President Donald Trump has predicted that his tariffs could raise as much as $6 trillion over the next decade in federal tax collections. These include up to 104% tariffs on China, plus the combination of reciprocal tariffs – we charge them whatever they charge us. Also, don’t forget the protectionist tariffs on steel, aluminum, autos, lumber, etc.
The tariff rates put on the table by Trump are higher than those at any other time in the last century, so it is no wonder we’ve seen a painful stock selloff, reducing asset values by well over $7 trillion.
But what the markets are missing is that Trump has also announced that money raised from the tariffs will be offset by other tax cuts. If that is the case, then the net impact of the tariffs could end up being a positive for the economy.
He’s on to something potentially big here that could cause an epic stock market recovery: a way to bounce stocks back to life and boost growth while also fulfilling Trump’s goal of freer and fairer trade.
In other words, tariff revenues should be a major “pay for” in extending and expanding the tax cuts. It would obviate the need for any offsetting tax rate increases. If we were to raise, say, $500 billion from tariffs, that would pay for indexing capital gains, the 15% “Made in America” business tax, and a reduction in the payroll tax.
Another idea is a 15% flat tax on everything. Steve Forbes and I have advised that Trump should announce a bold new “15% plan.” Fifteen percent tariffs, 15% personal income tax, 15% corporate tax, 15% capital gains, dividends, death tax, etc. It’s a plan with a broad tax base and low rates so as to minimally distort economic activity. Imports would share some of the load – much as other nations do to us.
But why not go all the way: Eliminate the income tax and pay for government the way we used to before we passed the 16th Amendment, which allowed for a federal income tax. Trump is right that this was one of the nation’s greatest mistakes. Prior to that, we funded the government through tariffs and land sales.
If this happened, taxes on work, saving, investment, and entrepreneurship would largely disappear. Even getting halfway there would be a triumph for growth.
If any of these plans were announced, the growling Wall Street bears would turn into raging bulls. Instead of any further short-term pain, we’d start to see shared long-term gain for everyone.
Stephen Moore is a visiting fellow at the Heritage Foundation. He is also an economic advisor to the Trump campaign. His new book, coauthored with Arthur Laffer, is “The Trump Economic Miracle.”
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While we could potentially reduce income tax rates further, assuming tariff rebalancing works as I have calculated the revenue streams will play out in the end, that still won’t be enough in 2025 to completely eliminate the income tax. Not unless we radically downsize the size and scope of the federal government to something that reflects the pre-FDR New Deal bureaucracy blow-out that laid the foundation for the permanently over-blown and completely invasive modern federal bureaucracy of today.
There is nothing wrong with the idea of a 15% flat tax, but it has to be applied across the board in a much more uniform fashion, so everyone feels some connection to what is being spent in Washinton supposedly for our benefit. Right now, only about 50% of Americans pay any income taxes, after all the myriad of deductions that have been layered into our tax system. So, the other half the country has no real concern about waste, fraud and abuse, not to mention simply stupid spending ideas, that routinely flow out Washington buried in massive omnibus spending bills. The more people with skin in the game, the more public push back to any spending that is not truly essential.
As for the article above, it is sadly another half-baked Steve Moore special. Sadly, he seems to have checked out of doing serious economic work these days. There is a reason he isn’t on President Trump’s second term team.
As for the big, beautiful bill Congress is dragging its feet on, there same trouble-making players in the Senate ended up passing just a “framework” (bullet points or low number values as placeholders), not a bill with real numbers like the House did earlier. This is dragging out the whole reconciliation process way beyond what it should have been and delaying the delivery of any sort of tax cuts President Trump can sign-off on. Lindsey Graham, Mitch McConnell and the rest of the obstructionists are once again gumming up the works.
Love the 15.% flat tax. Hope it happens!
It’s time for overhaul of the federal Government to do business, hopefully we see changes soon!
I prefer the FAIR tax. I dislike the name, but it is a national sales tax that replaces the income tax. It has many features that are good, like zero corporate tax, zero tax for social security on earnings by both the earner and the employer, and a rebate check on the tax for essentials that only can be gotten by citizens. Plus it only taxes new things so if you buy a house or a car that is not new, there is no tax on that sale.
I also believe Trump should have established his tax cuts to be permanent and then built on before he worked on tariffs. That was more important to get done and I hope he gets that done. Then he would have been free to go whichever way he wanted.
Wish some of this could/would happen in CA.I think CA has to go totally bankrupt before any positive changes can happen.
The income tax was thanks to Taft, who betrayed Theodore Roosevelt by doing something so daft!
This is true and great for those still working. For retired people like me, it is not so good. I fully support Trump’s tariffs but it will hit retirees a lot harder and income tax cuts will have little or no impact. We live primarily off of Social Security and withdrawals from the 401K. The combined amount makes our adjusted income under the standard deduction. So we pay no Federal income tax. So tax cuts do us no good! Is AMAC looking into this? We need to have something to help retirees get relief as well.
I advocated for a flat tax 35 years ago. If DOGE is able to finish its job, and Congress will pass a balanced budget a 15% flat tax would be very doable! You could close down the IRS no need to file income tax forms because the 15% is automatic, right out of your paycheck. Easy peasy and no hassles!
So, who will Trump’s tariffs and a 15% personal income flat tax hurt the most? You guessed it. Those at the bottom of the income scale! The Tax Foundation said Trump’s tariffs would be equivalent to a 2.1% tax and JPMorgan called his tariffs the biggest tax hike since 1968. The effective tax rate (taxes paid divided by income) is only 12% right now for married couples filing jointly making $94,300 or less.
The more appropriate (and more ‘equitable’) answer is the FAIRTax. While proposed at 23%, that rate could be drastically reduced based on the revenue generated from tariffs.
These tariffs are tanking the economy! Whatever tax cuts we get isn’t going to build up the economy if Trump doesn’t stop this tariff war! I’m too scared to see how much my retirement account has. And don’t tell me I shouldn’t be in the market! My IRA accounts were growing great when Trump started deregulation, DOGE, immigration changed and opening up energy again! Now with these damn tariffs, it’s all being destroyed! This is going to cost America a chance to really fix the government when voters start voting Democrats back in power! The tariff war needs to stop! Tariffs are a tax and inflation is coming back! Government cannot manage the economy! Everytime it does, the people lose!
Pay for governmental costs like we did before the 16th Amendment? We didn’t have an expansive welfare system pre-1916 and no Social Security or Medicare or forever wars we cause on an almost monthly basis. We also didn’t base our foreign policy on the demands of Israel pre 1916.
And nobody ever brings up what happened the last time massive tariffs were trotted out in the form of the Smoot Hawley act. We got to enjoy a decade of shoe leather eating during the Great Depression and only managed to get out of that by forcing our entry into WW2 by blockading Japan.
Tighten your belts. Weight loss is in our futures.
If we got rid of Medicare and Medicaid and reduced our military spending to pre-World War I levels, we could probably scrap the income tax in favor of tariffs.
Otherwise, this idea of replacing income taxes with tariff taxes is just a dream.
I’M FINALLY BEING HEARD ABOUT TAXES AND TARIFFS!!!!
The USA has been a model for a great country with freedom for 150-years & the income tax got us thru WWII & the Great Depression. Why not fine tune our government & get rid of the tax loopholes. There is no guarantee that tariffs & land sales can sustain our way of living in the year 2025. Did you have interstate highways & bridges in 1870 to 1913?