Trump Wants To Eliminate Income Taxes: Here's What That Would Mean for the Economy and Your Wallet
By: Yahoo Finance
S E E D E D C O N T E N T
During his 2024 presidential campaign, President-elect Donald Trump suggested that he is considering instituting a policy of tariffs that would lead to the elimination of the federal income tax.
While the idea of eliminating income taxes sounds appealing to a lot of people, here's what it would mean for the economy and your wallet.
How Tariffs Work
A tariff is a tax that is levied on imported goods. It is typically used to increase the cost of foreign-made products, particularly those that come from countries that have significantly lower labor and materials costs, or those who allow unfair trade practices.
The effect of a tariff is to level the playing field for domestic companies who keep jobs local and are subject to the labor laws of the United States. Tariffs are paid to the U.S. government before foreign goods can be brought into the country.
The additional cost incurred by the foreign manufacturer would then be passed on to the consumer in the form of a higher retail price. During Trump's presidential term, he used tariffs to increase the cost of goods made in China, so that American goods could be priced more competitively.
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The Impact of an All-Tariff Plan
If all imported products coming in to the United States had increased tariffs, there would be short-term and long-term impacts. The short-term impact would be that prices would rise on all imported goods. Consumers could opt to either pay the higher price for the imported product or choose a domestic product, which would also typically have a higher price than the pre-tariff imported product. No matter which choice the consumer makes, the price they would pay would be higher than the previous price of the imported product. So overall prices will rise.
The longer-term effect would be a reduction in the quantity of foreign goods imported into the United States. The law of supply and demand tells us that when prices go up, demand goes down and this, after all, is the goal of the tariff — to reduce imports. There will be fewer imported goods available in the United States, which could also drive up prices overall.
The Impact of Substituting Tariffs for Income Taxes
The concept of replacing income taxes with the revenue from tariffs also has short- and long-term impacts. In the short term, the 'all-tariff' plan would act as a consumption tax — a sales tax on steroids, if you will. Because the cost of a tariff is passed on to the consumer, and consumer prices will go up, consumers are paying more for everything they buy.
This type of consumption tax affects lower-income consumers on a disproportionate basis. People who spend a higher percentage of their income on necessities — housing, utilities, food, clothing, etc. — would pay a higher amount in tariffs, relatively speaking. Those who spend less on necessities, or who earn income from investments, would pay less.
On a longer-term basis, the intended effect of a tariff is to reduce the amount of imported goods. So, the all-tariff plan might eliminate the need for income taxes in the short term, but if it works as intended, it should bring in less money over time. The current income tax system in the U.S. is designed to bring in more money over time, as incomes rise.
Keeping Up With the Joneses Under an All-Tariff System
Tax-weary consumers might think that replacing income tax with tariffs would be a good thing for them. The truth is, it will benefit the wealthy far more than the lower and middle classes.
Here's an example. Two families, the Smiths and the Joneses, each have the same monthly necessary expenses, except for their mortgages, of $6250, which adds up to $75,000 a year. (We'll exclude their housing costs from this exercise, since housing wouldn't be affected by a tariff.) The Smiths have an annual income of $150,000, which barely covers their expenses. The Joneses, on the other hand, have an annual income of $300,000, which allows them to easily cover expenses and put some money into savings. So, the Smiths are paying a higher percentage of their income on necessities.
Under a tariff only plan, each family would pay the same amount — they have equal monthly expenses excluding housing, so the increase they would see from tariffs would be the same. Yet the Joneses have double the annual income of the Smiths.
Under the current progressive income tax system in the United States, a family earning $300,000 per year would pay more than a family making $150,000 a year. Replacing the income tax system with a tariffs-only system turns this on its head and shifts the burden from higher-earning households to those that earn less.
As appealing as eliminating federal income taxes might sound to middle- and lower-income taxpayers, an all-tariff system would benefit the wealthy to a far greater degree.
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The pros should know this and have warded against letting it get this far. . .even through elections. All these damn set-backs to society simply because of (some billionaire) greed and a large amount of ignorant, selfish, and disaffected voters! It's disgusting on a basis level. Back to reinventing the 'wheel.'
Trump made all sorts of outrageous claims during the campaign because he accurately gauged that the electorate would respond favorably to his comforting lies.
As is true for all con-men, Trump tells people what they want to hear so that they will do what he wants. Well, they did; they stupidly voted the prick into office. At this point, Trump has no need for all those people who believe Trump cares about them.
@realDonaldTrump · January 6, 2025, 7:24 AM
Original Post
“Had this election not been won by Donald Trump, civilization would be lost.”
Elon Musk
Lunacy
Civilization loss for whom? Can't he just purchase some civilization in his neck of the world? Where does Musk 'homestead' anyway?
BTW, what did we have before Trump won. . . "chop-liver' as a national and world COMMUNITY? /s
"Trump Wants..." What Trump wants and what he can achieve seem to be at odds.
Well spotted.
