No income tax for Americans? This is what Donald Trump says his plans are and how he intends to do it

Time of India

22-04-2025

President Donald Trump, now in his second term, is pushing a bold idea that's stirring up debate across the country. He recently told Fox Noticias that
'there's a real chance'
revenue from tariffs could be so significant it would allow the U.S. to eliminate federal income taxes altogether.
It's a striking promise: No more income tax for 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 revenue to eliminate income taxes?
President Trump's claim hinges on the belief that the government could raise enough money from tariffs — taxes on imported goods — to replace what it collects from income taxes. His former advisor Peter Navarro estimates tariffs could bring in up to $6 trillion over the next decade, or about $600 billion a year.
However, the Yale Budget Lab projects a far lower amount: around $2.4 trillion over ten years.
That's a big gap, and both numbers still fall short of what's needed. According to the Congressional Budget Office, the federal government took in over $2 trillion from individual income taxes in a single year.
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'A full replacement is absolutely, mechanically impossible. The math just doesn't work,'
said Erica York of the Tax Foundation, a center-right policy think tank.
Why is the income tax base so much larger than tariffs?
One of the key issues is the size of the tax base.
In 2022, American taxpayers reported nearly $15 trillion in adjusted gross income, according to IRS data. By comparison, the U.S. imported only around $3 trillion worth of goods that year — a much smaller pool from which to draw tax revenue.
As Keith Maskus, professor emeritus of economics at the University of Colorado Boulder, explained,
'If you tariff everything from everywhere, you're going to get revenue generated. But the scale of it just isn't big enough.'
Who really pays for tariffs — foreign countries or americans?
President Trump often argues that foreign countries pay tariffs, but that's not how it works in practice. Tariffs are paid by U.S. importers — typically American companies — who usually pass those costs on to consumers through higher prices.
That means everyday Americans feel the impact at the checkout line.
And there's another catch: When tariffs go up, imports often go down. That reduces the amount of goods being taxed and weakens overall revenue, not strengthens it.
'The more you increase the tariff rate, the more you drive down the tax base,'
said Kimberly Clausing, senior fellow at the Peterson Institute for International Economics.
Did the U.S. fund the government through tariffs in the past?
Trump has pointed to the pre-income tax era — before 1913 — as a model. Back then, tariff revenue made up 40% to 60% of federal income, according to a 2024 White House Council of Economic Advisers report.
He told Fox Noticias,
'That's when our nation was relatively the richest. We were the richest.'
But the context is important. The U.S. government back then didn't offer Medicare, Social Security, or modern military programs. Public expectations and spending needs were drastically lower.
As Yale's Ernie Tedeschi put it,
'What people expect from their government is much bigger, and much more, than it was 150 years ago.'
Could Trump eliminate income tax for those earning under $150,000?
In a more targeted approach, Commerce Secretary Howard Lutnick said in March that President Trump wants to eliminate income taxes for people making under $150,000.
It's a politically popular idea, but not without consequences. Most lower-income households already pay little to no federal income tax. According to the Urban-Brookings Tax Policy Center, only about 12% of the lowest-income earners paid federal income taxes in 2023. Many actually received more money back through tax credits.
If tariffs were used to replace those credits, it could backfire. That's because lower-income families spend a larger share of their income on goods that would become more expensive under higher tariffs.
'You would be making a lot of people worse off than they are now,'
York warned.
What about replacing income taxes with a national sales tax instead?
Some conservatives have pushed for a consumption-based tax instead of income tax. In 2023, a group of House Republicans proposed replacing most federal taxes with a national sales tax. That effort didn't move forward.
Still, the idea lives on in Project 2025 — a policy blueprint supported by many on the right.
Economists say a well-designed consumption tax could boost savings and investment. But critics argue it's regressive unless it includes big exemptions or rebates for lower-income households.
York explained,
'You'd need to design it in a way that protects lower- and middle-income taxpayers.'
Could tariffs at least help fund Trump's broader tax cuts?
Even if tariffs can't replace income taxes outright, they could still play a role in Trump's broader tax agenda.
President Trump is aiming to extend the 2017 Tax Cuts and Jobs Act and introduce new tax breaks — like exempting tips, overtime pay, and Social Security benefits from taxation.
According to the Committee for a Responsible Federal Budget, these proposals could cost between $5 trillion and $11.2 trillion over the next 10 years.
Tariffs may help fill part of that gap, but experts say they won't be enough to cover the full cost.
Clausing estimates that tariffs could replace, at most, 40% of income tax revenues — and only if they're set high enough to risk triggering a recession.
Is Trump's no-income-tax plan possible — or just political talk?
President Trump's vision of replacing income taxes with tariff revenue taps into a powerful message: fewer taxes for Americans, more pressure on foreign countries. But in reality, the numbers show it's not a practical solution.
Tariff revenue, even at its highest estimates, falls far short of covering income tax needs. And the economic side effects — higher consumer prices, fewer imports, and lower economic growth — could end up hurting the same people the plan is meant to help.
While the idea may energize supporters, most economists agree: income taxes aren't going away anytime soon.