During a Thanksgiving video call with military service members, President Donald Trump introduced a prospective significant change to the United States tax structure. He proposed that tariff revenue might enable the government to substantially reduce or even abolish federal income taxes for a vast number of Americans.
On Thursday, President Trump spoke to troops, indicating that within "the next couple of years," the U.S. might see a "substantial" cut or total elimination of the federal income tax. However, the President did not offer specific details on how such a plan would be put into action or a precise timeline for the anticipated changes.
The proposed shift in tax policy would utilize revenues from tariffs in place of income lost from the reduction or discontinuation of federal income taxes. The President expressed his belief that tariff revenue would be sufficiently substantial to offset the loss from income taxes completely. He also mentioned a plan to distribute some of the tariff revenue as a dividend to American citizens and to allocate a portion toward reducing national debt.
This tax policy proposal is not President Trump's first venture into such significant reforms. In previous statements, he had hinted at a similar tax restructuring. For instance, in April, he announced that the introduction of tariffs could lead to a significant decrease in income taxes, potentially eliminating them for many. He drew historical parallels, referencing the 1890s when the U.S. relied solely on tariffs and had no income tax system.
The proposed overhaul, as suggested by President Trump, would mark a drastic change from the income tax system that has been a backbone of federal revenue collection for more than a century. Yet, experts in tax policy and economists have raised considerable doubts about the viability of such a plan.
Alex Durante from the Tax Foundation critiqued the proposal as not being a "realistic proposal," citing that the numbers simply do not add up. Economist Kimberly Clausing of the Peterson Institute for International Economics also voiced skepticism, pointing to the significant discrepancy between the potential tariff revenue and the amount currently collected through federal income taxes. She highlighted that while the U.S. imported goods worth $3.1 trillion in 2023, federal income tax was levied on over $20 trillion, revealing a $17 trillion gap that would be challenging to bridge with tariffs alone.
The discussion around President Trump's tariff-based tax plan continues, as analysts and the public alike assess the potential impacts and practicality of such a fundamental shift in tax policy.
