President Donald Trump has repeatedly stated that he wants to eliminate federal income taxes and replace them with tariffs. This proposal could be one of the biggest changes to the U.S. tax system in recent decades. If this plan goes through, Americans could save a significant amount of money. But how would this affect someone earning $150,000 a year? Let’s break it down.
How Much You Could Save with Trump’s Tax Plan
Trump’s plan would eliminate federal income taxes for anyone earning less than $150,000 annually. This means that if you make $150,000 a year, you would no longer have to pay federal income taxes, which could result in a substantial increase in your take-home pay.
Currently, a person earning $150,000 in 2025 would have an effective tax rate of 16.83%. This means they would pay around $25,500 in federal income taxes. If Trump’s proposal passes, they would save that amount in federal taxes, but there might be new tariffs or sales taxes that could offset some of these savings.
The Impact of State and Local Taxes
While Trump can only control federal taxes, where you live can make a big difference in how much you pay. Some states have no income tax at all, which would help you save even more money. States like Florida, Texas, and Washington don’t tax income, so residents there could keep more of their salary.
Other states may be considering eliminating income taxes in the future, such as Ohio, which could see significant tax changes in the next decade.
Will This Cause Inflation?
While eliminating income taxes could benefit taxpayers, it may lead to inflation. The government still needs funds to operate, and if income taxes are eliminated, they would need to find another way to collect money. The government might print more money or introduce new taxes, like tariffs and sales taxes. However, this could lead to higher prices, reducing the purchasing power of the dollar.
To prevent high inflation, the government would need to cut spending significantly. The Department of Government Efficiency (DOGE) could help by finding ways to reduce federal spending, making it easier to balance the budget without raising inflation. However, this could be a challenging task.
Can a National Sales Tax Replace Income Taxes?
One possible solution could be a national sales tax. In the third quarter of 2024 alone, Americans spent over $16 trillion, so a sales tax could help replace the revenue lost by eliminating income taxes. However, the sales tax would need to be very high to cover the lost income tax revenue, which could put a burden on consumers.
The wealthiest Americans, who account for a large portion of consumer spending, might end up paying more through this sales tax.
Conclusion
Trump’s proposal to eliminate income taxes could lead to significant savings for people earning less than $150,000 per year. However, this change could also create challenges, including the potential for higher inflation and the need to find new ways to collect revenue.
The idea of a national sales tax could replace income taxes, but it might also lead to higher costs for consumers. While this plan is still in the early stages, it could have a major impact on how the U.S. tax system works in the future.
FAQ’s
How much could I save if Trump eliminates income taxes?
If you earn $150,000 a year, you could save around $25,500 in federal income taxes under Trump’s proposal.
Will this tax change affect my state taxes?
No, Trump’s plan only applies to federal taxes. Your state may still have its own income tax unless you live in a tax-free state.
Could eliminating income taxes cause inflation?
Yes, if the government replaces income taxes with tariffs or a sales tax, it might lead to higher prices, reducing the value of your money