Trump proposes abolishing the federal income tax, outlining its potential implications.
With Election Day approaching, Trump discussed his plan to abolish the federal income tax in two significant interviews this week, drawing on the late 19th century when the U.S. primarily relied on tariffs to fund government expenditures. Trump has promised to instate widespread tariffs, asserting that they can yield trillions in revenue.
In an interview on Fox News' segment with barbers in the Bronx, New York, on Monday, Trump mentioned, "There's a way if what I'm planning happens."
"Back in the 1890s, when the country was in its wealthiest state, it was all tariffs, no income tax," Trump said in response to a barber's question about the possibility of eliminating the income tax. "Now we have income taxes, and people are suffering, they're paying taxes they can't afford."
A few days later, during his interview on "The Joe Rogan Experience" podcasters, Trump confirmed his intentions for replacing federal income taxes with tariffs.
"Yeah, why not?" Trump replied when asked by Rogan whether he was serious about the switch.
Although Trump suggested ending the federal income tax in June, he has not clarified whether he would eliminate all corporate and payroll taxes or just the individual income tax.
Federal revenue from tariffs accounts for approximately 2%, whereas revenues from federal income taxes make up nearly half of the $5 trillion collected by the government annually.
Trump's long-term objective of eliminating the income tax could be considered an "aspirational goal," according to Jason Miller, Trump's senior adviser, who spoke with reporters on Saturday. Miller added that Trump's foremost priorities would be protecting the provisions of his 2017 Tax Cuts and Jobs Act and implementing targeted tax cuts.
'Mathematically impossible'
Trump's push for widespread tariffs forms a fundamental aspect of his economic strategy for a second term, should he be elected. He has proposed an across-the-board tariff of either 10% or 20% for all imports into the U.S., as well as a tariff exceeding 60% on all Chinese imports.
Trump claims that tariffs, which he implemented to a lesser extent during his first term, would finance his costly range of proposals. He has made assertions that foreign countries will bear the costs of the tariffs rather than American consumers.
However, many federal budget experts have refuted the notion that tariffs could replace income taxes.
"It's an absurd idea for multiple reasons, with the most significant being that it is mathematically impossible to replace income taxes with tariffs," Erica York, senior economist and research director at the right-leaning Tax Foundation, told CNN. "Imports are a smaller tax base than taxable income, and there's no way to extract enough revenue from taxing imports to fully replace taxing income. Implementing a swap like this would increase taxes on working-class taxpayers and invite retaliatory measures against U.S. exports."
Increasing tariffs would likely prompt a decrease in imported goods purchases, counteracting some of the expected revenues, as stated by Brian Riedl, a senior fellow at the right-leaning Manhattan Institute, in his interview with CNN.
"At first glance, fully replacing $2.4 trillion in income taxes would require a 75% tariff on America's $3.2 trillion in annual imports. However, even that optimistically assumes that Americans continue purchasing the same imports at nearly double the price," said Riedl.
Additionally, Trump needed to allocate part of the revenues generated from the tariffs he imposed during his first term to support industries, including agriculture, that suffered from retaliatory actions by other nations, as mentioned by Riedl.
"Consequently, even the new revenues from Trump's next round of tariffs may not significantly reduce the budget deficit," he continued.
In the ongoing political discourse, Trump's proposal to replace federal income taxes with tariffs has sparked debates among economic experts. Erica York, a senior economist from the right-leaning Tax Foundation, categorically stated, "It's an absurd idea for multiple reasons, with the most significant being that it is mathematically impossible to replace income taxes with tariffs."
