Trump's Proposal to Eliminate Income Taxes for Individuals Earning Under $200,000

Introduction

President Donald Trump has proposed eliminating federal income taxes for individuals earning under $200,000 annually. He suggests that increased revenue from tariffs could compensate for the lost tax income. This report evaluates the feasibility of the proposal and the role of tariff revenue relative to the U.S. national debt.

Current Fiscal Context

As of April 29, 2025, the U.S. national debt stands at approximately $36.22 trillion, according to official U.S. Treasury figures. Individual income taxes currently account for around 49% of federal revenue, equating to approximately $2.4 trillion annually.

Tariff Revenue Assessment

In April 2025, the U.S. government collected about $15.9 billion in customs and excise taxes. This monthly tariff revenue equates to roughly 0.044% of the total national debt. Extrapolated annually, this would generate about $190.8 billion — approximately 0.53% of the national debt and less than 8% of the current individual income tax revenue.

Feasibility of Replacing Income Tax with Tariffs

Replacing income tax revenue for individuals earning under $200,000 would require a vast increase in tariff income. However, this approach faces several major obstacles:

• Insufficient Revenue: Even under optimistic assumptions, current tariff revenue falls significantly short of the required amount to replace income tax revenues.

• Economic Consequences: Higher tariffs are likely to lead to increased consumer prices as businesses pass costs onto consumers, effectively creating a regressive tax burden on lower-income families.

• Trade Retaliation Risk: Other countries could respond by imposing their own tariffs, potentially harming U.S. exports, disrupting supply chains, and provoking trade wars.

• Economic Growth Impact: Tariffs could slow economic growth by increasing business costs and reducing competitiveness.

Expert Analysis

Multiple economic experts and organisations, including analysts cited by The Times and The Guardian, highlight the impracticality of replacing income taxes with tariffs alone. They point out that while tariffs could supplement revenue, they cannot feasibly substitute for nearly half of the federal budget without causing significant economic disruption.

Conclusion

Although eliminating federal income taxes for individuals earning under $200,000 is an attractive political idea, the financial and economic realities render it unworkable if funded solely through tariffs. The amount generated by tariffs is far too small to offset the loss of income tax revenue, and increasing tariffs dramatically could trigger inflation, lower economic growth, and international trade retaliation.

Substantial reform would require a far broader restructuring of the U.S. fiscal system, not merely an adjustment to tariff policy.