{"id":295149,"date":"2025-05-12T12:00:42","date_gmt":"2025-05-12T11:00:42","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=295149"},"modified":"2025-05-12T09:56:29","modified_gmt":"2025-05-12T08:56:29","slug":"president-trumps-proposal-to-eliminate-income-taxes-can-it-be-done","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2025\/05\/president-trumps-proposal-to-eliminate-income-taxes-can-it-be-done\/","title":{"rendered":"President Trump\u2019s Proposal to Eliminate Income Taxes: Can It Be Done?"},"content":{"rendered":"

11 May 2025\u00a0<\/em>–\u00a0In February,\u00a0President Trump said<\/a>\u00a0that tariffs would generate so much income that Americans would no longer need to pay income taxes.<\/p>\n

The\u00a0latest plan<\/a>, according to U.S. Commerce Secretary Howard Lutnick, is to abolish income taxes\u00a0for people who earn less than $150,000 yearly. That move\u00a0would affect roughly 75%<\/a>\u00a0of workers, according to U.S. Census Bureau data. On its face, this could narrow the wealth gap by boosting disposable income for low- and middle-income households without raising taxes on the wealthy \u2014 a politically clever alternative to progressive tax hikes.<\/p>\n

Eliminating the burden of income taxes is an exciting proposition, due to savings not just in money but in man-hours \u2014 the time spent anguishing over ledgers, forms and receipts. In 2024,\u00a0according to the Tax Foundation<\/a>, Americans spent\u00a07.9 billion hours<\/em>\u00a0complying with IRS tax filing and reporting requirements. That is equivalent to\u00a03.8 million full-time workers<\/em>\u2014roughly the population of Los Angeles \u2014 doing nothing but tax paperwork for the full year.<\/p>\n

The question is, can tariffs and DOGE replace income taxes? If not, how else could the government fund itself? Is a growing debt bubble that is now carrying a $1.2 trillion interest tab, which must continue to expand just to sustain itself, the only alternative?<\/p>\n

How Eliminating Middle Class Taxes Would Affect the Budget<\/strong><\/p>\n

In a March 21 article titled \u201cEnding Taxes Below $150,000 Would Lose $10 to $15 Trillion,\u201d\u00a0the Committee for a Responsible Federal Budget concludes<\/a>:<\/p>\n

Even if enacted in a targeted manner, we estimate such a change would reduce revenue by roughly\u00a0$10 trillion\u00a0through 2035 if applied to income taxes only and\u00a0$15 trillion\u00a0if applied to employee-\u200bside payroll taxes as well. \u2026<\/em><\/p>\n

If enacted relative to current law, ending taxes on income below $150,000 would boost debt by $12 to $18 trillion with interest, increasing debt-\u200bto-\u200bGDP to between 145 and 160 percent \u2013 compared to 118 percent under current law.\u2026 Importantly, Commerce Secretary Howard Lutnick\u00a0has said<\/a>\u00a0the proposal would be contingent on achieving budget balance first.<\/em><\/p><\/blockquote>\n

Dividing the $10 trillion lost over 10 years (2025\u20132035) gives a $1 trillion loss per year on average, though there may be year-to-year variations. Trump\u2019s team proposes to offset this loss with savings from the Department of Government Efficiency (DOGE) and new tariff revenues, but the math doesn\u2019t look good.<\/p>\n

The Prospects from Tariffs and DOGE<\/strong><\/p>\n

Elon Musk\u2019s\u00a0DOGE has identified<\/a>\u00a0significant areas of federal \u201cwaste, fraud and abuse,\u201d but the program was originally projected to save $2 trillion by slashing misused funds. At Trump\u2019s cabinet meeting on April 10,\u00a0Musk said<\/a>\u00a0he expects the agency to find $150 billion in savings in fiscal year 2026, a number significantly lower than even the $1 trillion he said in February he was confident DOGE would find.<\/p>\n

Tariffs remain Trump\u2019s primary funding mechanism. He has frequently referenced the 19th<\/sup>\u00a0century, when there was no income tax, and tariffs were the principal source of revenue for the U.S. government. In his Liberation Day speech on April 2,\u00a0he said<\/a>, \u201cFrom 1789 to 1913, we were a tariff-backed nation, and the United States was proportionately the wealthiest it has ever been.\u201d\u00a0Trump\u2019s particular hero<\/a>\u00a0is Pres. William McKinley, whose\u00a01890 tariff of nearly 50%<\/a>\u00a0was a high point of the tariff policy.<\/p>\n

The problem is that in the 19th<\/sup>\u00a0century, the U.S. government had far fewer costs. Among other expenses, there was no Social Security, no Medicare and no trillion dollar interest to be paid to investors.<\/p>\n

As originally proposed, Trump\u2019s tariffs included a 10\u201320% universal tariff and up to 60% on Chinese imports. At that rate, the\u00a0Tax Foundation estimated<\/a>\u00a0that the tariffs could raise $1 trillion over a decade ($100 billion\/year) after accounting for reduced imports, while the\u00a0Tax Policy Center put the figure<\/a>\u00a0as high as $2.8 trillion ($280 billion\/year).<\/p>\n

