Trump Wants To Replace Income Taxes With Tariffs: 2 Impacts on the Middle Class
Trump Wants To Eliminate Income Taxes: 5 Ways This Could Impact Your Salary in 2025
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'Donald Trump announced the 'External Revenue Service,' and his goal is very simple — to abolish the Internal Revenue Service and let all the outsiders pay,' Commerce Secretary Howard Lutnick told Fox News.
While paying less in taxes might be music to your ears, if you're a member of the middle class, the reality might not be so rosy. Here's why tariffs could cause financial strain for middle-class earners.
Trump's tariffs are likely to lead to higher prices on many everyday essentials and big-ticket purchases.
'The Trump administration rollout of tariffs on China, Mexico and Canada will create economic inefficiencies, which will raise prices,' said Thomas J. Cryan, tax attorney and author of 'Disrupting Taxes.'
'A 25% tariff on imports will increase the cost of certain products, and will have a significant impact on consumer prices,' he continued. 'Though exporters and middlemen might absorb some of the cost increase due to the tariffs, for the most part, the tariffs' costs are passed on to the consumer.'
Cryan believes fruit and vegetable prices will be among the first category to increase.
'The U.S. imports 60% of all fresh fruits consumed and 30% of all fresh vegetables,' he said. 'Therefore, a 20%-25% increase in the price of fruits and vegetables, critical to keeping all families healthy, would be of great impact.'
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Cryan believes that tariffs will lead to fewer available jobs for middle-class workers.
'Tariffs do not gain jobs, but rather create inefficiencies within the economy that destroy jobs and hurt workers,' he said. 'Tariffs that protect certain industries — and jobs — will have the unintended consequences of harming other industries and the consumer via higher prices, which might slow down economic growth and trigger larger layoffs.'
Retaliatory tariffs — which have already begun rolling out — will exacerbate the issue, Cryan said.
'Retaliatory tariffs enacted by other countries will further spiral economic suppression and job loss,' he said. 'Jobs will be lost as tariffs shrink trade and throttle-back the economy. A concentrated special interest, such as protecting steel workers, should never prevail over the diffused general interest of all consumers across the country.'
Cryan believes that the effect of tariffs will be felt more by the middle class than higher socioeconomic classes.
'Increased costs of daily necessities impacts the middle class and the working class the hardest, in that they have less disposable income,' he said. 'Specifically, it is important to recognize that the costs of tariffs do not impact the rich and the poor alike. Clearly, $1,000 means a lot more to a poor family working hard to cover all their bills than to a rich family with discretionary income.
'Economic studies have shown that the lower your income, the greater the impact of price increases due to tariffs,' Cryan continued. 'Ultimately, tariffs and trade wars are bad for everyone, and surely one can predict that such actions will result in a contraction of the GDP, which will trigger economic struggles and a tightening in the labor market.'
Editor's note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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