Trump proposes eliminating income taxes for Americans earning under $150,000
A bold pitch with sweeping implications for the US tax system
President Donald Trump is floating a sweeping tax reform proposal that would eliminate income taxes for individuals earning less than $150,000 per year.
While no formal policy has been released, recent comments by Commerce Secretary Howard Lutnick suggest this is a serious consideration for a second Trump administration – though it comes with significant economic and political complexities.
What is being proposed
According to Lutnick’s interview with CBS News, Trump’s tax policy goal is to remove federal income taxes for individuals earning under $150,000 annually.
Additional proposals under discussion include:
- Eliminating taxes on Social Security benefits
- Exempting overtime pay and tips from income taxation
- Extending or making permanent the Tax Cuts and Jobs Act (TCJA)
- Funding the government via tariffs instead of income taxes
While Lutnick later walked back the certainty of these plans, he clarified that the proposal is aspirational and depends on the ability to balance the federal budget.
Who would this affect?
The majority of Americans earn less than $150,000 annually, meaning the proposed policy could eliminate income tax liability for a significant share of the population.
Census data on US income distribution (2023)
| Household income | Percentage of US population |
|---|---|
| Under $15,000 | 7.4% |
| $15,000 to $24,999 | 6.7% |
| $25,000 to $34,999 | 6.9% |
| $35,000 to $49,999 | 10.3% |
| $50,000 to $74,999 | 15.7% |
| $75,000 to $99,999 | 12.1% |
| $100,000 to $149,999 | 17% |
| $150,000 to $199,999 | 9.5% |
| $200,000 and over | 14.4% |
According to the US Census Bureau, over 76% of Americans earn below $150,000, though other estimates place that figure closer to 90%.
Here’s a breakdown of average income by age group in 2025:
- Ages 25 – 34: $85,780
- Ages 35 – 44: $101,300
- Ages 45 – 54: $110,700
- Ages 55 – 64: $90,640
- Ages 65 and older: $54,710
If enacted, this proposal would relieve most Americans of their federal income tax obligations.
How would the government replace lost revenue?
To replace lost tax revenue, Trump’s team suggests shifting to a tariff-based model.
The proposal includes:
- Imposing tariffs on imported goods from foreign countries
- Creating a new agency – the External Revenue Service – to collect those tariffs
- Reducing dependency on the Internal Revenue Service (IRS)
Lutnick described this as a strategy to make the rest of the world pay a "membership fee" to access the US economy. However, economic analysts and tax policy experts warn that this approach is highly problematic.
Key concerns and criticisms
Economists and public policy experts have expressed major concerns about the viability and fairness of the proposal.
Practical and economic issues:
- Budget balancing: The US has not run a budget surplus since 2001. Achieving this again, while eliminating taxes for most citizens, is seen as unlikely.
- Tariff limitations: Tariffs collected from imports are usually paid by US businesses and passed on to consumers – especially lower- and middle-income households.
- Fairness: Individuals earning slightly more than $150,000 would face a disproportionately larger tax burden.
- Regressive effects: Tariffs function like regressive taxes, meaning lower-income households may suffer more than higher earners.
- Revenue sufficiency: Tariffs alone may not generate the revenue needed to replace income taxes and fund government programs.
During the 2018 trade war, for instance, the Trump administration authorized $61 billion in emergency payments to farmers impacted by foreign retaliation – a sign of how tariffs can boomerang economically.
Trump’s record and ongoing efforts
While the proposal remains unofficial, it aligns with Trump’s broader tax strategy. In his first term, Trump:
- Signed the Tax Cuts and Jobs Act into law
- Imposed global tariffs on aluminum and steel
- Took a confrontational trade stance with countries like China, Canada, and Mexico
If reelected, he has vowed to:
- Reinstate a 25% tariff on Canadian and Mexican imports
- Implement reciprocal tariffs on all foreign nations beginning April 2
- Replace the IRS with a tariff-based External Revenue Service
What comes next?
Although the $150,000 tax-free proposal has not been formally introduced, the Republican-led Congress is currently working to extend or permanently enshrine the TCJA provisions.
Whether this new proposal or the pledges to cut taxes on Social Security benefits, tips, and overtime pay will make it into final legislation remains uncertain.
The Commerce Secretary has characterized the plan as a long-term aspiration rather than an immediate policy. Nonetheless, the Trump campaign appears committed to shifting the tax burden away from wage earners and toward foreign trade partners – an idea that remains highly controversial among economists and lawmakers alike.