Trump Floats Elimination of Income Tax

[teekay99]

From Fox Business:

Trump says Americans may soon pay ‘no income tax’ as White House explores alternative revenue streams

President Trump proposes eliminating income tax entirely, suggesting tariff revenue could replace traditional taxation in ambitious economic overhaul plan.

www.foxbusiness.com

What follows is an economic argument, not a political argument. Please use the politics sub forum to make a political reply.

Eliminating income taxes and replacing them with revenue from tariffs essentially converts our tax system to a consumption tax (like a sales tax). Economicly, consumption taxes are less efficient as they directly impact consumer demand. Tariffs are generally passed on to the consumer and raise the price of imported goods. Some consumers are then priced out of the market or substitute with cheaper products. Tariffs reduce demand especially for products with high elasticity. Tariff income may thereby be reduced.

A fundamental economic principle is that consumers and suppliers respond to incentives (or disincentives). Tariffs may cause a a shift back to domestic products or a degree of onshoring. This activity may further reduce income from tariffs.

Replacing the income tax with tariffs may be a more optimistic idea than it actually turns out to be. And either way, Americans are still paying a tax. Arguably, tariffs impact lower income Americans harder in terms of disposable income.

 

[Deleted account]

From Fox Business:

Trump says Americans may soon pay ‘no income tax’ as White House explores alternative revenue streams

President Trump proposes eliminating income tax entirely, suggesting tariff revenue could replace traditional taxation in ambitious economic overhaul plan.

www.foxbusiness.com

What follows is an economic argument, not a political argument. Please use the politics sub forum to make a political reply.

Eliminating income taxes and replacing them with revenue from tariffs essentially converts our tax system to a consumption tax (like a sales tax). Economicly, consumption taxes are less efficient as they directly impact consumer demand. Tariffs are generally passed on to the consumer and raise the price of imported goods. Some consumers are then priced out of the market or substitute with cheaper products. Tariffs reduce demand especially for products with high elasticity. Tariff income may thereby be reduced.

A fundamental economic principle is that consumers and suppliers respond to incentives (or disincentives). Tariffs may cause a a shift back to domestic products or a degree of onshoring. This activity may further reduce income from tariffs.

Replacing the income tax with tariffs may be a more optimistic idea than it actually turns out to be. And either way, Americans are still paying a tax. Arguably, tariffs impact lower income Americans harder in terms of disposable income.

I propose that it's essentially impossible to make an "economic argument" in the first place unless you look at the hard numbers.

America raises about $3 trillion each year from income taxes - $2.4T from individual income taxes and $0.6T from corporate income taxes (source: US Trasury guide to government finance). The United States also happens to import around $3 trillion worth of goods annually (source: US Customs and Border Protection annual reports). So that means tariffs would have to be at least 100% on all imported goods for tariffs to replace income taxes.

But replacing all that tax revenue is not even as simple as doubling the price of everything that comes into America: If you remember your Econ 101 class, as prices rise, demand trails off. Given higher prices result in lower sales, it may require as much as 200% tariffs on all imported goods for the total tariff revenue to replace income taxes.

No wonder the Fox Business article you're citing steers clear of the math. This is just populism.

 

[teekay99]

If you remember your Econ 101 class

I do. I'm a former economics major (25+ years ago), 12 credits shy of a degree. My last econ class was an upper division mathematical economics class (lots of calculus). In fact I think the only economics class I had left for my degree was econometrics. I align more with neo classical economics.

I propose that it's essentially impossible to make an "economic argument" in the first place unless you look at the hard numbers.

You can make an economic argument without the numbers. But the numbers absolutely illustrate the position and strengthen the argument.

I agree - the article likely steered clear of the numbers because they probably don't add up.

 

[Deleted account]

I do. I'm a former economics major (25+ years ago), 12 credits shy of a degree. My last econ class was an upper division mathematical economics class (lots of calculus). In fact I think the only economics class I had left for my degree was econometrics. I align more with neo classical economics.

I was unaware of your background. Apologies if I came across as condescending; that wasn't my intention (IMO the lack of a clear distinction between the personal "you" and the collective "you" is a major flaw of English grammar).

 

[teekay99]

I was unaware of your background. Apologies if I came across as condescending; that wasn't my intention (IMO the lack of a clear distinction between the personal "you" and the collective "you" is a major flaw of English grammar).

No need to apologize. I thought it was a "general" you. I just hopped on the opportunity to flaunt my almost quasi credentials.

Yes English is a terrible language.

 

[PeacePlease]

Isn't this how Tax Free havens in Europe work?

 

[Deleted account]

Isn't this how Tax Free havens in Europe work?

