Trump hints at abolishing income tax in US: What it means and what's the current system in America

UPDATED: Jan 29, 2025 00:06 IST

US President Donald Trump has hinted at a potential scrapping of the income tax system in America and replacing it with tariffs to fund the government. Speaking to House Republicans in Florida on January 27, 2025, Trump unveiled his plan to overhaul the US taxation system to shift the burden away from American workers and businesses.

Trump, who has been the champion of the "America First" policy, emphasized his goal of reducing the financial burden on American citizens.

“Under the America First model, as tariffs on other countries go up, taxes on American workers and businesses will come down,” Trump said, proposing that tariffs on foreign nations would help protect US industries while raising revenue.

He singled out countries like China and India for imposing high tariffs, and pledged to take action against countries he claims harm America’s economy.

“We’re going to put tariffs on outside countries and outside people that really mean harm to us,” Trump added, stressing his administration’s aggressive stance on international trade. He suggested that by raising tariffs on foreign goods, the US could reduce the need to tax its own citizens to fund government initiatives.

The former president also reiterated his support for corporate tax cuts, continuing to advocate for the reduction of the corporate income tax rate from 21% to 15%. His tax proposals have been met with strong backing from wealthier Americans and large corporations, while others argue that such policies could exacerbate inequality.

Notably, Trump’s plan goes beyond tax reform, also emphasizing the return of American manufacturing to US soil. He encouraged businesses to relocate factories within the country to avoid the tariffs, particularly in industries like pharmaceuticals, semiconductors, and steel. "If you want to stop paying the taxes or the tariffs you have to build your plant right here in America," he remarked.

Current US Tax System

As of 2024, the US tax system operates under a progressive model with seven federal income tax brackets, ranging from 10% to 37%. The tax rates apply to taxable income, which is calculated after deductions and credits. Here are the key federal tax brackets for 2024:

Trump's tax overhaul in the offing?

Trump’s tax policies, if enacted, would significantly reduce taxes on corporations and wealthier Americans.

He has also proposed eliminating some of the tax hikes introduced by the Biden administration, including those targeting the wealthiest Americans through the Inflation Reduction Act. At the same time, Trump has called for tax exemptions on earned tips, overtime wages, and Social Security wages, focusing on working- and middle-class Americans.

While these proposed changes would dramatically reshape the US tax landscape, Trump’s broader vision points to a future where tariffs, not income taxes, fund government programs and services. However, critics argue that such policies could lead to economic challenges, especially for the middle and lower classes, as well as heightened tensions in international trade relations.