TLDR:
- Trump proposes reducing or eliminating federal income taxes for those earning under $200,000 once tariffs take effect
- He envisions an “External Revenue Service” that would fund government through import tariffs instead of income taxes
- Trump has already implemented a 10% baseline tariff on all trading partners plus higher “reciprocal” tariffs on specific countries
- Recent polls show 75% of Americans expect tariffs to raise consumer prices
- Trump administration has repeatedly changed tariff policies, creating market volatility
President Donald Trump announced that federal income taxes could be “substantially reduced” or potentially eliminated for Americans making less than $200,000 per year once his tariff system is fully implemented. The statement came in an April 27 post on his Truth Social platform.
Trump referenced what he called the “External Revenue Service,” suggesting a shift from the current tax collection system through the Internal Revenue Service to one funded primarily through import tariffs. This would mark a significant change in how the federal government finances itself.
The president defended his tariff strategy, claiming “massive numbers of jobs are already being created.” He described the economic impact as a “BONANZA FOR AMERICA” as new plants and factories are being built or planned.
This is not the first time Trump has floated the idea of eliminating federal income tax. During his 2024 campaign appearance on Joe Rogan’s podcast, he suggested replacing income tax with tariff revenue could return America to a period of prosperity similar to the Gilded Age of the 19th century.
Public Concerns and Market Reactions
Recent polls indicate growing public concern about the economic impact of Trump’s tariff policies. An Associated Press-NORC Research poll found that three in four Americans expect tariffs to increase consumer prices.
Public approval of Trump’s economic policies has declined. A CBS News poll showed approval of his handling of the economy fell to 42% in April, down from 51% in early March.
The tariff announcements have created market volatility. According to reports, the administration’s changing statements on trade policies have heightened stock market fluctuations and caused U.S. bond yields to rise.
Financial analysts have criticized the protectionist trade measures, arguing they harm capital markets while achieving few benefits. The policies have already disrupted global markets, particularly affecting goods from China, Mexico, and Canada.
Implementation Timeline and Congressional Action
Most country-specific tariffs are scheduled to take effect in July, unless new trade deals are negotiated before then. Trump paused these tariffs for 90 days to allow nations time to work out agreements to avoid the higher levies.
However, tariffs on goods from China, Mexico, and Canada have already been implemented. Global tariffs on specific items like automobiles, steel, and aluminum have also taken effect.
Treasury Secretary Scott Bessent stated that the administration is working on bilateral trade deals with 17 key trading partners, not including China. He mentioned that negotiations with Asian countries are “moving along very well.”
Republicans in Congress are determined to pass Trump’s legislative agenda when they return to Washington. This includes extending his 2017 tax cuts, many of which are set to expire at the end of 2025.
Potential Economic Impact
According to research by accounting automation company Dancing Numbers, Trump’s proposal could save the average American $134,809 in lifetime tax payments. These savings could reach $325,561 per person if other wage-based income taxes are eliminated as well.
However, economists question whether tariff revenue could adequately replace income tax. In Congress, Republicans have agreed on a framework that would allow up to $5.3 trillion in tax cuts over a decade.
Trump trade adviser Peter Navarro has suggested that tariffs will generate more revenue than needed, while most economists project significantly lower revenue from these measures. The feasibility of funding government operations primarily through tariffs remains a subject of debate.
Bessent responded to polling concerns by noting that U.S. consumers are still spending. He also reiterated the administration’s stance that China will be forced to negotiate due to the high 145% tariff level on Chinese goods.
“Their business model is predicated on selling cheap, subsidized goods to the US,” Bessent said. “And if there’s a sudden stop in that, they will have a sudden stop in the economy, so they will negotiate.”
