Trump says he may cut or even abolish income tax in the US, leveraging revenue from tariffs to sustain government funding
🔔 What Trump Is Proposing
- Trump stated on November 27, 2025 that revenue from tariff income might soon be large enough to allow for a complete cut of federal income taxes — asserting tariffs could replace the revenue previously collected from personal income tax.
- In earlier proposals (2025), there were discussions about eliminating federal income taxes for individuals earning below certain thresholds (e.g. under US$150,000 per year)
- Alongside this, other tax-reform ideas under discussion include removing taxes on bonuses such as tips and overtime pay, and reducing tax burdens on seniors
📄 The Tax Landscape Before the Proposal
- Under existing law, individual income tax in the US operates through multiple marginal tax brackets (from 10 % up to 37 %)
- In 2025, Congress passed and the president signed One Big Beautiful Bill Act (OBBBA), which extended and adjusted many tax provisions — including increased standard deductions and other deductions/credits — but it did not abolish income tax.
- As of now, the tax system collects income tax as its main revenue source; replacing that with tariffs alone would represent a major structural shift.
📊 What Could Happen If Income Tax Is Removed
If income tax were abolished nationwide:
- A large portion of American households — especially middle- and lower-income — might see their take-home pay increase substantially. Proposals aimed at lower- and middle-income earners may remove their tax liability entirely
- But it also means the government must find alternate revenue sources to fund public services. Trump argues tariffs could provide enough revenue — but critics question whether tariffs can cover the vast revenue currently generated by income taxes
- According to think-tank estimates, eliminating income taxes for a large income group could reduce federal revenue by tens of trillions over years, complicating funding for social programs, defense, and infrastructure.
🔎 Why This Proposal Matters — And Why It’s Controversial
This proposal matters because it touches on the core of U.S. fiscal policy: how to fund the federal government.
Potential benefits:
- Higher disposable income for many Americans.
- Simplification of tax code for many households (especially those previously filing returns).
- Possible boost to consumer spending — if people keep more of their income.
Major concerns:
- Risk of large budget deficits if alternative revenues (tariffs) fall short.
- Tariffs may raise costs for consumers on imported goods — shifting burden from taxpayers to buyers.
- Dependence on trade revenues could make federal budgets volatile and tied to global trade dynamics.
🧭 What’s Next: What Needs to Happen Before Income Tax Is Removed
- Any move to abolish income tax must pass through the U.S. Congress. As of today, no law has replaced income tax with a tariff-funded budget.
- Detailed economic modeling is required to understand long-term impacts: revenue forecasts, inflation effects from tariffs, burden on lower-income vs higher-income groups.
- Public debate and political negotiations — such a sweeping change will face resistance, especially from those concerned about social safety nets, inequality, and fiscal stability.
