President Trump has proposed abolishing federal income tax and replacing it with tariffs on imported goods. This idea isn't new, and Trump has mentioned it before, citing the period between 1870 and 1913 as an example of how tariffs can fuel economic growth.
๐๏ธ Points of the Proposal:
1- Elimination of Federal Income Tax:
Trump's plan aims to remove the federal income tax, which currently generates about $5 trillion in revenue annually.
2- Tariff-Based Revenue System:
The proposal suggests implementing a comprehensive tariff system on imported goods, with tariffs ranging from 10% to 20% on all imports and higher tariffs on Chinese imports.
3- Impact on Government Revenue: Economists question whether tariffs alone can replace the lost revenue from income taxes, potentially leading to significant changes in government spending or other taxes.
=> Current Status:
As of March 2025, Trump's proposal remains just thatโa proposal. While he's publicly discussed and promoted the idea, it still needs congressional approval, which seems uncertain. Some experts believe the proposal might serve more as a negotiating position for modest tax reforms rather than a literal policy objective ยน.
=> Potential Effects:
A- Increased Take-Home Pay: Eliminating income tax would immediately increase workers' take-home pay, potentially stimulating economic growth.
B- Higher Consumer Prices: Tariffs could lead to higher prices on imported goods, offsetting some benefits of tax elimination, especially for lower-income households.
C- Trade Disruptions: Retaliatory tariffs from other countries could harm American exports and businesses.
It's essential to note that President Trump signed the "One Big Beautiful Bill Act" into law on July 4, 2025, which includes tax cuts and reforms, but it doesn't entirely eliminate the federal income tax.