In a move that could redefine the United States' approach to international trade, President-elect Donald Trump announced plans to create the Foreign Exchange and Revenue Service (ERS) on his first day in office. President Trump unveiled the proposal on his social media platform Truth Social, describing it as a mechanism to “collect tariffs, tariffs, all the revenue that comes from foreign sources.”
In parallel, a group of House Republicans introduced the Fair Tax Act of 2025, a sweeping proposal aimed at abolishing the Internal Revenue Service (IRS) and replacing the current federal tax code with a national sales tax.
ERS: “Taxing others”
In his post, President Trump suggested that ERS would mean a shift away from domestic taxation as the federal government's main source of revenue, in favor of revenue from foreign trade.
“For too long, we have used the Internal Revenue Service (IRS) to tax great people,” Trump wrote. “The American economy has provided growth and prosperity to the world while taxing ourselves. It's time for that to change.”
During an appearance on the Joe Rogan Podcast last October, President Trump spoke about the idea that other countries are “paying a heavy price” for “taking American jobs.” He cited President William McKinley's tariffs as a potential model.
President Trump's vision for tariffs
Tariffs are a central theme of President Trump's economic platform. During his campaign, he proposed imposing tariffs of up to 100% on Chinese goods. “If it doesn't work out, I'll give it 200 percent. I don't care,” President Trump said at one point.
Other countries would face tariffs of 10 to 20 percent, the candidate said at the time.
As The New American reported, after his election, President Trump threatened to raise tariffs on Canada and Mexico to address immigration and drug trafficking concerns. He also promised to impose 100% tariffs on products from BRICS countries unless they promise not to refrain from creating currencies comparable to the US dollar.
The idea of using tariffs as a primary source of revenue is not new. This harkens back to the pre-20th century era, when tariffs were a large part of the federal budget. President Trump's vision, as maintained by his former adviser Steve Bannon, is consistent with this historical approach. Bannon reiterated his position on Tuesday, according to Politico.
immediate impact
However, the economic impact of such tariffs is debatable. A study of the tariffs imposed during President Trump's first term found that they increased consumer prices. Tariffs have also increased costs for U.S. companies. Most of the costs were passed on to domestic companies, as higher import costs affected manufacturers that rely on Chinese parts.
In addition, retaliatory tariffs from trading partners further disrupted supply chains and global trade. For example, China has targeted U.S. agricultural products. This has left U.S. farmers without access to markets, forcing some to rely on government subsidies to make up for their losses. Similarly, the European Union imposed tariffs on products such as motorcycles, blue jeans, bourbon, and orange juice, directly impacting U.S. manufacturers and producers.
“Tariffs are taxes on Americans (not China or anyone else),” former congressman and principled constitutional scholar Ron Paul warned in October, advocating for free trade to promote economic growth. .
Overall, to ensure that tariffs benefit the domestic economy, policymakers need to pair them with measures that support local industry and consumers. Investing in domestic production, workforce training and innovation can strengthen competitiveness and reduce dependence on imports. Complementary trade agreements, supply chain diversification and export incentives can offset disruptions while stabilizing trade balances.
Constitutionality of ERS
The creation of the ERS proposed by President Trump raises serious constitutional issues. Under the U.S. Constitution, the power to impose and collect taxes, duties, and duties is vested in Congress. Article I, Section 8 expressly grants Congress the power to “impose and collect taxes, duties, imposts, and excises” and to regulate commerce with foreign countries.
To create a new federal agency like ERS, President Trump would need approval from Congress. This poses a challenge, as previous attempts to change trade policy or reorganize federal revenue mechanisms (see here and here) have provoked intense debate and partisan divisions. If President Trump establishes such an agency in defiance of Congress, it could face judicial scrutiny for potentially violating the separation of powers.
Additionally, ERS could overlap with the existing responsibilities of U.S. Customs and Border Protection (CBP), which is already tasked with collecting tariffs and enforcing trade laws. The creation of new government agencies can lead to redundancy and inefficiency and may violate the Constitution's limited government principles.
The constitutionality of the ERS will undoubtedly become a central issue as the proposal moves forward, with debate expected to question the limits of executive and legislative power.
abolish the IRS
As the president-elect teases the launch of an ambitious tax and trade policy, the Fair Tax Act of 2025 has emerged as a parallel effort by Republican lawmakers to transform the federal tax system. The proposal is in line with President Trump's insistence on reducing reliance on domestic income taxes.
The Fair Tax Act, introduced by Rep. Buddy Carter (R-Ga.) last Thursday, seeks to abolish the Internal Revenue Service (IRS). It would also replace personal and corporate income, payroll, inheritance, and gift taxes with a national sales tax. This “fair tax” would function as a 23 percent national sales tax starting in 2027.
Revenues from the sales tax would support general government functions, Social Security, and the Health Care Trust Fund. Proponents argue that the system would simplify tax collection, eliminate the Internal Revenue Service, and encourage savings and investment, according to an analysis conducted by Money Crushers. Critics counter that the tax could disproportionately burden low-income households because they spend a higher percentage of their income on taxable goods and services. They also express concern that high sales tax rates encourage tax evasion, such as cross-border purchases and underreported transactions.
The proposal comes as the IRS faces a growing number of challenges. These include cuts to enforcement funding, an expected change in leadership under the Trump administration, and Republican efforts to defund the IRS' Direct File program.
Although the concept of a fair tax has been introduced periodically since the 1990s, its chances of becoming law remain uncertain and depend on the political climate under the new administration.
