One of the most commonly associated words with President Trump is “tariffs.” During his first term in office, Trump made good on his word and slapped significant tariffs on certain goods, particularly those made in China, and he has promised to do so again during his second term.
But hidden in the debate over whether or not tariffs would result in higher prices for Americans has been a discussion about if it’s possible that tariffs could remove income taxes. Clearly, that would be a huge boon for the pocketbooks of all Americans, and it would no doubt outweigh any higher prices due to tariffs on goods. But is that really a possibility?
Here’s what financial personality Graham Stephan had to say about the matter during a video he posted to YouTube on Dec. 9, 2024.
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What’s Behind the Concept of Tariffs Eliminating Income Taxes?
Income tax isn’t imposed on Americans as some sort of draconian, punitive measure. Rather, taxes are used to fund the government, providing everything from military defense to health insurance and Social Security. If the government somehow had additional money to pay those expenses, income tax would be unnecessary. Thus, if the additional money raised by tariffs was enough to pay the government’s bills, income tax could theoretically be eliminated.
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How Does the Math Play Out?
The bottom line is that even if Trump’s tariffs are enacted, they stand essentially no chance of raising enough revenue to eliminate income taxes. Stephan cites data from 2022, when tariffs raised $80 billion for the U.S. government. While that may seem like a lot of money, it only amounted to 2% of all tax revenue, a sum that could only sustain the government for 15 days.
Even if Trump were to somehow double tariffs on all goods — which is not even being considered — that would still amount to a proverbial drop in the bucket in terms of funding the overall government.
What’s the Likely Result of Trump’s Tariffs?
Far from providing an economic boom, Trump’s tariffs may actually act as a drag on the economy. According to Stephan, “The measures proposed could hit a number of strategic U.S. industrial sectors hard, add approximately $272 billion a year to tax burdens, raise goods prices, lift interest rates and sap strength in an already-vulnerable household sector.”
An independent analysis conducted by the Tax Foundation estimates that “tariffs would reduce GDP by 0.4% and employment by 344,900 jobs. Our estimates do not capture the effects of retaliation, nor the additional harms that would stem from starting a global trade war.” The Foundation also cites various academic and governmental studies showing that the Trump tariffs — most of which were kept in place during the Biden administration — “have raised prices and reduced output and employment, producing a net negative impact on the U.S. economy.”
If Tariffs Might Harm Americans, What’s the Thinking Behind Them?
Part of the reasoning behind Trump’s proposed tariffs is that he himself doesn’t think they will harm average Americans. In a December 2024 interview with Kristen Welker on Meet the Press, when told that many economists project tariffs would lead to rising costs, Trump replied simply, “I don’t believe it.”
Trump’s motivation for enacting tariffs comes down to four essential beliefs:
- They will protect U.S. manufacturing.
- They will bring new companies to the United States.
- They will deliver billions in additional revenue.
- They will stem the flow of illegal immigration and drugs.
Stephan also notes that Trump’s motivation may be to negotiate more favorable trade deals for the United States.
What Effect Did Tariffs Have During Trump’s First Term?
Whether or not Trump’s beliefs about his tariff program will come to fruition remains to be seen. However, at the end of Trump’s first term in 2020, the Brookings Institution reported that the tariffs were a net negative in terms of American jobs. According to economists at the time, the net effect was that “any gains in importing-competing sectors appear to have been more than offset by losses in industries that use imported inputs and face retaliation on their foreign exports.” However, it’s also true that net tariff revenue increased significantly, and the tariffs did not spike inflation, as some economists feared.
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This article originally appeared on GOBankingRates.com: Is It Possible To Remove Income Taxes? Graham Stephan Explains What the 10% Trump Tariff Could Mean for Everyday Americans
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