Trump’s Plan to Eliminate Income Taxes Faces Major Economic Hurdles

By Evans Momodu, updated 14:42

President Trump proposes abolishing income taxes, replacing them with tariffs. Experts warn such a plan could require extreme tariffs and risk economic downturns.

President Donald Trump reaffirmed Sunday night a bold vision he and his administration have occasionally floated during his second term: abolishing federal income taxes and funding the government through tariffs alone.

Speaking to reporters before boarding Air Force One following Pope Francis’ funeral in Rome, Trump declared, “We’re going to make a lot of money, and we’re going to cut taxes for the people of this country. It’ll take a little while, but it’s possible we’ll eliminate income taxes entirely because I think the tariffs will be enough.”

While eliminating income taxes sounds appealing to many Americans, the reality of replacing $3 trillion in annual tax revenue with tariffs presents major economic challenges.

Why Tariffs Can’t Easily Replace Income Taxes

Currently, the United States imports about $3 trillion worth of goods each year. According to Torsten Slok, chief economist at Apollo Global Management, replacing income tax revenue would require tariffs of at least 100% on all imported products — far above today’s effective tariff rate of 22.8% (per Fitch Ratings).

This would mean prices on imported goods would double, straining consumers and businesses. Moreover, if prices surge, consumer demand tends to fall, reducing overall sales and, therefore, tariff revenue. In fact, some economists suggest that tariffs may need to rise to as much as 200% to offset the revenue loss fully.

Several major U.S. companies have already reported higher costs and slowing consumer spending this earnings season, citing Trump's aggressive trade policies as a contributing factor.

Trump’s idea faces another major hurdle: setting tariffs high enough to replace income taxes could significantly damage the U.S. economy. As imports become prohibitively expensive, businesses reliant on foreign goods could suffer, inflation could spike, and economic growth could slow sharply.

In an interview with Time magazine last week, Trump hinted that tariff rates as high as 50% could represent “total victory,” claiming such policies would make the country “a fortune.” However, economists warn that such a strategy could trigger recessionary pressures both at home and abroad.
Source: CNN