As President-elect Donald Trump prepares for office, questions loom around how his sweeping tax policy proposals will shape the American economy.
Trump’s tax wish list is a mix of old ideas, such as extending the expiring 2017 Tax Cuts and Jobs Act (TCJA), and new ones, including abolishing and replacing income tax with tariffs, lowering the corporate tax rate to 15% for companies that produce goods domestically, and imposing a 60% tariff on Chinese imports.
But tax policy experts say that while people may see a few more dollars in their pockets in the near term, these widespread tax cuts would put us trillions of dollars in the red and threaten the solvency of Social Security and Medicare.
“The irony is that the campaign’s focus was on working-class people, yet Trump’s tax plan is heavily tilted toward wealthy individuals,” says Chuck Marr, vice president for federal tax policy at the Center on Budget and Policy Priorities (CBPP), a nonpartisan thinktank. “The question is whether it will proceed full-steam ahead or if there will be any tweaks.”
We reviewed Trump’s campaign promises, his past economic record, and the influence of Project 2025—a policy agenda spearheaded by a coalition of about 100 conservative organizations—which may contain clues about Trump’s tax ambitions.
Trump’s Campaign Tax Proposals
Trump’s latest tax blueprint marks a clear shift toward economic nationalism with a populist edge. If Trump’s policies draw heavily from Project 2025, we may see a significant tax code simplification, albeit with potential drawbacks for government revenue.
He intends to reward “Made in America” businesses by cutting tax rates as low as 15% for domestic production while hitting imports—especially from China—with steep tariffs of up to 60%. The goal? Keep more cash circulating within U.S. borders and strengthen domestic manufacturing.
Trump has proposed other tax changes that could benefit American consumers:
- Exempt Social Security benefits from taxation
- Exempt tip income and overtime pay from taxation
- Tax credit for family caregivers
- Create a deduction for auto loan interest
- Replace personal income taxes with increased tariffs
However, the benefits of these changes aren’t evenly distributed, according to an analysis by the Tax Policy Center.
Trump’s 2025 tax plan, combined with the increased cost burden of tariffs, delivers different results depending on income, with lower-income households largely missing out on the benefits.
Based on the analysis, the bottom earners see a reduction in after-tax income largely due to the structure of the proposed tax changes and the offsetting impact of tariffs.
Here’s how this could play out:
- Tax cuts won’t benefit lower-income Americans: Lower-income households’ income, particularly Social Security benefits, is already minimally taxed or untaxed. This means the proposed cuts to income tax provide little to no additional relief for these groups, as they have a lower tax burden to begin with. In contrast, higher-income groups, who pay more in income taxes, see a bigger proportional benefit from these cuts.
- Negative impact of tariffs may outweigh reduced taxing of income: The analysis shows that the proposed tariffs disproportionately affect lower- and middle-income households. Tariffs function like a consumption tax, raising the cost of goods, which hits lower-income groups harder because they spend a larger portion of their income on essentials. This in effect reduces their after-tax income, even if their nominal tax rate does not increase.
By 2034, the tax cuts will provide noticeable benefits to high-income groups. However, the tariff impact means that the bottom 40% will experience a reduction in after-tax income. Specifically, the bottom quintile sees a 0.6% income decline, and the 20th to 40th percentile sees a 0.4% decline, as the benefit from any minor tax adjustments is outweighed by increased living costs due to tariffs.
The Potential Influence of Project 2025 on Trump’s Tax Plan
Although Trump has dismissed Project 2025 as “extreme,” its principles echo many of his economic goals.
The Heritage Foundation’s “Mandate for Leadership” heavily influenced Trump’s first year in office. His administration adopted nearly two-thirds of its 334 recommendations, from budget strategies to regulatory rollbacks.
Project 2025 is a similar guide tailored for a future conservative administration. It reinforces many core economic ideas from Trump’s early agenda, like tax cuts and boosting domestic production.
For anyone attempting to forecast Trump’s next moves, Project 2025 offers a valuable glimpse, Marr says.
“Project 2025 is something to take very seriously in many areas,” Marr adds. “But, when it comes to tax policy, Congress will be very active and engaged, so we’ll see how much influence it has.”
The TCJA simplified filing by nearly doubling the standard deduction, and Project 2025 takes this further by stripping out deductions and credits altogether.
Project 2025 proposes a two-step shift to a consumption-based system. It would move away from traditional federal income taxes by taxing spending rather than income. This could eventually mean a national sales tax or similar setup, shifting more of the tax burden onto consumer spending.
Trump has also floated the idea of shaking up the federal income tax by replacing it with revenue from tariffs on imported goods.
And finally, while Project 2025 prescribes reducing the corporate tax rate to 18%, Trump has upped the ante with his 15% corporate tax rate proposal.
“These aren’t just tweaks; this is a fundamental rewrite of the tax system,” explains Jonathan Ernest, assistant professor of economics at Case Western Reserve University.
Ernest notes, “Simplifying taxes sounds good, but it’s important to ask who benefits most from these cuts.”
Implications for Consumers: Potential Gains and Trade-Offs
At their core, both Trump and Project 2025 aim to simplify taxes and promote economic growth. Yet, experts warn that simplicity does not always equate to fairness.
Middle-income households may benefit from certain cuts, such as the proposed $5,000 child tax credit and exemptions on Social Security, overtime, and tip income. But other policies—particularly those reliant on consumption taxes—could shift the tax burden disproportionately onto everyday consumers, especially if tariffs raise retail prices.
Further, some experts worry that eliminating Social Security taxes could accelerate the depletion of the program’s trust fund, pushing it toward insolvency sooner than expected.
“No longer taxing Social Security payments would accelerate the depletion of the trust and more quickly trigger automatic benefit cuts that are currently not expected to hit until 2035,” warns Michael Montgomery, a political scientist at the University of Michigan-Dearborn and former U.S. diplomat.
In addition, proposed tariff increases on imports, while potentially strengthening domestic industries, may drive up consumer prices—an irony unlikely to be lost on voters concerned with inflation.
“The reality is everyone wants cuts, but no one wants a plan to pay for them,” says Marr.
What Lies Ahead for Trump’s Tax Agenda
Even with Republicans controlling Congress, experts agree that Trump’s tax plans won’t necessarily have an easy road ahead.
“The biggest question is the cost—$4 trillion over 10 years. That’s where a lot of rank-and-file Republicans may have concerns,” Marr says.
As Marr cautions, “there’s a limit to how high the deficit can go.” The next administration’s challenge will be to balance fiscal responsibility with economic growth, all while ensuring tax relief benefits Americans across income brackets.
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