These projections remain speculative, since the results of the trade deals being negotiated are yet to be reported. On April 30, the president stated that negotiations had already resulted in\u00a0$8 trillion in promised investment<\/a>\u00a0in U.S. production, an impressive number, but investments take several years to manifest as new tax income.<\/p>\n

For the near term, DOGE cuts at $150 billion per year and tariffs estimated at $280 billion per year would cover less than half the trillion dollar loss projected from middle-class tax cuts. And that is without touching the\u00a0$1.9 trillion deficit already projected<\/a>\u00a0by the Congressional Budget Office, something Commerce Sec. Lutnick said would have to be eliminated before income tax relief could be considered.<\/p>\n

The Elephant in the Room<\/strong><\/p>\n

Even if new trade deals manage to cover the full deficit, the unprecedented federal debt will continue to loom. Currently standing at $36.21 trillion, the debt comes with interest payments projected to hit $1.2 trillion in 2025. That works out to $3.3 billion\u00a0per day<\/em>. In effect,\u00a0all<\/em>\u00a0of our middle-class income taxes are being spent just to pay interest to bondholders, foreign and domestic.<\/p>\n

Interest costs are expected to rise\u00a0from 9%<\/a>\u00a0of federal revenue in 2021\u00a0to 23%<\/a>\u00a0by 2034, crowding out federal priorities like infrastructure and healthcare. And that assumes bond buyers keep rolling over the debt at current rates. For FY 2025, an estimated $9.2 trillion \u2014 fully a quarter of the debt \u2014\u00a0will come due<\/a>\u00a0and need to be refinanced. What if foreign countries, which hold approximately 30% of the debt, decide to invest elsewhere?<\/p>\n

The most efficient to fill the trillion dollar hole left in the budget if middle-class income taxes are eliminated might be to take an axe to the trillion dollar interest tab and the federal debt sustaining it. But how?<\/p>\n

Even Quantitative Easing Won\u2019t Work to Eliminate the Interest Burden<\/strong><\/p>\n

Many\u00a0economists think<\/a>\u00a0new rounds of\u00a0quantitative easing\u00a0<\/a>(QE) are necessary, as the only way to keep Treasury interest rates low. QE is a maneuver by which Treasury debt is purchased by the Federal Reserve with newly issued bank reserves. The debt could theoretically be eliminated by having the Fed buy the securities as they come due. Assuming\u00a0$9.2 trillion in debt<\/a>\u00a0maturing annually, the whole debt could be moved onto the books of the Fed in about four years, and since the Fed is required to rebate its profits to the Treasury after deducting its costs, this could theoretically eliminate the interest burden. But there are two wrinkles:<\/p>\n

(1) The Fed is not allowed to buy federal securities directly from the Treasury. It primarily conducts its open market operations, including QE Treasury purchases, through primary dealers, a select group of large financial institutions designated by the Fed to act as its counterparties in the open market.<\/p>\n

(2) Ever since 2008, the Fed has been paying interest on the banks\u2019 reserve balances (IORB), which counts in the costs it deducts from the profits it returns to the Treasury. The\u00a0rate on IORB<\/a>\u00a0set by the Fed is 4.4% as of May 2, 2025, while the\u00a0average interest rate on the federal debt<\/a>\u00a0is approximately 3.3% for the fiscal year-to-date 2025.<\/p>\n

Thus if the Fed were to buy $9.2 trillion in federal securities this year, it would receive $9.2 trillion \u00d7 3.3% in interest but would have to pay IORB on the same $9.2 trillion at 4.4% to the banks, a net loss to the Fed. In effect, the banks would be receiving the interest rather than the Treasury, unless a couple of laws were changed, and changing them would no doubt meet with heavy resistance from the powerful banking lobby.<\/p>\n

Why, you may ask, does the Fed feel it needs to pay interest on bank reserves? Good question. It\u2019s a monetary policy tool designed to curb inflation by setting a floor on the fed funds rate, the rate at which banks lend to each other. Since banks won\u2019t lend at rates lower than they can safely earn from the Fed, it\u2019s a way to keep interest rates high. But the result has been that the banks have simply reduced their lending. Why lend to risky local businesses when they can sit back and collect a safe and ample return from the Fed itself?<\/p>\n

It\u2019s a controversial windfall to the banks, to support an interest rate that is itself controversial. But the bottom line is that the Fed is not able to bail out the government from its trillion dollar interest tab. What then is to be done?<\/p>\n

A Radical Alternative Whose Time Has Come<\/strong><\/p>\n

Given the president\u2019s predilection for 19th century economics, he could go a bit further back than to President McKinley. Abraham Lincoln, the first Republican president, avoided a crippling national debt by resorting to the funding mechanism of the American colonists: let the government print the money directly, not through a banker-controlled central bank but through the Treasury. The government could buy back its debt with U.S. Notes or \u201cGreenbacks,\u201d as permitted under the Constitution (Article I, Section 8) and\u00a0declared legal<\/a>\u00a0by the Supreme Court. These new currencies could then be used to repurchase maturing Treasury securities debt- and interest-free.<\/p>\n

