Former President Donald Trump has raised the possibility of doing away with income taxes.
Trump said the nation could return to the economic policies of the late 19th century, The New York Times reported, when there was no federal income tax.
In June, Trump floated the idea of replacing federal revenue from income taxes with money received from tariffs. In general, income taxes are progressive, meaning that Americans with more income pay a higher tax rate.
Income and payroll taxes make up about 94 percent of federal revenue. Trump has suggested his many tax decrease proposals could be covered by drastically raising tariffs on imports.
Question: Would getting rid of, or significantly reducing, federal income taxes work?
Economists
James Hamilton, UC San Diego
NO: Washington’s borrowing spree of the past four years has already dug us into a deep hole that will bring major problems ahead. To suggest that we could do without income taxes is preposterous. Tariffs could not come close to replacing the lost revenue, and introducing huge tariffs would launch a trade war that would devastate our economy. I take this as another example of political hyperbole which, even if the candidates were serious, could never get through Congress.
Norm Miller, University of San Diego
NO: Tariffs, essentially consumption taxes, fall short of replacing current taxation. To match federal tax revenue, a national sales tax would need to be 23 percent in addition to existing sales taxes. This shift would transfer the tax burden from the top 10 percent of earners, who currently pay 76 percent of all federal taxes, to the lower half of earners, who spend more of their income on consumption. Consequently, this would reduce imports, increase domestic labor costs, spark trade wars, and push the economy into a recession.
Caroline Freund, UC San Diego School of Global Policy and Strategy
NO: If it sounds too good to be true, it probably is. Income and payroll taxes account for 94 percent of federal revenues, without which government services would collapse. While increasing import tariffs — Trump’s favorite instrument — would raise some revenue, it could not replace lost income tax revenue. As tariffs go up, imports go down, reducing the associated revenue. Tariffs also push up prices and hurt low-income families who spend more of their income on consumption.
Kelly Cunningham, San Diego Institute for Economic Research
YES: Income taxes are a relatively recent “development” established as emergency to pay for extraordinary expenses, usually war, and then continuing to finance government spending, which increasingly is mismanaged, corrupt and debt expanding. Nine states do not levy individual income taxes using alternative methods (consumption taxes, user fees) to gather tax revenues. Drastic reduction of federal spending would also be necessary. Regressive tariffs would not fully replicate tax collections while disrupting trade and the economy from prospering.
David Ely, San Diego State University
NO: Eliminating federal income taxes would require finding an alternative source of revenue or slashing federal government spending. Expanding tariffs will not make up for the lost revenue from eliminating federal income taxes. Higher tariffs will drive up the prices of imported goods for consumers, harm U.S. manufacturers who rely on imported materials, and lead to retaliatory tariffs imposed by trading partners. The result will be reduced trade, slower U.S. growth and higher inflation.
Ray Major, economist
YES: The current federal taxations system is broken. It is inequitable, impossible for the average person being taxed to understand and full of loopholes. It has grown so complicated and cumbersome that it is unmanageable. At this point, the only solution is start over with a different system. Many unforeseen consequences will result from any overhaul but they can be handled over time. It’s time to do something different because what we have now isnt working.
Alan Gin, University of San Diego
NO: The personal income tax brings in more than $2 trillion to the federal government, whereas tariff revenue is around $100 billion a year. It’s not possible to increase tariff revenues by the more than 20 times it would take to replace revenue from the income tax, as increasing tariffs sharply would reduce imports and tariff revenues. Also, such a switch would be hugely regressive, as the income tax is progressive while increased tariffs are the equivalent of a sales tax, which is regressive.
Executives
Chris Van Gorder, Scripps Health
NO: I would love to see taxes lowered at both the federal and state level to focus on needs and not political wants. Having said that, untested political tax reform theories are not the answer. A move this big would have to be tested first and everyone needs to know there is no free ride. And any increased costs due to tariffs would have to be paid by someone — that “someone” would be us.
Jamie Moraga, Franklin Revere
NO: Not unless the U.S. government also drastically shrinks. When tariffs were the primary source of federal revenue, the U.S. government was significantly smaller, so solely increasing tariffs isn’t the solution to make up the delta needed. A combination of reducing federal income taxes, increasing tariffs, enacting a federal sales tax, while reducing the size of government could work but not without analysis and support on both sides of the aisle, which is unlikely.
Gary London, London Moeder Advisors
NO: Now don’t get me wrong. I would welcome income tax reform rather than the manipulated, confusing and expensive mess of a system now in place. But tariffs simply don’t cut it as a replacement on so many levels, even beyond the basic impossibility of the arithmetic. It would be interesting to have a serious civic discussion about tax rates, simplification and, most of all, substitutions and supplements like a national sales tax.
Bob Rauch, R.A. Rauch & Associates
NO: Tariffs alone cannot replace all income taxes. Tariffs currently represent about 2 percent of our national income. However, they can contribute to funding the proposed tax cuts. Starting with China, which has been accused of currency manipulation, intellectual property theft, and corporate espionage, tariffs can help us become fair traders rather than free traders. By targeting unfair practices, tariffs can encourage the development of domestic industries such as pharmaceuticals, semiconductors, defense equipment and strategic minerals refining.
Austin Neudecker, Weave Growth
NO: Income taxes comprise almost all of the annual $4.5 trillion federal revenue. If substantially reduced, we would need another source of income to fund government programs. Tariffs comprise only $80 billion today. Even a 20x increase in tariffs would not only cause inflation and far-reaching negative ramifications but, fundamentally, be far from sufficient. An egalitarian approach would include taxing income and capital similarly, eliminating tax loopholes and enforcing tax law so everyone pays their fair share.
Phil Blair, Manpower
NO: It would be entirely too disruptive to the current taxing system and cause chaos. However a well-thought-out and expertly integrated plan to review all taxing systems for efficiency and fairness would be welcomed
Not participating this week:
Haney Hong, San Diego County Taxpayers Association
Have an idea for an Econometer question? Email me at phillip.molnar@sduniontribune.com. Follow me on Threads: @phillip020