Trump's Plan to Eliminate Income Tax: 7 Things to Know Now

The potential consequences of eliminating taxes in favor of Trump tariffs could impact everything from inflation to Social Security and might give some U.S. taxpayers pause. When you purchase through links on our site, we may earn an affiliate commission. Here’s how it works. Since the start of his second term, President Trump has repeatedly proposed abolishing federal income tax in favor of tariff revenues. As Kiplinger has reported, he has spoken about jettisoning taxes completely and mused about eliminating tax on the first $150,000 of income.In a November Thanksgiving video, Trump said, "Over the next couple of years, I think we’ll … be cutting income tax — could be almost completely cutting it, because the money we’re taking in is going to be so large."Maybe you’re someone who thinks eliminating the tax is a good idea. After all, who likes paying income taxes? Not to mention all the extra cash that would be swimming in your pocket if you didn't have to pay taxes on your hard-earned income.Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special IssuesProfit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.Profit and prosper with the best of expert advice - straight to your e-mail.But while eliminating income tax may sound appealing, some of its consequences might make you reconsider.Income taxes brought in about $2.7 trillion to the federal government in 2025, according to the U.S. Treasury. That amount towers over tariff revenues of only $257 billion raised this year. So, a big question is how the U.S. government would make up the difference.Something else to consider is that for every nation to which the U.S. imposes a tariff on imports, each of those nations could impose a retaliatory tariff on U.S. exports. That means some consumer goods might be priced out of buying range or not available on the market at all. Depending on what product you have your sights on, that could put a crimp in your shopping budget.Basically, if Trump eliminates federal income tax, the fallout would likely be wide-ranging and could have profound impacts on everyday life. Here are 7 key things you need to know.1. Inflation. Tariffs raise the cost of imported goods, and the U.S. is a net importer of consumer goods. To help offset the loss of the income tax, tariff rates would have to skyrocket to levels “well over 60%,” as Douglas Holz-Eakin, president of the policy organization American Action Forum, told Louis Jacobson of PolitiFact. Imports are likely to diminish, forcing tariff rates to rise higher.Everyday consumer items like electronics, clothes, and cars would likely become further out of reach for U.S. buyers.2. Impact on domestic industries. Some domestic industries stand to gain from eliminating federal income tax.The steel and aluminum industries have reportedly complained for decades that cheap imports undercut domestic production. Without imports from China and Latin America, the U.S. textile and garment manufacturing industries may revive due to reduced competition.Still, it’s a mixed bag. Besides the steel and aluminum industries, U.S. automakers could benefit from higher tariffs on foreign cars and parts. But they themselves import many of the components built into their own autos, and they’ll likely pay tariffs on those. U.S. appliance makers like Whirlpool and smaller electronics manufacturers could see benefits. However, they also rely on global supply chains and will be impacted by foreign tariffs.3. Food. The U.S. imports a significant amount of fresh produce to guarantee a year-round supply. Although we may not realize it, much of the fruit we eat is seasonal.Grapes are an example. In the U.S., grapes aren’t normally available in the winter months. The grapes you buy in December and January come from South America. But if grower nations impose retaliatory tariffs, it could likely make grapes and other seasonal fruits unattainable, due to price or availability. Although not a direct result of the U.S. imposing tariffs on imported goods, the following are consequences of the inability of tariff revenues to cover the loss of income taxes.4. Social Security and Medicare. These programs wouldn't disappear because they’re funded in significant part by other sources.But when there are revenue shortfalls, federal income taxes help to cover the gap. What it means is that if there were no federal income tax in the U.S., monthly Social Security benefits could shrink, and Medicare premiums could rise.5. Defense.

Unlike Social Security and Medicare, defense spending has no backstop. It lives and dies on general revenues. The government could borrow to maintain defense spending, but would sharply increase the deficit.If Trump eliminated federal income taxes, the government would likely have to scale back operations, reduce troop levels, delay or eliminate weapons programs, and possibly more.Additionally, several policymakers suggest that from a global perspective, a weakened defense budget would likely reduce U.S. influence abroad, including limiting NATO commitments, and slow the modernization of military technology.6. National Debt. Debt interest payments, like defense, are funded by federal income tax revenue. The immediate threat of eliminating interest payments is the risk of the government’s default.According to several reports, the economic fallout could be dire, including things like spiked interest rates, a weakened dollar, and the destabilization of financial markets worldwide.7. Discretionary spending programs. These are the types of government expenditures that we take for granted. Infrastructure projects like highways, bridges, airports, and others could stall without sufficient revenue to fund them.Federal support for education and affordable housing could disappear, widening the inequality between the wealthier and poorer regions of the United States.Agencies like the space agency, NASA, and the National Institutes of Health (NIH) depend on discretionary spending. Without it, funding for medical research and technological innovation could shrink, reducing U.S. leadership in science and slowing progress in health and technology.These are only a few of the programs affecting our daily lives that could be adversely impacted if federal income taxes went away.Eliminating federal income tax may sound like a good idea on the surface. Some taxpayers might have visions of dollars fattening their wallets.But data and studies show that more tariffs will likely raise the cost of everyday consumer goods, maybe to the point of unaffordability. And other impacts, though indirect, could also conspire to keep taxpayer wallets flat.Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.Roxanne Bland, a self-styled “tax nerd,” has worked in the tax field for over 30 years as a state tax legal analyst. Before joining Kiplinger as a tax writer to help ordinary people make sense of their federal and state tax obligations, Roxanne spent many years covering developments in state tax jurisprudence at the U.S. Supreme Court and worked closely with state revenue agencies to develop uniform tax legislation. She has also contributed to Tax Notes State, a Tax Analysts publication focusing on cutting-edge corporate tax issues. The November jobs report came in higher than expected, although it still shows plenty of signs of weakness in the labor market. Families can upgrade to top-tier smartphones for $25 a line with Verizon’s newest offer. Set yourself up for success with these strategies. Changing tax rules and falling interest rates mean financial planning is more important than ever as 2025 ends. There's still time to make these five key moves. Roth conversions and other Roth strategies can be complex, but don't dismiss these tax planning tools outright. They could really work for you and your heirs. Most people can gift large sums without paying tax or filing a return, especially by structuring gifts across two tax years or splitting gifts with a spouse. Better beware, because if you go even $1 over an important income threshold, your Medicare premiums could rise exponentially due to IRMAA surcharges.

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