Former President Donald Trump has repeated his desire to eliminate federal income taxes and replace them with tariffs.
If this happens, it would be one of the biggest changes to the U.S. tax system in decades — and it could save many Americans thousands of dollars.
The government would still need money to operate, so taxes could shift to a mix of tariffs and possibly a national sales tax.
Even if the IRS isn’t removed entirely, Trump has suggested that people earning less than $150,000 a year might not have to pay any income tax at all.
How Much Could You Save on a $150K Salary?
If you make $150,000 a year, your effective tax rate is around 16.83%, according to TaxAct’s tax calculator for 2025.
That adds up to about $25,500 in federal income taxes — money you could potentially keep if income taxes are eliminated.
However, you’d only come out ahead if you don’t end up paying more than that in extra sales taxes or tariffs. People who spend less on goods and services could see the most benefit under this system.
What About State Taxes?
Trump’s tax plan would only apply to federal income taxes. But where you live also matters. Some states don’t charge any income tax at all. If you’re in one of these states, your savings could be even higher:
- Alaska
- Florida
- Nevada
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
- New Hampshire
Mississippi is working to eliminate its income tax, and Ohio could be next. Ohio’s gubernatorial candidate, Vivek Ramaswamy, has said he wants to remove the state income tax if elected.
Could This Cause Inflation?
The U.S. government still needs money, and if it doesn’t collect enough through tariffs or sales taxes, it may turn to printing more dollars. That could lead to inflation and reduce your money.
To avoid that, the Trump administration is proposing a new agency: the Department of Government Efficiency (DOGE).
This group would focus on cutting wasteful spending. The goal is to save up to $2 trillion per year — the current amount collected from federal income taxes.
What Would Replace Income Tax?
The government collected about $2.4 trillion in income taxes in 2024, and another $1.7 trillion from payroll taxes (which fund Social Security and Medicare).
So it would need to find new revenue sources or cut spending drastically.
A national sales tax is one idea. In just the third quarter of 2024, Americans spent more than $16.1 trillion, according to Statista. A tax on that spending could help replace income tax revenue, but it might require a high rate.
Since the top 10% of Americans do nearly half of all consumer spending, a national sales tax might affect wealthier individuals the most.
But whether this tax system would actually work — and how Trump plans to roll it out — still remains to be seen.
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