May 1, 2025
President Trump's tariff actions have unleashed a wave of uncertainty and volatility across the global economy. But, Secretary of Commerce Howard Lutnick has insisted that there’s a grand plan behind the chaos.
“I know what his goal is — no tax for anybody making under $150,000 a year,” he said in an appearance on CBS News in March. “That’s his goal. That’s what I’m working for.”
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The comments align with Trump’s previous promise to "abolish" income taxes. An ambition he recently reiterated.
“We’re going to make a lot of money, and we’re going to cut taxes for the people of this country,” he said on April 29.
“It’ll take a little while before we do that, but we’re going to be cutting taxes, and it’s possible we’ll do a complete tax cut, because I think the tariffs will be enough to cut all of the income tax.”
A closer look at the numbers and the administration’s other actions makes this target nearly as likely as Trump’s assurance of cutting energy costs by half this year.
Can tariffs replace income taxes?
Eliminating taxes for people who earn less than $150,000 would effectively eliminate taxes for the vast majority of the country’s population. According to the latest U.S. Census Bureau data, roughly 3 in 4 American workers earned less than that amount in 2023.
However, individual income taxes are the largest source of revenue for the U.S. government. So far in fiscal year 2025, individuals have paid $1.14 trillion in taxes, which is 51% of the total tax revenue collected, according to the Department of Treasury. Customs or import taxes accounted for just $44 billion or 2% of the total. These figures are likely to be much higher by the end of the fiscal year.
Meanwhile, analysis by the Peterson Institute for International Economics found that Trump’s tariff policy could generate roughly $225 billion per year in tax revenue — not nearly enough to offset a massive tax cut for much of the population. The report concludes that replacing income taxes with tariffs is impossible.
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It should also be noted that the Trump administration’s attempts to replace income taxes with import taxes is more likely to benefit high-income households rather than lower- or middle-income ones.
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Most Americans should brace for higher costs
While some tariffs have already been implemented, Trump and congressional Republicans are working to extend the 2017 Tax Cuts and Jobs Act, which is set to expire at the end of this year. These tax cuts would offset the impact of higher costs on imported goods, however the impact isn’t spread equally across all households.
The Peterson Institute’s analysis found that only the top 20% of income earners would see a net benefit from these two tax policies. For the bottom 60% of households, the net impact would be negative. In other words, most Americans would pay more if these two policies are implemented.
Simply put, the administration is not on track to eliminate taxes for those earning less than $150,000, but to increase their net cost of living.
If you are in this income bracket, it’s wise to add a margin of safety to your annual household budget to protect yourself from unexpected financial disruptions.
Setting aside extra cash can help you manage rising costs, sudden job changes or emergencies without derailing your long-term financial goals. In today’s volatile and unpredictable economy, having a larger financial cushion provides greater peace of mind and flexibility to navigate uncertainty.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
