The political equation here is simple: Which do you prefer? A balanced policy that encourages domestic investment and jobs while raising revenue for the Treasury, or a grab bag of complicated and expensive policies that result in higher prices on families and businesses alike?

Seems like a pretty easy choice.

Bottom Line

Tariffs are a blunt instrument loaded with unintended consequences. And while the recently-announced EU trade deal is a positive development, it doesn’t change the underlying instability of tariffs as a revenue source.

In contrast, a border-adjusted tax offers a systematic, trade-neutral, and legally defensible approach—designed to strengthen domestic production, restore growth, and align U.S. tax policy with global standards.

Both the math and the politics work out here. Adopting a BAT would reduce reliance on politically fraught tariffs, stabilize planning for businesses, and make the U.S. a pro-investment, pro-export economic environment. It’s time to dust off the old BAT debate and see how it looks in the new world of GILTI and high tariffs.