Critics will cry \u201chyperinflation,\u201d arguing that the newly-issued currency would flood the economy, spiking demand and prices. But if new money is directed to productive investments \u2014 for example infrastructure, energy, and healthcare \u2014 supply and demand will rise together, stabilizing prices. The Chinese demonstrated this in the 25 years from 1996 to 2025, when their domestic money supply was inflated\u00a0from 4,840 CNY (Chinese yuan) to 320,526 CNY<\/a>, or by 5500%; yet the price level remained stable and low. For a fuller explanation with data, see my earlier article\u00a0here<\/a>.<\/p>\n

To ensure that the Greenbacks finance growth, a national infrastructure bank could channel funds into projects such as affordable housing, high-speed rail, broadband, the power grid and large water and transportation projects. China is again the modern model. It has three giant \u201cpolicy banks\u201d assigned to implement the policies of the government, including China Development Bank, the world\u2019s largest infrastructure and development bank. A U.S. version could prioritize projects with high economic returns, vetted by transparent, DOGE-like algorithms to prevent waste and cronyism.<\/p>\n

We desperately need infrastructure funding, and the current federal budget has no room to adequately address those needs. A viable proposal for a national infrastructure bank,\u00a0H.R. 4052<\/a>, currently has 47 cosponsors. The bank would use off-budget financing on the model of the Reconstruction Finance Corporation, the federal financial agency that rebuilt the country\u2019s infrastructure during the banking crisis of the 1930s. For more information, see the\u00a0NIB Coalition website<\/a>.<\/p>\n

For state and city governments, public banks on the model of the Bank of North Dakota could address local infrastructure needs. See my earlier article\u00a0here<\/a>\u00a0and the\u00a0Public Banking Institute<\/a>\u00a0website.<\/p>\n

Prosperity Without Debt<\/strong><\/p>\n

It has been argued that \u201cjust printing the money\u201d would jeopardize the federal government\u2019s credit rating. Perhaps, but we wouldn\u2019t need credit if we could create our own, debt-free. To repeat\u00a0an editorial<\/a>\u00a0directed against Lincoln\u2019s debt-free Greenbacks\u00a0attributed to the 1865\u00a0London Times<\/em><\/a>,\u00a0which may be apocryphal but nevertheless demonstrates the possibilities:<\/p>\n

If that mischievous financial policy which had its origin in the North American Republic during the late war in that country, should become indurated down to a fixture, then that Government will furnish its own money without cost. It will pay off its debts and be without debt. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe.<\/em><\/p><\/blockquote>\n

Lincoln\u2019s Greenback policy was indeed destroyed, along with the president who dared to implement it. But the U.S. government is powerful enough today to pull that \u201cmischievous financial policy\u201d off. A Greenback-funded debt buyback could offer a way to pay down debt without interest costs, while spurring growth through targeted investments monitored through a national infrastructure bank and local public banks to absorb demand productively. In several years, the whole $1.2 trillion interest tab could be slashed from the budget, making our trillion dollar middle-class income tax payments that barely cover that expense unnecessary.<\/p>\n

The full budget could even be funded with Treasury-issued Greenbacks, eliminating the need for taxes at all. DOGE has demonstrated the possibilities for monitoring the government\u2019s expenditures transparently and accountably with artificial intelligence. And as AI progressively replaces jobs, the government will need some form of universal basic income to supplement or replace worker salaries, perhaps \u201cSocial Security for All.\u201d<\/p>\n

Granted, that raises new issues around the privacy and programmability of a government-issued digital currency. But as Cornell Prof. Robert Hockett argues in his book,\u00a0The Citizens\u2019 Ledger<\/a>, these can be overcome with cryptographic protections. For people leery of digital government-issued dollars, the Treasury could exercise its constitutional power to issue coins and paper dollar bills. Those are all complicated issues for another article, but the possibilities are provocative. We can escape the debt trap engineered by a private banking system that creates money as debt at interest \u2013 and escape the middle-class income taxes paying for that interest \u2013 by returning the sovereign power to issue money to the Treasury.<\/p>\n

________________________________________<\/em><\/p>\n

\"\"<\/a> Ellen Brown is a member of the <\/em>TRANSCEND Network for Peace Development Environment<\/a>, an attorney, founder\/chairperson of the\u00a0<\/em>Public Banking Institute<\/a>, and author of thirteen books including\u00a0<\/em>Web of Debt<\/a>,\u00a0The Public Bank Solution<\/a>, and\u00a0<\/em>Banking on the People: Democratizing Money in the Digital Age<\/a>.\u00a0Her articles are at\u00a0<\/em>ellenbrown.com<\/em><\/a><\/p>\n

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Go to Original \u2013 ellenbrown.com<\/a><\/p>\n

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 <\/p>\n","protected":false},"excerpt":{"rendered":"

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