In politics, daydreams often fill the space where financial realities should hold sway. For instance, the left has frequently claimed that significant new spending programs could be funded “if only the rich paid their fair share.”

Now, President Trump’s Republican Party is touting its own fiscal fantasy, asserting that “Tariffs can replace the income tax.”

Both notions are equally untrue. However, the latter idea gives some anti-tax Republicans a guise to back tax increases that could bring economic disaster.

The federal government spends a substantial amount of money; around $6.8 trillion last year. It’s impracticable to fund such a massive government merely through taxes on a small section of Americans – not the affluent, not corporations, and certainly not foreign importers. But few in Washington are willing to be honest with voters about this. It’s simpler to sell financial fairy tales.

Let’s begin with the blunders regarding tariffs.

President Trump has often proposed the replacement of income tax with revenue from tariffs. Most recently, he proposed eliminating taxes for individuals earning less than $200,000.

Substituting the income tax entirely would necessitate raising approximately $2.2 trillion through tariff revenue (equivalent to the income taxes paid by Americans in 2023). Covering those under $200,000 would need $700 billion.

In 2023, the U.S. imported goods worth about $2.8 trillion. Hence, in basic terms, an 80 percent tariff would be required to replace the income tax. This is over three times the applied tariff rate under Trump’s announced tariffs, as of April 18, presuming people’s behavior remains constant, which it doesn’t.

However, trade volumes decline as tariff rates increase due to domestic substitution, rerouting through non-tariff channels, and retaliatory actions from other nations. This situation forms the foundation for the Laffer Curve, which indicates that raising tax rates leads to progressively damaging economic consequences, legal evasion, and illegal avoidance until, at a certain point, a higher tax or tariff rate results in less revenue instead of more.

There is uncertainty about where the tariff Laffer Curve reaches its maximum. While two professors estimated the most optimistic revenue potential from tariffs to be around $500 billion a year, Trump’s tariffs to date would collect less than a third of that amount.

Therefore, there is no economically viable scenario where tariffs can replace the current income tax or even the income taxes paid by those earning less than $200,000.

The same goes for the left’s “tax on the rich” mantra. It stems from a similar financial confusion that will likely shape Democrats’ arguments in the future.

For instance, a 100 percent tax seizing every dollar earned over half a million would not cover the present federal budget deficits, let alone increased spending proposed by liberals. Like the basic tariff example, a 100 percent income tax rate is economically unfeasible. Even taking local tax burdens into account, top income tax rates around 50 percent are already producing lower revenue in 10 states.

What about a wealth tax in conjunction with an income tax? Kamala Harris’ suggested wealth tax, presumed to make a return when Democrats regain power, is optimistically predicted to cover around 3 percent of the projected federal budget deficit.

Politicians aren’t inclined to inform voters that maintaining a large government is costly. The only viable way to finance it is through high taxes on all – rich, middle-class, and poor alike.

Europe serves as a model. Recent tax rate data across Europe and the U.S. indicates that an average American worker, residing in Europe, would be paying about $12,000 more in taxes yearly, irrespective of wealth, social standing, or family size. No other country has managed to support high government spending without broad-based taxes on everyone. Europe does this through an average 20 percent value-added tax, higher payroll taxes, and greater income taxes reaching deeper incomes.

In the U.S., the Feds borrow around $2 trillion annually to maintain high spending, while keeping taxes low. If this spending trend continues, the U.S. government will eventually grow to match European governments in size, demanding European-style taxes.

To remain competitive, the U.S. must keep taxes low, which necessitates significant spending cuts – the same reductions that politicians from all sides confidently declare are “off-limits.”

Genuine reform in Social Security, Medicare, and Medicaid is paramount. The U.S. Treasury reports that just two such programs (Social Security and Medicare) account for over 100 percent of the government’s future unfunded obligations.

Neither import taxes nor taxes on specific American groups can rectify the federal budget’s issues. Only spending reforms can correct the course.

Once, conservatives rightly ridiculed slogans like “tax the rich” as impractical and unsustainable. But now, they are propagating fantasies of their own.

Adam N. Michel serves as the director of tax policy studies at the Cato Institute.