Although you probably shouldn't say things like this, even when they're obviously true. The folks who live in constant anxiety over everything Trump get pretty nasty at the suggestion he's all talk.
Nope. Can you raise some revenue with a tariff? Sure, but all the tariffs you can imagine will not replace the income tax. There just aren't enough imported goods.
The total value of goods and services imported into the US in 2023 was a little under $4 trillion . Total personal income for the same year was about $23 trillion . It's not even close. You'd have to put an impossibly high tariff on basically everything, and doing so would just end international trade, whereupon all tariff revenue would evaporate.
True. And that's not what they're for anyway. Tariffs exist primarily to protect domestic businesses and jobs by making foreign competition less competitive.
No taxes will a yuge gift to multi millionaires and billionaires, his friends. The rest of us not so much.
There is no way this would work in the real world, so it's silly to even consider it
The Leftists always clamor to raise taxes on the "rich" and corporations. Of course, these taxes are passed onto the middlemen and the ultimate consumer in the form of higher prices. They also want to tax the net worth of the well to do, and even want to tax unrealized capital gains
Is it your belief that lowering taxes for 'the rich' will result in lower consumer prices?
Yeah, let's just join the 'league' of nations which have 'fat cats' or as some conservatives call them, "elites" sitting around in their palatial palaces issuing orders to the rank and file in this country. Another time remembers "robber barons." Whom devised unscrupulous ways (schemes) to separate the poor, uneducated, masses out of a respectable living and called themselves "generous' for having done so. Remember at time in this country when life was simple and ole so dreary.
BTW, just how much wealth does an "Musk" - figure need to live one life-time 'completely'? Oh yeah, let's let him, alone, have one trillion dollars plus! Surely he will know what to do with it. The fallacy of not taxing the rich is obvious, as sooner or later, someone will find a way (somehow) to get the money. . .or worse—.
Where did he suggest that?
Partly. Taxes on corporations could well be passed on to consumers, though not necessarily in all cases.
But it generally should not be the case that taxing the income of an individual person would be passed on to anyone. There are plenty of people who legally are their business, but most wealthy people don’t operate this way.
Regardless of the details, this notion that we dare not tax the wealthiest individuals any more than we do needs to be recognized as nonsense.
Fair point.
And.... the notion that taxing the wealthiest individuals more heavily makes a meaningful difference toward balancing our budget also needs to be recognized as nonsense.
I think it has more utility than that. If all you wanted to do was balance the budget, raising taxes would help, but you’d also need to cut some spending.
However, higher taxes on the wealthy could enhance programs that benefit the poor. If poorer people struggle less with food, medicine, or education, they could perhaps contribute more meaningfully to the larger economy. This could partly be through their own consumerism, but their improved health or education could also contribute to GDP in ways that would lift all boats.
Much of the great wealth of our richest people is currently working only to maintain the wealth of those people. It could be put to more productive use that could benefit the whole country.
Yes. But you're going to need to raise them on everybody. And it's really about the spending. It's just out of control.
In theory, yes. I'm not sure it works outside the lab, though.
In order for that to work, we would have to do two things we have never been able to do. First, we have to spend the money with some reasonable level of efficiency and accountability.
Second, and here is the big one, we have to get the poor to change behavior. That's not to say they're poor by choice, but we can't ignore the fact that many of the choices they make are contributors to their poverty.
Well, it is theirs. I'm sure much of your wealth is currently working on your behalf, too.
As Bernie and AOC keep telling us. But at some point, the rest of the country needs to start benefiting itself. At what point do we stop pouring money into the same black hole and expecting results to change?
Let's not forget the inevitable 'mission creep' that goes along with such ideas. Today it's those whose net worth is greater than $100 million, then that level gets reduced until a family-owned farm whose value is $20 million has to sell land in order to pay those taxes.
And isn't it double taxation in a sense? If your net worth is $100 million and you pay the tax on that unrealized capital gain, and the next year your net worth is again $100 million do you have to pay that tax again even though your net worth has not gone up? What happens if your net worth decreases to $90 million? Do you get a refund on the loss?
Yep, continue to shout out about taxing the rich without any real explanation of how it all works. It stirs up the base but doesn't really show a workable plan.
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As the world "spirits" toward its first living and breathing Trillionaire, I have a question (for anybody or just rhetorical) at what point does excessive wealth (more than one needs to meet personal needs/99.99 percent of whims) become a "menace to society, and even to the world"?
Note: People 'excoriate' George Soros everyday for his use of his monies to fund causes. He is not the richest man in the world!
This preeminent country will rue the day it allowed billionaires to 'master' it and become a ruling class with law unto itself. After they BAND TOGETHER at the top and the misery outflows beneath them in the form of SERVITUDE - kiss freedoms, rights, and privileges out. Technically, we won't have a king (of the United States. . . but in practice it will like such and whose to say we can't have a KING of the World)? As such is not too far-fetched for countries that have never known anything but servitude to one man! (For surely it will be a man!)
Playing with fire!