TLDR:
- Trump suggested federal income taxes could be “substantially reduced” or eliminated once tariffs fully implemented
- Tax cuts would focus on individuals making less than $200,000 per year
- Trump previously discussed replacing federal income tax with import duty revenues
- New tariff policies include a 10% baseline tariff on all countries with higher “reciprocal” rates
- Recent polls show most Americans expect tariffs to increase consumer goods prices
President Donald Trump has proposed major cuts to federal income taxes that would take effect once his new tariff policies are fully implemented. In an April 27 post on Truth Social, Trump stated that federal income taxes would be “substantially reduced” or potentially eliminated completely, with the focus on individuals earning less than $200,000 annually.
Trump referred to the “External Revenue Service” materializing, suggesting his vision of funding the federal government through import tariffs rather than the current Internal Revenue Service model. This represents a significant shift in how the government might collect revenue in the future.
The President has previously discussed eliminating federal income tax entirely. During an October 2024 appearance on the Joe Rogan Experience while on the campaign trail, Trump suggested that replacing income tax with import duty revenues would return the US to prosperity levels seen during the 19th century Gilded Age, when no permanent federal income tax existed.
Research from accounting automation company Dancing Numbers estimates that Trump’s proposal could save the average American $134,809 in lifetime tax payments. The company added that savings could reach $325,561 per person if other wage-based income taxes are also eliminated.
The Tariff Plan and Market Reactions
On April 2, Trump signed an executive order imposing broad tariffs on all US trading partners. The order included a 10% baseline tariff on all countries, with different “reciprocal” rates applied to nations that impose import duties on US goods.
However, the administration has revised its tariff policies several times since the initial announcement. The timing and rates of implementation have changed, creating uncertainty in markets.
Most country-specific tariffs are scheduled to take effect in July, following a 90-day pause to allow nations to negotiate trade deals. Tariffs on goods from China, Mexico, and Canada, along with global levies on automobiles, steel, and aluminum, have already been implemented.
These shifting trade policies have increased volatility in the US stock market and caused US bond yields to rise. Financial analysts have criticized the protectionist measures, arguing they harm capital markets while achieving limited benefits.
Trump defended his tariff strategy in his social media post, claiming “massive numbers of jobs are already being created, with new plants and factories currently being built or planned.” He characterized the initiative as a “BONANZA FOR AMERICA.”
Public opinion on the tariffs appears mixed. A recent Associated Press-NORC Research poll found that 75% of Americans expect Trump’s tariff policies to increase consumer goods prices in the US. An NBC News Stay Tuned survey released on Sunday indicated at least 60% of Americans disapprove of Trump’s handling of trade, tariffs, and inflation.
Trump’s latest comments came just before Congress was set to return to Washington. The President’s Republican allies in Congress are determined to pass his legislative agenda, including extending his 2017 tax cuts.
The administration has not yet provided specific details on how much federal income taxes might be reduced or the timeline for implementation.
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