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President Donald Trump is again making bold tax policy promises, with his latest pitch suggesting eliminating federal taxes for individuals earning less than $150,000 a year. The idea, floated by Commerce Secretary Howard Lutnick, raises serious questions about feasibility, economic impact, and potential alternative revenue sources.
“I know what his goal is — no tax for anybody making under $150,000 a year,” Lutnick said. “That’s his goal. That’s what I’m working for.”
While the Trump administration has not officially detailed this plan, it aligns with previous suggestions to abolish the IRS and shift revenue generation to tariffs on foreign imports. Additionally, Trump’s tax strategy aims to eliminate taxes on Social Security benefits, tips, and overtime pay, alongside broader tax cuts that many experts argue disproportionately benefit the wealthy.
How Many Americans Would Benefit?
If enacted, this proposal would significantly impact the majority of American taxpayers. According to the U.S. Census Bureau, over 76% of individuals earn less than $150,000 annually, with some estimates placing that figure closer to 90%.
A deeper breakdown of household income levels in 2025 provides further context:
- Ages 25-34: $85,780 median income
- Ages 35-44: $101,300 median income
- Ages 45-54: $110,700 median income
- Ages 55-64: $90,640 median income
- Ages 65+: $54,710 median income
Overall, only about 24% of U.S. taxpayers earn above $150,000, meaning this proposal could dramatically alter the nation’s tax structure.
Key Concerns About the $150K Tax Proposal
Despite its populist appeal, this plan raises major economic and policy concerns:
- Who covers the revenue gap? Eliminating taxes for most Americans would leave a massive funding shortfall. Would those earning just above $150K bear a disproportionate tax burden?
- Would it introduce a national sales tax? To offset lost revenue, could new consumption-based taxes be implemented, disproportionately affecting lower-income individuals?
- Tariffs as a funding source? Would raising tariffs on imports generate enough revenue to replace income taxes?
- Impact on Social Programs: Would tax cuts lead to funding cuts for Medicare, Social Security, or other government programs?
Trump’s Proposed Solution: Tariffs as the New Tax Base
Lutnick argues that revenue shortfalls from eliminating taxes could be offset through higher tariffs on imported goods. “His [Trump’s] goal is to have external revenue,” Lutnick said. “The rest of the world leans on our economy, breathes off our economy. Let them pay a membership fee.”
However, economists widely dispute the feasibility of tariffs replacing federal income tax revenue. Some key concerns include:
- Tariffs are paid by U.S. importers, not foreign countries—these costs are then passed down to American consumers through higher prices.
- Tariffs act as a regressive tax, disproportionately impacting lower and middle-income households.
- Trade wars could backfire, as seen in Trump’s first term, when retaliatory tariffs led to $61 billion in emergency relief payments to affected U.S. farmers.
Trump’s Broader Tax Agenda
Beyond the $150K proposal, the Trump administration has been aggressively pushing forward a range of tax-related policies, including:
- Eliminating taxes on tips, overtime pay, and Social Security benefits
- Extending the 2017 Tax Cuts and Jobs Act (TCJA), which is set to expire soon
- Expanding tariffs on major trading partners, including China, Mexico, and Canada
- Establishing an External Revenue Service (ERS) to collect tariff-based government revenue
Additionally, on March 12, 2025, Trump’s administration announced blanket 25% tariffs on all aluminum and steel imports, with plans to reinstate reciprocal tariffs on foreign nations starting April 2.
What’s Next?
While Trump’s tax proposals generate attention, the likelihood of such sweeping changes passing through Congress remains uncertain. With a Republican-led House and Senate, some form of tax reform is likely, but whether it includes an income tax exemption for those earning under $150K remains to be seen.
In the meantime, expect continued debate over the economic viability of replacing income tax revenue with tariffs—an approach most economists say would place a greater burden on consumers rather than foreign governments.
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