The only country in Europe which has a personal income tax rate of 0% is Monaco - a tiny city state (0.78 square miles) on the southern coast of France. This peculiar status is made possible by policies that ensure only wealthy people settle in the city. Residency restrictions are among the strictest in the world; individuals must purchase or lease property that meets specific size and value criteria, and deposit substantial funds into a Monaco bank account (typically at least 500,000 USD).

In addition, Monaco still levies corporate income tax (25%) and value added tax (20%).

So no, the answer to your question is "no".

 

[DarkNoon]

How about we start by making corporations pay their fair share. This is not some radical new idea.

Not that long ago, big companies regularly paid well over half of their income in taxes.

We do not even need to go back to those levels. It is simply time they contribute proportionately to the system they profit from. Again it use to be that way in America. This isn't some radical new idea. Smh.

These companies depend on public infrastructure at every step. They use publicly funded roads and highways to move their goods. They rely on the power grid and utilities to run their factories and offices. They benefit from ports, airports, communications networks, and an educated workforce.

Yet, they contribute a fraction of what ordinary people do relative to what they get out of the system.

That balance needs to change. At the very least, the burden should be shared more evenly between corporations and the people who keep the entire system running.

 

[william]

In 2022, the top 5% of earners collectively paid over $1.3 trillion in income taxes, or about 61% of the national total.

If you include the top 10% — everyone who made at least $178,611 — that figure rises to $1.5 trillion, or 72% of the total.

If you raise taxes on corporations to much they will offshore or contract! Corporate taxes should be lowered not raised IMO.

The federal government generated $4.9 trillion in revenue in fiscal year 2024, nearly half of which came from taxing people on their incomes. Individual income taxes in FY 2024 totaled $2.4 trillion, or $7,166 per person.

Personally, I would like to have seen that FICA tax eliminated from my paycheck in my working career. But what do I know! I was just a dumb blue-collar worker most of my life.

Who pays the most income tax? | USAFacts

In 2023, the top 5% of earners collectively paid $1.27 trillion in income taxes, or about 60% of the national total.

usafacts.org

 

[DEFCON Warning System]

How about we start by making corporations pay their fair share.

I always hear this, but no one is ever able to define what the "fair share" is other than "more".

 

[teekay99]

I always hear this, but no one is ever able to define what the "fair share" is other than "more".

The problem is that the notion of "fair share" requires a value judgment. It's a normative statement and not a positive statement. You won't find a consensus definition for "fair share" from an economic perspective.

 

[DEFCON Warning System]

You won't find a consensus definition for "fair share" from an economic perspective.

Even an individual definition would be nice.

"Dear sir, you say that someone needs to pay their fair share. Okay, what is their fair share? Give me a number that, when they pay it, you will be satisfied and demand no more from them."

I guarantee you, no one will ever be able to do that, because their position isn't about paying a "fair share" but rather their position is the morally superior identity of complaining about a perceived injustice.

 

[teekay99]

Even an individual definition would be nice.

"Dear sir, you say that someone needs to pay their fair share. Okay, what is their fair share? Give me a number that, when they pay it, you will be satisfied and demand no more from them."

I guarantee you, no one will ever be able to do that, because their position isn't about paying a "fair share" but rather their position is the morally superior identity of complaining about a perceived injustice.

I agree. I'd give you my definition, if I actually had one.

Economics is a science based on data, evidence, and hypothesis testing using positive analysis. "Fair share" requires an individual to make some sort of value judgement in order to express "what ought to be" based on some kind of sense of morality or justice, as you point out. A socialist is likely to have different definition of "fair share" than a free-marketer. In fact there may even be disagreement of "fair share" among individuals of similar morality and personal philosophy. There is no scientific definition of "fair share" based on data and evidence.

Anybody who thinks they are paying less than their "fair share" by their own definition is free to donate their money to charity or to make voluntary contributions to the US debt using the URL below. Contributions though this tool are deposited into the general fund of the US government, which is basically where your tax dollars end up.

Pay.gov - Gifts to Reduce the Public Debt

www.pay.gov

I am focusing on the economic perspective to help prevent this thread from descending into political debate outside of the politics sub forum.

 

[DarkNoon]

I always hear this, but no one is ever able to define what the "fair share" is other than "more".

The problem is that the notion of "fair share" requires a value judgment. It's a normative statement and not a positive statement. You won't find a consensus definition for "fair share" from an economic perspective.

Even an individual definition would be nice.

"Dear sir, you say that someone needs to pay their fair share. Okay, what is their fair share? Give me a number that, when they pay it, you will be satisfied and demand no more from them."

