U.S. income tax relief: Can Trump’s tariffs really reduce income taxes for Americans who earn less than $200,000? Check details
“We will make a lot of money, and we will cut taxes for the people of this country,” Trump said. He returned from the funeral of Pope Francis before boarding Air Force One. “It will take some time before we do this, but we’re going to cut taxes and we’re likely to cut taxes because I think the tariffs are enough to reduce all income taxes.”
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Can Trump's tariffs reduce your income tax?
Time and again Trump has described his administration’s extensive tariffs on other countries, a tool to achieve a range of key economic goals, including restoring U.S. manufacturing. He also stressed that tariffs aim to reduce or even eliminate personal income taxes for most Americans.
“When tariffs are lowered, many people's income tax will be greatly reduced and can even be eliminated completely. The point is people who make less than $200,000 a year,” he wrote.
Currently, Congress has no tax bills. Congress is a department of the U.S. government that has the power to change the tax laws to eliminate income taxes for people who earn $200,000 or less. Nevertheless, the House is currently drafting a settlement bill that aims to expand the tax cuts under President Trump's 2017 Tax Cuts and Jobs Act. The bill also includes several new tax relief proposed during the campaign, including eliminating taxes that are prompted by employees.
If approved, the legislation would retain the existing personal income tax rate established in 2018, with brackets based on income levels ranging from 10% to 37%. As a result, the federal income tax rate for most Americans will not change.
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There is “no real connection” between Trump’s tariffs and lowering taxes, Erica York, vice president of federal tax policy at the Tax Foundation, told CBS News a think tank on tax issues “He has the right to impose higher tariffs, but he did. But he has no right to unilaterally cut income taxes – a reduction in income tax by Congress.”
She added that Congress would have “zero chances” to eliminate income taxes for a large U.S. population, because the new tariffs would not generate enough income to replace the $2.4 trillion in income tax paid by U.S. households each year.
Why can't tariffs replace income tax?
York told CBS News that even the concept of eliminating income taxes for people with less than $200,000 doesn’t add up. Here’s why: Trump’s tariffs could raise about $170 billion in revenue this year, while levying personal taxes for those who earn less than $200,000, which will give up $700 billion in tax revenue this year.
“You need to be multiple times higher than our current tariffs” to generate income to bridge the gap in lost taxes, York said. Mathematics work is “impossible”, she added.
And if taxes are actively hiking, this will escalate fears of a potential recession in the United States, which will lead to unemployment, curb consumer spending, curb commercial investment and further ROIL financial markets – all developments have reduced government tax revenue.
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Trump’s claim on lowering taxes falls under “a statement that if Americans pay more from their left pocket, the government will be able to put more right pockets in their right pocket.”
He added: “Even if you make math runs work, it is really replacing one form of tax with another tax, and another important point is that these taxes have a very different distribution effect on the type of income.”
