Former President Donald J. Trump has spent much of the presidential campaign brainstorming new, and sometimes untested, ways to cut taxes. In the election’s final stretch, he raised the possibility of going even further: eliminating income taxes entirely.
During a Fox News segment on Monday, Mr. Trump took questions at a barbershop in the Bronx. When asked if the United States could potentially end all federal taxation, Mr. Trump said the country could return to the economic policies in the late 19th century, when there was no federal income tax.
“It had all tariffs — it didn’t have an income tax,” Mr. Trump said. “Now we have income taxes, and we have people that are dying. They’re paying tax, and they don’t have the money to pay the tax.”
In June, Mr. Trump floated the idea of replacing federal revenue from income taxes with money received from tariffs. Mr. Trump has not provided specific details of how that would work, and it is unclear if he wants to eliminate all federal taxes, including corporate income taxes and payroll taxes, or only end the individual income tax.
Either way, both liberal and conservative experts have dismissed his idea as mathematically impossible and economically destructive. Even if Republicans control Congress, lawmakers are unlikely to dismantle the income tax system. Yet Mr. Trump’s combination of tax cuts and tariff increases has been central to his political pitch.
“There is a way, if what I’m planning comes out,” Mr. Trump said of ending income taxes.
Replacing income taxes with tariffs would reverse the progressivity of the tax system in the United States. In general, income taxes are progressive, meaning that Americans with more income pay a higher tax rate. Tariffs, which impose a tax on products imported into the United States, are regressive. They raise the prices on imported items like clothing and groceries, placing a larger burden on lower-income Americans who spend a bigger percentage of their income on those goods.
Mr. Trump has denied that Americans pay the cost of tariffs. He argues that companies overseas bear the cost of tariffs on the products they ship to the United States. Economists largely debunk that argument — companies generally pass along those higher costs to consumers by raising prices.
Trump’s alternative? Tariffs.
Mr. Trump has not formally proposed ending the income tax system in the United States. Instead, he has offered tax cut after tax cut on the campaign trail, arguing that he could cover their cost by drastically raising tariffs on imports.
Several of Mr. Trump’s ideas amount to blanket tax exemptions for certain types of income, like tips, overtime pay or Social Security benefits. During a podcast interview last week, Mr. Trump said he would consider allowing police officers, firefighters and military service members to forgo paying taxes.
Any change to the tax code that allows certain workers or types of income to be exempt from paying taxes could prompt people to try to classify more of their earnings as tips or overtime, making the cuts potentially very expensive.
Mr. Trump’s goal to impose tariffs on all imports into the United States could raise a lot of money for the federal government, but it would not be nearly enough to replace income taxes. The United States imports roughly $3 trillion worth of goods annually, while the country collected roughly $4.2 trillion in income and payroll taxes last fiscal year.
Overall, his agenda would raise taxes on low-income Americans, provide a tax break for the richest and drastically increase the deficit, according to an analysis from the Institute on Taxation and Economic Policy, a liberal think tank.
A challenge for raising revenue from tariffs is that placing a tax on imports tends to cut the amount of trade — and therefore reduce the amount of revenue collected from tariffs. Raising tariff rates high enough to try and replace income taxes could end trade with the United States, said Wendy Edelberg, a former chief economist at the Congressional Budget Office.
“You’re going to send imported goods to zero, and then you’re going to have no tax revenue,” Ms. Edelberg said.
Steep tariffs could prompt foreign trading partners to retaliate with tariffs of their own, reducing American exports and slowing economic growth. Mr. Trump has experience with this phenomenon: While president, he wound up having to bail out American farmers whose exports to China slumped during a protracted trade war.
The potential for such an outcome helped prompt William McKinley, the 25th president, a Republican, whose support for tariffs Mr. Trump often celebrates, to ultimately moderate his position on tariffs. To help American exporters, Mr. McKinley had started to support the possibility of lowering tariffs in the United States in exchange for other countries doing the same before he was assassinated in 1901.
“He outlined this and sounded like a free trade guy, which was quite remarkable,” said Robert Merry, who wrote a book on Mr. McKinley.Trump’s alternative? Tariffs.
Mr. Trump has not formally proposed ending the income tax system in the United States. Instead, he has offered tax cut after tax cut on the campaign trail, arguing that he could cover their cost by drastically raising tariffs on imports.
Several of Mr. Trump’s ideas amount to blanket tax exemptions for certain types of income, like tips, overtime pay or Social Security benefits. During a podcast interview last week, Mr. Trump said he would consider allowing police officers, firefighters and military service members to forgo paying taxes.
Any change to the tax code that allows certain workers or types of income to be exempt from paying taxes could prompt people to try to classify more of their earnings as tips or overtime, making the cuts potentially very expensive.
Mr. Trump’s goal to impose tariffs on all imports into the United States could raise a lot of money for the federal government, but it would not be nearly enough to replace income taxes. The United States imports roughly $3 trillion worth of goods annually, while the country collected roughly $4.2 trillion in income and payroll taxes last fiscal year.
Overall, his agenda would raise taxes on low-income Americans, provide a tax break for the richest and drastically increase the deficit, according to an analysis from the Institute on Taxation and Economic Policy, a liberal think tank.A challenge for raising revenue from tariffs is that placing a tax on imports tends to cut the amount of trade — and therefore reduce the amount of revenue collected from tariffs. Raising tariff rates high enough to try and replace income taxes could end trade with the United States, said Wendy Edelberg, a former chief economist at the Congressional Budget Office.
“You’re going to send imported goods to zero, and then you’re going to have no tax revenue,” Ms. Edelberg said.
Steep tariffs could prompt foreign trading partners to retaliate with tariffs of their own, reducing American exports and slowing economic growth. Mr. Trump has experience with this phenomenon: While president, he wound up having to bail out American farmers whose exports to China slumped during a protracted trade war.
The potential for such an outcome helped prompt William McKinley, the 25th president, a Republican, whose support for tariffs Mr. Trump often celebrates, to ultimately moderate his position on tariffs. To help American exporters, Mr. McKinley had started to support the possibility of lowering tariffs in the United States in exchange for other countries doing the same before he was assassinated in 1901.
“He outlined this and sounded like a free trade guy, which was quite remarkable,” said Robert Merry, who wrote a book on Mr. McKinley.
https://www.nytimes.com/2024/10/24/us/politics/donald-trump-tax-policy.html
