WASHINGTON, D.C. – The Trump administration has proposed a significant tax policy change that would eliminate federal income taxes for individuals earning $150,000 or less annually. Secretary of Commerce Howard Lutnick announced the initiative during a recent appearance on Fox News, emphasizing the administration’s goal of reducing the tax burden on a majority of American taxpayers. If implemented, this policy would result in only seven percent of U.S. citizens paying federal income taxes, shifting the majority of the tax responsibility to higher earners.
Currently, the top one percent of earners contribute approximately 40 percent of all federal income taxes, while the top five percent account for about 66 percent of total income tax revenue. Eliminating income taxes for those earning under $150,000 would remove an estimated 24 percent of all current income tax revenue, equating to over $500 billion annually.
With the existing budget deficit approaching $2 trillion, there is growing concern over how the federal government would compensate for this significant revenue loss. The administration has indicated that increased tariff revenue could offset some of the shortfall, with projections estimating tariffs on China, Canada, and Mexico could generate around $120 billion in 2025.
Another strategy under consideration involves increased government efficiency. The Department of Government Efficiency (DOGE) has been tasked with identifying and eliminating wasteful spending to achieve major budgetary savings. However, if DOGE can successfully cuts $1 trillion in federal spending, it remains uncertain whether this will be enough to balance the budget while implementing such an extensive tax cut.
Economists have raised questions about the potential economic impact of this policy shift. Historically, tax reductions for lower- and middle-income earners tend to increase consumer spending, while tax cuts for higher earners are more likely to be saved or invested, which can drive long-term economic growth. The proposal would also further steepen the progressive nature of the tax system, concentrating the financial burden on a smaller segment of wealthier taxpayers. This shift in tax structure is unprecedented in any developed country, and its long-term economic consequences remain unclear.
While the proposed tax policy aims to provide financial relief to millions of Americans, it also raises concerns about fiscal sustainability and economic fairness. Balancing tax cuts with responsible budget management will be a critical challenge for policymakers as the administration moves forward with its plans.
