Trump Income Tax Plan 2025: Americans don’t have income tax? That’s what Donald Trump calls the plan and how he plans to do
It’s an amazing promise: no longer provide income taxes to Americans, just higher taxes on imported goods. But can it actually work? According to economists, the numbers tell a different story.
Can tariffs generate enough income to eliminate income tax?
President Trump’s claim depends on the belief that the government can raise enough money from tariffs (tax on imported goods) to replace what it collects from income tax. His former adviser Peter Navarro estimates that tariffs could bring as much as $6 trillion over the next decade, or about $600 billion a year.
But the number of Yale budget labs is much lower: about $2.4 trillion in a decade.
This is a big gap, and these two numbers are still not needed. According to the Congressional Budget Office, the federal government has earned more than $2 trillion in revenue from personal income tax in one year.
“A complete replacement is absolutely impossible. Mathematics does not work,” Erica York of the Tax Foundation, a central policy think tank, said.
Why is the income tax base much larger than the tariff?
One of the key issues is the size of the tax base. IRS data shows that in 2022, U.S. taxpayers reported nearly $15 trillion in adjusted gross revenue. By contrast, the United States imported only about $3 trillion in goods back then, a smaller asset from which tax revenues could be obtained.
As Keith Maskus, professor emeritus of economics at the University of Colorado Boulder University, explains “If you get tariffs from everywhere, you’ll get income. However, it’s not big enough.”
Who really pays the tariffs – foreign or Americans?
President Trump often argues that foreign countries pay tariffs, but that is not how it works in practice. Tariffs are paid by U.S. importers (usually U.S. companies) who usually pass these fees on to consumers at higher prices.
This means that every day Americans feel the impact on the checkout line.
There is another gain: When tariffs rise, imports usually fall. This reduces the amount of goods taxed and weakens the overall income rather than strengthens it.
“The more you raise your tariffs, the more you drive down the tax rate” Kimberly Clausing, a senior researcher at the Peterson Institute for International Economics, said.
Has the United States provided funds to the government through tariffs in the past?
Trump pointed out that the pre-income tax era (before 1913) was a role model. Tariff revenue at that time accounted for 40 to 60% of federal revenue, according to a 2024 White House Economic Advisory Board report.
He told Fox Noticias, “That was the time when our country was relatively richest. We were the richest.”
But the context is important. The U.S. government at that time did not provide medical insurance, social security or modern military programs. Public expectations and expenditure demand have been greatly reduced.
As Ernie Tedeschi of Yale University said “People expect from government is much bigger and much bigger than 150 years ago.”
Can Trump eliminate income taxes for people with incomes below $150,000?
In a more targeted approach, Commerce Secretary Howard Lutnick said President Trump wants to eliminate income taxes for people who make less than $150,000.
This is a politically popular idea, but not without consequences. Most low-income families already pay little or no federal income tax. According to Urban-Brookings Tax Policy Center, about 12% of the lowest income earners in 2023 were paid federal income tax. In fact, many people actually get more money through tax credits.
If tariffs are used to replace these credits, it may backfire. That’s because low-income households will have a larger share of income and will become more expensive under higher tariffs.
“You’re going to make a lot of people worse than they are now.” York warns.
How to replace income tax with national sales tax?
Some conservatives have pushed for consumption-based taxes rather than income taxes. In 2023, a group of House Republicans proposed replacing most federal taxes with state sales tax. This effort has not moved forward.
Still, the idea continues to exist in the 2025 project – a policy blueprint supported by many on the right.
Economists say a well-designed excise tax can increase savings and investment. But critics believe that unless it is a major exemption or rebate for low-income families, it is back.
York explained, “You need to design in a way that protects low-income taxpayers and middle-income taxpayers.”
Can tariffs at least help fund Trump’s wider tax cuts?
Even if tariffs cannot directly replace income taxes, they can still play a role in Trump’s broader tax agenda.
President Trump’s goal is to expand the 2017 tax cuts and employment bill and introduce new tax breaks such as exemption tips, overtime pay and Social Security benefits.
The proposals could cost between $5 trillion and $112 trillion over the next 10 years, according to data from the committee responsible for the federal budget.
Tariffs may help fill a part of this gap, but experts say they aren’t enough to cover the full cost.
Debris estimates that tariffs can replace up to 40% of income tax revenue and only if they are set high enough to trigger the risk of a recession.
Is Trump’s income-free tax plan possible – or a political speech?
President Trump’s vision of replacing income tax with tariff income becomes a strong message: Americans have less taxes and are under greater pressure abroad. But in reality, the numbers suggest that this is not a practical solution.
Tariff revenue, even in its highest estimate, is far less than income tax demand. Economic side effects – higher consumer prices, fewer imports and lower economic growth – could ultimately hurt the same person the program is designed to help.
While the idea may inspire supporters, most economists agree: Income tax won’t disappear anytime soon.
