Trump proposes eliminating personal income taxes. How would that work?

Trump proposes eliminating personal income taxes. How would that work?
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(NEW YORK) — In recent campaign speeches, former President Donald Trump has repeatedly floated an eye-catching idea: the elimination of individual income taxes.

The proposal follows a string of other tax cuts put forward by Trump, including the removal of taxes on car-loan payments, social security benefits and servers’ tips. But a potential elimination of personal income taxes for all Americans goes much further.

When podcast host Joe Rogan asked Trump last week whether he was serious about the new plan, Trump said, “Yeah, sure, why not?”

The U.S. would pay for the lost tax revenue with far-reaching tariffs, Trump said.

“We will not allow the enemy to come in and take our jobs and take our factories and take our workers and take our families, unless they pay a big price — and the big price is tariffs,” Trump added.

The individual income tax currently accounts for roughly half of the $5 trillion in revenue that the federal government brings in each year.

It is unclear whether Trump’s proposal would also include the elimination of payroll taxes and corporate income taxes. Those duties account for another 40% of U.S. tax revenue, according to the Tax Policy Center.

“Even in its smallest form, it would be a pretty substantial change from current policy,” Marc Goldwein, senior vice president and senior policy director at the Committee for a Responsible Federal Budget, told ABC News.

But he acknowledged that the details about how that proposal would actually work have been scarce. “We don’t have a full proposal,” Goldwein said.

In response to ABC News’ request for comment, the Trump campaign referenced the tax cuts enacted during his first term. But the campaign did not comment directly on his newer proposal of eliminating the individual income tax.

“President Trump passed the largest tax CUTS for working families in history and will make them permanent when he is back in the White House in addition to ending taxes on tips for service workers and ending taxes on Social Security for our seniors,” Karoline Leavitt, national press secretary for the Trump campaign, told ABC News.

It would be all but impossible to make up for the lost revenue with increased tariffs, experts told ABC News.

On the campaign trail, Trump has promised a sharp escalation of tariffs during his first term. He has proposed tariffs of between 60% and 100% on Chinese goods.

Envisioning a far-reaching policy, Trump has proposed a tax of between 10% and 20% on all imported products. Earlier this month, he told the audience at the Economic Club of Chicago that such a tariff could reach as high as 50%.

Last year, the U.S. imported about $3.8 trillion worth of goods, the U.S. Bureau of Economic Analysis found. To generate the same amount of revenue currently brought in by the individual income tax, a tariff would have needed to be set at about 70%, Alan Auerbach, a law professor at the University of California, Berkeley, who focuses on tax policy, told ABC News.

However, a tariff of such magnitude would significantly reduce U.S. trade, slashing the total amount of imported goods and, in turn, reducing tax revenue.

“It wouldn’t be feasible,” Auerbach said.

Erica York, a senior economist and research director at the Tax Foundation, echoed that view. “It’s mathematically impossible,” York said.

Replacing the individual income tax with tariffs would also shift a greater share of the tax burden onto low- and middle-income households, experts said.

The top 50% of earners accounted for nearly 98% of all federal income taxes in 2021, according to the Tax Foundation. The bottom 50%, in turn, made up about 2% of income tax payments.

Higher tariffs are widely expected to raise prices of consumer goods, since foreign producers typically pass the cost of higher taxes onto customers. As a result, the costs of higher tariffs would fall evenly across U.S. households, since all Americans purchase consumer goods.

In some cases, low- and middle-income earners would pay a higher proportion of the cost burden, since consumer spending often makes up a higher share of their overall budget than it does for their well-off counterparts, Goldwein said.

“Tariffs are at best a flat tax and more likely a regressive one,” Goldwein added.

Trump would have some latitude in setting and implementing tariffs, experts previously told ABC News.

But his proposal to eliminate the personal income tax would require support from both houses of Congress.

“Trump can’t just eliminate the individual income tax,” York said. But, she added, Trump may seek to negotiate tax cuts in 2025, when many of the provisions associated with his signature tax reform law are set to expire.

“Trump could possibly negotiate further tax cuts to be added to those,” York said. “But I don’t see a situation where Congress would align with this swap between the income tax and tariffs.”

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