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Home Lifestyle Trust, Tax, and Estate

Trump Proposes Improbable Income-Tax Cuts Tied to Tariffs, But the Math Doesn’t Add Up

by Team Lumida
April 29, 2025
in Trust, Tax, and Estate
Reading Time: 4 mins read
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Fed Official Warns of Inflation Risks Under Trump Presidency

"Donald Trump" by Gage Skidmore is licensed under CC BY-SA 2.0

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Key Takeaways:

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  • President Trump has suggested eliminating income taxes for most households earning under $200,000, replacing the revenue with tariffs, but experts say the numbers don’t work.
  • Current tariffs are projected to generate $167 billion in revenue this year, far short of the $600 billion paid in income taxes by the bottom 90% of households in 2022.
  • Tariffs disproportionately impact lower-income households, as they apply to consumer goods and are regressive compared to income taxes.
  • Trump’s plan conflicts with his use of tariffs as a negotiating tool, which makes them an unstable revenue source.
  • The proposal also ignores the scale of modern government spending, which far exceeds the pre-1913 era when tariffs were a primary revenue source.

What Happened?

President Trump has floated the idea of using tariffs to replace income taxes for most Americans, particularly those earning under $200,000 annually. He claims that tariffs would generate enough revenue to eliminate income taxes for many households, while also spurring domestic investment and job creation.

However, experts and analysts have pointed out significant flaws in the proposal. Current tariffs, even under Trump’s aggressive trade policies, would generate only $167 billion this year—far less than the $600 billion in income taxes paid by the bottom 90% of households in 2022.

Additionally, Trump’s use of tariffs as a tool to negotiate trade deals undermines their reliability as a stable revenue source. Tariffs that are imposed and later removed after trade agreements cannot provide consistent funding for government programs.


Why It Matters?

Trump’s proposal highlights a fundamental tension in his trade and tax policies. While the idea of eliminating income taxes may appeal to voters, the reliance on tariffs as a revenue source would shift the tax burden toward lower-income households, who spend a larger share of their income on consumer goods.

The plan also raises questions about the sustainability of government funding. Modern federal programs like Medicare, Medicaid, and Social Security require far more revenue than tariffs alone could provide, making the proposal impractical without significant cuts to government spending.

Moreover, the regressive nature of tariffs could exacerbate economic inequality, as lower-income Americans would bear a disproportionate share of the tax burden.


What’s Next?

Congressional Republicans are working on a broader tax bill that includes extending Trump’s 2017 tax cuts and introducing targeted reductions for groups like tipped workers and Social Security recipients. While Trump’s tariff-linked tax proposal is unlikely to gain traction, it reflects his broader push to reshape the U.S. tax system.

As the debate unfolds, lawmakers will need to balance the political appeal of tax cuts with the economic realities of funding government programs. For now, Trump’s proposal serves more as a political talking point than a viable policy solution.

Source
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© 2025 Lumida Wealth Management LLC is an SEC registered investment adviser. Privacy Policy. Cookies Policy.
Disclaimer Important Information This site is for informational purposes only. Information presented on this site does not constitute as investment advice.

Lumida Wealth Management LLC (‘Lumida”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.

Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.

Any subsequent, direct communication by Lumida with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

‍Lead Capture Forms: By submitting your contact information in the forms on this site, you are not obligated to invest in Lumida's product or services.
‍Address: Lumida Wealth Management, 25 W 39th Street Suite 700, New York, NY 10018