President Donald Trump revealed a potential major overhaul of the U.S. tax system during a Thanksgiving video call with military service members.
He floated the idea that tariff revenues could allow the government to drastically reduce or completely eliminate federal income taxes for millions of Americans.
Speaking to troops on Thursday, Trump indicated that substantial changes to the tax code could be on the horizon.
He stated that “over the next couple of years,” the United States will be “substantially” cutting, or even “completely” eliminating the federal income tax.
The president did not provide specific details about how such a plan would be implemented or offer a concrete timeline for when these changes might take effect.
Trump’s proposal centers on using revenue generated from tariffs to replace the income lost from cutting federal income taxes.
He expressed confidence that tariff revenues were “going to be so large” that they could compensate for eliminating income taxes entirely.
During the same call, Trump reiterated his intention to distribute some tariff revenue directly to American citizens as a dividend.
He clarified that “much of it is going to go towards reducing debt,” suggesting a multi-pronged approach to using the tariff income.
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This is not the first time Trump has proposed such a dramatic shift in tax policy.
In April, he made a similar statement declaring, “When Tariffs cut in, many people’s Income Taxes will be substantially reduced, maybe even completely eliminated.”
In October, Trump told barbers in the Bronx, “There is a way, if what I’m planning comes out,” adding that, “In the 1890s … it had all tariffs. It didn’t have an income tax,” according to CNN.
The president told Joe Rogan days later he was serious about replacing federal income taxes with tariffs, The Post Millennial reported.
At that time, Trump specified that the “focus will be on people making less than $200,000 a year.” He characterized the potential policy change as a “bonanza for America” in a post on Truth Social.
The proposal would represent a fundamental transformation of how the federal government collects revenue, shifting away from the income tax system that has been in place for over a century.
However, tax policy experts and economists have raised serious questions about the feasibility of Trump’s plan. Alex Durante of the Tax Foundation stated that the numbers don’t add up, Benzinga reported, calling it “not a realistic proposal.”
Durante’s assessment suggests that the tariff revenues Trump expects would fall far short of what would be needed to replace federal income tax collections.
Economist Kimberly Clausing of the Peterson Institute for International Economics expressed similar skepticism about the plan’s viability.
She pointed to a fundamental mismatch in the size of the two tax bases.
Clausing explained, “The tariff tax base is a lot smaller than the income tax base.”
She provided concrete figures to illustrate the disparity between what tariffs could generate versus what income taxes currently collect.
According to Clausing’s analysis, the United States imported $3.1 trillion worth of goods in 2023. This represents the total pool of imports that could potentially be subject to tariffs.
In contrast, the federal income tax in the same year was levied on more than $20 trillion in income.
This gap of roughly $17 trillion highlights the challenge of replacing income tax revenue with tariff revenue.
