Can Trump's tariffs truly cut Income taxes for Americans earning less than $200,000? Check details

Time of India

05-05-2025

Can Trump's tariffs lower your income tax?
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Recently, US President Donald Trump said he thinks the tariffs he has imposed 'will be enough to cut all of the income tax' in the country, saying that 'we're going to be taking in a tremendous amount of money.' If such cuts occur, he said, they will first go to people who earn less than $200,000 a year.'We're going to be cutting taxes and it's possible we'll do a complete tax cut,' he said. Trump said that some people's income taxes will be lowered or perhaps even completely eliminated due to tariffs.'We're going to make a lot of money, and we're going to cut taxes for the people of this country,' Trump said before boarding Air Force One for his return from Pope Francis' funeral in Rome. 'It'll take a little while before we do that, but we're going to be cutting taxes, and it's possible we'll do a complete tax cut, because I think the tariffs will be enough to cut all of the income tax.'Trump has time and again described his administration's sweeping tariffs on other countries as a tool for accomplishing a range of key economic goals, including reviving US manufacturing. He has also highlighted that tariffs aim at lowering, or even eliminating, individual income taxes for most Americans."When Tariffs cut in, many people's Income Taxes will be substantially reduced, maybe even completely eliminated. Focus will be on people making less than $200,000 a year," he wrote Sunday on Truth Social, his social media app.At present, there is no tax bill in Congress. Congress is the arm of the US government with the authority to change the tax code that would eliminate income taxes for those earning $200,000 or less. Nonetheless, the House is currently drafting a reconciliation bill aimed at extending the tax cuts enacted under President Trump's 2017 Tax Cuts and Jobs Act. The bill also includes several new tax reductions proposed during his campaign, including the elimination of taxes on employee tips.If approved, the legislation would preserve the existing individual income tax rates established in 2018, with brackets ranging from 10% to 37% based on income levels. As a result, most Americans would see no change in their federal income tax rates."There is no real connection" between Trump's tariffs and lower taxes, Erica York, vice president of federal tax policy at the Tax Foundation, a think tank focused on tax issues told CBS News "He has the authority to impose higher tariffs, and he's done that. But he doesn't have the authority to unilaterally cut income taxes — that's done by Congress."There is "zero chance" that Congress would eliminate income taxes for a large swath of the U.S. population because the new tariffs won't generate enough revenue to replace the $2.4 trillion in income taxes paid by American households each year, she added.Even the notion of eliminating income taxes for people earning less than $200,000 doesn't add up, York told CBS News. Here's why: Trump's tariffs could raise about $170 billion in revenue this year, while wiping out individual taxes for people earning less than $200,000 would forego $700 billion in tax revenue this year, she estimated."You would need tariffs multiple times higher than what we have now" to generate the revenue to make up for the gap in lost taxes, York said. Making the math work is "an impossibility," she added.And if taxes are hiked aggressively, it would escalate the fear of a potential recession in the US, which would lead to unemployment, inhibit consumer spending, suppress business investment and further roil financial markets — all developments that reduce the government's tax receipts.Trump's claim about tariffs lowering taxes amounts to "an argument that says, 'If Americans pay more out of their left pocket, the government will be able to put more in their right pocket,'" Joe Rosenberg, senior fellow at the Urban-Brookings Tax Policy Center, another think tank focused on taxes, told CBS News."Even if you make the math work, it's really replacing one form of tax with another — and the other important point here is these taxes have very different distributional effects across income types," he added.