President Donald Trump on Sunday indicated that his global tariffs might make it easier for him to decrease income taxes for those making less than $200,000 per year.
The president has suggested multiple times that imposing tariffs could eliminate the need for income taxes. He has often pointed to the fact that tariffs were the government’s primary income source.
In a post on Truth Social, Trump wrote:
When Tariffs cut in, many people’s Income Taxes will be substantially reduced, maybe even completely eliminated. Focus will be on people making less than $200,000 a year. Also, massive numbers of jobs are already being created, with new plants and factories currently being built or planned. It will be a BONANZA FOR AMERICA!!! THE EXTERNAL REVENUE SERVICE IS HAPPENING!!!
Trump’s tariffs have shaken up the global trade environment while eliciting concerns from those who fear a negative economic impact on American consumers, Bloomberg reported.
A CBS News poll released Sunday said 69% of Americans believe the Trump administration wasn’t focused enough on lowering prices. Approval of Trump’s handling of the economy in the poll declined to 42% compared with 51% in early March.
Trump wants to extend reductions in income taxes that were approved in 2017 during his first presidency, many of which are due to expire at the end of 2025. He also has proposed expanding tax breaks — including by exempting workers’ tips and social security earnings — while slashing the corporate tax rate to 15% from 21%.
Treasury Secretary Scott Bessent said the administration has “a process in place” to negotiate better trade deals with other nations during the 90-day pause Trump recently announced. “Some of those are moving along very well, especially with the Asian countries,” he said during an interview.
Before boarding Air Force One on his way back from Pope Francis’ funeral, Trump said, “We’re going to make a lot of money, and we’re going to cut taxes for the people of this country.”
It’ll take a little while before we do that, but we’re going to be cutting taxes, and it’s possible we’ll do a complete tax cut, because I think the tariffs will be enough to cut all of the income tax.
However, some have suggested that this plan can’t work. CNN’s David Goldman argued that plans to replace the income tax with tariffs “would be riddled with problems” and that “tariffs would need to be exceedingly high – significantly higher than the already historic levels at which the Trump administration has set them today.”
The federal government raises about $3 trillion a year from income taxes. The United States also happens to import around $3 trillion worth of goods annually. So that means tariffs would have to be at least 100% on all imported goods for the levies to replace income taxes, said Torsten Slok, chief economist at Apollo Global Management, in a note to investors.
The United States’ effective tariff rate now stands at 22.8%, according to Fitch Ratings. So to take the place of income taxes, tariffs would need to be more than four times higher than they are now — and America’s new tariff rate is already by far the highest of any developed country and has threatened to plunge the US and global economies into a recession.
But replacing all that tax revenue is not even as simple as doubling the price of everything that comes into America, Slok notes: As prices rise, demand trails off. That’s why America’s largest companies this earnings season have said that Trump’s trade policies are raising costs and leading consumers to spend less on practically everything — from airline tickets to burritos.
Still, the thought of ending income taxes sounds lovely. But not if they are simply going to be replaced by a worse tax in the form of tariffs.
Has anyone considered simply reducing the size and scope of the federal government? I’m sure many of us could go for that, right?
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