Key Takeaways
With less than a week to go until inauguration day, Donald Trump has announced plans to create a new government agency, the External Revenue Service (ERS), set to launch on Jan. 20, 2025.
The new agency signals a significant shift in U.S. tax policy that relocates the focus of government revenue collection from internal to external sources.
From a historical perspective, it marks the death of a free trade ideology that has predominated in Western economies since the 1980s.
Outlining his protectionist economic agenda ahead of next week’s inauguration, Trump posted on Truth Social that “for far too long, we have relied on taxing our Great People using the Internal Revenue Service (IRS) […] It is time for that to change.”
Taking aim at “soft and pathetically weak” trade agreements, he argued that decades of liberal trade policy had benefited other countries but failed to deliver a good deal for Americans.
Once he takes office on Jan. 20, “we will begin charging those that make money off of us with Trade, and they will start paying, FINALLY, their fair share,” Trump added.
While proponents of Trump’s tariffs tend to depict them as an alternative to taxes, critics argue that they are essentially a tax on imports that will ultimately drive up prices.
Commenting on Trump’s ERS plan, Senator Ron Wyden, the top Democrat on the Senate Finance Committee, said : “No amount of silly rebranding will hide the fact that Trump is planning a multi-trillion-dollar tax hike on American families and small businesses.”
Pulling off what will likely be the biggest overhaul of American economic policy so far this century will inevitably require a delicate balancing act.
If tariffs are hit too hard and are not met with equivalent tax cuts to ease the burden of rising prices, the consequences for consumers could be dire.
Ultimately, the effect on individual Americans’ financial circumstances will vary depending on their tax liabilities and spending habits.
The creation of the ERS acknowledges that existing agencies may not be best equipped to implement Trump’s proposed tariff regime.
Nevertheless, the new agency could face territorial disputes with the IRS and U.S. Customs and Border Protection (CBP), which currently handle the collection of tariffs and taxes.
For now, details on how the ERS will operate in relation to these agencies remain unclear.
Finally, Trump’s promise to form the new body on his first day in office also faces obstacles. Only Congress has the authority to create new government departments.
While it has temporarily extended that power to the White House on a handful of occasions in the past, doing so would require congressional action.