A recent analysis conducted by a Washington, D.C., think tank reveals that former President Donald Trump’s domestic policy agenda would result in a tax increase for the majority of American households. This is primarily due to his proposed tariffs on imported goods.
Trump has proposed a range of tax cuts, advocating for innovative measures such as the elimination of taxes on workers’ tips and overtime pay. He has gone as far as suggesting that homeowners should have the option to take unlimited federal deductions for the property taxes they pay to state and local governments.
Most households would save hundreds or even thousands of dollars thanks to the tax breaks and extension of across-the-board tax rate reductions implemented by President Trump in 2017.
According to the analysis, the tax cuts and tariffs would result in an average cost of $1,530 for households in the middle 20% of the income distribution in 2026. On the other hand, the richest 1% would save $36,320. Trump’s plans would only benefit 5% of the wealthiest households.
Trump has put forth a plan to implement a 20% tariff on all goods imported into the United States, along with higher tariffs of 60% or more specifically on imports from China. Many economists argue that these tariffs would ultimately be passed on to American consumers.
While the government would impose the tariffs on the companies importing the goods, these companies would likely raise their prices to compensate for the increased costs. This has led some economists to compare the proposed tariffs to a national sales tax.
Trump has completely dismissed the consensus.
“I don’t have sales tax. That statement is incorrect,” Trump asserted during last month’s debate with Vice President Kamala Harris, his Democratic presidential rival. “Instead, we are implementing tariffs on other countries.”
According to the Tax Foundation, the proposed tariffs by Trump would function as an excise tax, potentially reaching tariff levels not witnessed since the Great Depression.
The report reveals that the majority of the benefits from these cuts would primarily benefit individuals in the upper-middle-class bracket, while low- and middle-income earners would only experience minimal or moderate benefits.
According to the authors’ projections, individuals earning between $28,600 and $55,100 annually would experience a modest average tax reduction of $190 as a result of these measures. In contrast, those with an income range of $157,500 to $360,000 would benefit from a significantly larger average tax reduction of $3,420.
The proposals have the potential to bring about significant changes in the behavior of workers and employers. One notable change would be the prioritization of certain types of income over others.
For example, if taxes on tips are eliminated, it would incentivize employers to pay their workers through gratuities instead of regular wages. This could lead to a widespread increase in tipping practices throughout the economy, even though consumers may become tired of the constant addition of tips to their expenses.
Critics have also raised concerns about the potential for abuse in these plans. They argue that high-income earners, such as lawyers, may exploit the system by switching to gratuity-based pay in order to evade taxes.
According to an analysis conducted by the Committee for a Responsible Federal Budget, Trump’s tax plans have the potential to result in a government cost of up to $15 trillion. In comparison, the tax proposals put forth by the Harris campaign could lead to a cost of $8 trillion.
Brian Hughes, an adviser to the Trump campaign, has dismissed concerns about the deficit impact of the president’s proposals.
According to Hughes, President Trump’s tax cuts created a strong and sustainable growth that generated more revenue for the federal government.
The plan aims to control unnecessary expenses, combat inflation, decrease interest costs, and stimulate economic growth, thus boosting federal revenue and revitalizing the economy.