I guarantee you, no one will ever be able to do that, because their position isn't about paying a "fair share" but rather their position is the morally superior identity of complaining about a perceived injustice.

This is not some radical new idea. We already did this and it worked!!! It is the period everyone calls America’s “greatest” era or generation of America.

Back then, large corporations paid far higher tax rates than they do today, and that lined up with the time we built the interstate system, ports, dams, schools, the early space program, and a broad middle class. That did not happen on vibes. It ONLY, LITERALLY ONLY happened because big business actually paid into the system THAT THEY profited off of anyways...

Right now those same corporations ride on public infrastructure that everyone else funds. They use public roads, ports, the power grid, courts, and an educated workforce, while the effective bill gets shifted onto workers and consumers. After loopholes and accounting tricks, plenty of large, profitable firms end up paying in the low single digits or nothing at all in some years.

So here is my definition of “fair share”.... big, profitable corporations should not have effective tax rates lower than their own employees, and they should not be sitting in the 0% to 5% percent range while using more public infrastructure than anyone else. That is the floor, the God damn floor or line for me. Should be for everyone.


If you want to “make America great again,” then maybe remember what actually paid for the greatness last time. Why do people forget history?

 

[DarkNoon]

So here is my definition of “fair share”.... big, profitable corporations should not have effective tax rates lower than their own employees,

So here is my definition of “fair share”... big, profitable corporations should not have effective tax rates lower than their own employees. FULL STOP. Any excuse is just garbage. Straight up. Don't matter left or right both guilty of protecting and being brained washed into protecting big business.

IF corporations and businesses could even do half of that, simply pay more in taxes then their employees do, we would be in a much better place as a nation in almost every aspect.

Which again is not even a fraction, of a fraction, of a fraction, of a fraction, of what they used to pay. Again nothing new, we use to do this WHEN America was great

This is not a radical new idea. For a long time, businesses actually paid more in taxes than their own workers.

And anyone with common sense can see when the ship started to turn... when corporations stopped carrying their own weight in taxes, chased loopholes and excuses, and lobbied the government to pay little or nothing, all while milking public infrastructure for profit and sticking the bill on the people who actually fund it.

 

[DarkNoon]

Everyone shouts “make America great again,” BUT when America really was great, corporations and big business were actually paying into the system instead of dodging it... Or not paying Congressmen's campaigns to get tax cuts on their business or corporation.

 

[DEFCON Warning System]

Anybody who thinks they are paying less than their "fair share" by their own definition is free to donate their money to charity or to make voluntary contributions to the US debt using the URL below.

Oh, believe me, no one thinks they are not paying their fair share. It is always "someone else" who is not.

So here is my definition of “fair share”... big, profitable corporations should not have effective tax rates lower than their own employees. FULL STOP. Any excuse is just garbage. Straight up. Don't matter left or right both guilty of protecting and being brained washed into protecting big business.

That is a (somewhat) fair assessment. But how would you compensate for development and other costs that employers have that employees do not?

I mean, I get it. If Mr. Burns is paying two dollars tax on one billion dollars profit (not revenue, profit!), I have a problem.

But if we are saying Big Conglomerate Corporation must pay 70% tax on revenue when expenses eats up 60% already, I have another problem.

 

[DarkNoon]

I mean, I get it. If Mr. Burns is paying two dollars tax on one billion dollars profit (not revenue, profit!), I have a problem.

You actually just made my point for me.

You said yourself that if “Mr. Burns” makes 1 billion dollars, he should not be paying 2 dollars in tax. That means you do accept the idea that there is some minimum level where tax becomes obviously too low and not “fair” by any sane standard.

All I am saying is quite simple. That floor should exist in the real world for real corporations, not just in a cartoon example. Big, profitable companies should not have effective tax rates lower than their own employees BARE MINIMUM, or in the range of using more public infrastructure than anyone else.

That is my definition of fair share. You already agreed in principle. We are just arguing over numbers now, not over whether the concept exists. As it does and was reality at one point for America.

What I am saying is pure common logic or sense. What I am saying isn't radical. It's been done before in America and it is what made America great at the time. Or should say enabled it to be great.

 

[DarkNoon]

Making sure companies pay for the infrastructure they use, just like everyone else, is not radical. It is just smart and logical. It also used to be the normal way things were done.

Anyone saying otherwise has either been brainwashed by their party, left or right, or they simply do not understand basic history and economics. Sorry, but really not sorry.

 

[DEFCON Warning System]

That is my definition of fair share. You already agreed in principle. We are just arguing over numbers now, not over whether the concept exists. As it does and was reality at one point for America.

I don't think that was ever a point of contention by anyone.

Now give me a number rather than a concept.