Trump is not looking out for the little guy.
Trump has specifically mentioned using tariff revenue to cut or eliminate income taxes for people earn under $200,000.
While his administration has collected a significant amount of revenue from tariffs, a full replacement of income taxes would require very high tariff rates and is considered by many economists to be mathematically unfeasible.
Critics also point out that tariffs are a form of consumption tax that disproportionately affects lower- and middle-income households through higher prices on imported goods.
Based on recent data, 88% of households earning under $200,000. This means about only 12% of households in the United States have an annual income of $200,000 or more and thus would pay income taxes under the Trump scheme.
There is a misconception about the income tax burden. What really matters is your effective tax rate, not your tax bracket.
The effective tax rate (ETR) is the average rate at which an individual or a corporation is taxed on their earned income or profits. It reflects the percentage of total income that goes toward taxes, and it’s often used to understand a taxpayer’s actual tax burden better than just looking at tax brackets.
According to data from the IRS and analysis by organizations like the Tax Foundation, the average effective tax rate for federal individual income taxes in 2022 was approximately 14.5% across all taxpayers. However, this varied significantly by income level. This calculation usually based on gross taxable income, but if a person has income that is not taxable such as Roth account income or municipal bond interest, the ETR is even lower.
Bottom 50% of taxpayers (Adjusted Gross Income under ~$50,400): Paid an average effective tax rate of 3.7%.
Top 50% of taxpayers: Paid 97% of all federal individual income taxes.
Top 10% of taxpayers (AGI over ~$178,600): Paid an average effective tax rate of 21.1%.
Top 5% of taxpayers (AGI over ~$261,600): Paid an average effective tax rate of 23.1%.
Top 1% of taxpayers (AGI over ~$663,200): Paid an average effective tax rate of 26.1%.
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I could easily (ish) and gladly pay 17%. I doubt that most of my family could. Part of the 40 percent.
Tax should be pre 80s progressive, IMHO.
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Pre-80’s progressive is the worst of the worst – all the exemptions, deductions, complexity, yet, they weren’t collecting much more than 17% of all income … when all said and done.
Eliminating all the stupidity all the complexity will free up money from the various tax scams and generate significant revenue now. And, when Congress needs more money, they don’t have to identify some group to tax, just raise the rate – and sell it to Americans that it is needed.
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The better alternative is a flat tax – 17% should do it, collected from the first $1 of income to the last. So, those of us who only have wage income, interest income and investment income (where withholding would be required) would not have to file an income tax return.
Makes no sense for 40% of American households with income not paying even a penny in income taxes.
We can blame President George W. Bush for setting us on this path … of making the income tax system evewr more progressive. Presidents Obama, Trump 1 and Biden, now Trump 2 continue to make the system ever more progressive.
And, while we are at it, long past time to get rid of the refundable tax credits Congress has built into the system in order to buy votes.
A good income tax system should be Certain – No question what each should pay, Convenient – collected automatically, Comprehensive – Everyone should participate in supporting the federal government via general revenue, and Efficient – Minimizing compliance costs.
Some would also argue for Equity – arguing “ability to pay” for a progressive structure, however, what we have today, where 40% of American households with income pay nothing in income taxes is the wrong kind of progressivity. I would rather see 17% across the board from the first dollar and then let people file an income tax return for any progressive adjustment.
A flat tax allows us to avoid the 7 BILLION hours each year wasted on income tax preparation. Americans probably spend another Billion hours a year on tax avoidance schemes. We could then rededicate the tens of thousands of IRS agents to chase down income taxes from those in the underground economy, and those who have other sources of income that are not subject to mandated withholding taxes.
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