Customs duties: What do they amount to

Before the Civil War, the principal way the US federal government raised income was through customs duties, a.k.a. import tariffs. These duties were easy to implement, by simply imposing them on all incoming ships at US ports.

During the Civil War, sales and excise taxes were introduced to help defray wartime costs.

During World War I, income taxes were introduced to help defray those wartime costs. By then, technology had made it possible to raise taxes in a much more decentralized way.

After the Great Depression, the US government put considerable effort into reducing customs duties through bilateral or regional agreements and the United Nations-sponsored General Agreement on Tariffs and Trade (GATT), to avoid hurting economies with tariff rates that might be set too high (or set at all). Thus, the importance of customs duties as a source of revenue has decreased.

The FRED graph above shows quarterly federal government income from customs duties since 1959. Contrary to the comments above, the data seem to show strongly increasing revenue from customs duties. Why?

The graph above ignores two important pitfalls that can cause a long series of macroeconomic data to appear misleading: The US economy grew considerably over this time period, as did the general level of prices. To correct for both these factors, we can divide this series by another series that also increased with the economy and inflation. Total tax receipts of the federal government is a good choice, as it allows us to see the share of customs duties in those receipts.

The FRED graph below shows that, while customs duties are on the high side nowadays, they have never exceeded 4% of total tax revenue for the 1959-2024 period and typically make up only about 2%. Quite far from the nearly 100% share two centuries ago.

How these graphs were created: Search FRED for "customs duties" and you have the first graph. For the second, take the first, click on "Edit Graph," search for "Federal government tax receipts," and apply the formula a/b*100.

Suggested by Christian Zimmermann.