Behind Trump’s Plans to End Federal Income Tax

By Thomas Kolbe

Tax policy on both sides of the Atlantic could hardly be more different. While Europeans continue to bleed taxpayers dry, US President Donald Trump is scoring points with voters by rolling back the state. Now he’s aiming to phase out the federal income tax entirely.

Trump’s economic punchline is simple: relief for the middle class, deregulation of markets, and a rollback of the bloated federal bureaucracy. By re-focusing on the productive forces of society, he intends to open a new chapter of American prosperity. The controversial tariffs are one of the financing pillars of this ambitious operation. Once the dust settles and initial trade deals are struck, tariffs are expected to level out at a lower rate. Current estimates suggest they could bring in between $100 and $200 billion annually to the federal budget. Trump announced via his Truth Social platform: “When the tariffs kick in, income taxes for many people will be reduced significantly – maybe even eliminated altogether. The focus will be on people making under $200,000 a year.”

America First: A Paradigm Shift

For context: Federal income tax accounts for about 51% of the US government’s $4.1 trillion budget. Tariff revenues alone won’t be enough to fill that gap. Deep spending cuts are essential to make this tax relief real. That task has been handed to the newly formed Department Of Government Efficiency (DOGE), which was previously led by Elon Musk. In the first 100 days of the new administration, the team reportedly slashed $160 billion in annual spending, and about 100,000 of the 2.4 million federal employees have been laid off or taken buyouts.

DOGE aims to reduce the size of federal agencies by 10% during the current term. So far, taxpayers have seen an annual savings of about $1,000. If income tax reductions proportional to tariff revenue materialize, this could increase to roughly $2,000 in annual relief for the average household. A full elimination of federal income tax would mean savings of $9,600-$10,000 per year for the average American household – a 10%-15% fiscal relief that would give a strong boost to domestic consumption.

Back to the Roots – From Tax to Tariff Again

Trump’s use of tariffs to finance tax cuts isn’t new – it’s a return to America’s fiscal roots. Until the introduction of the federal income tax in 1913, tariffs and excise taxes were the government’s main source of revenue. The federal income tax first appeared during the Civil War (1861–1865), but was abolished in 1872. Between 1872 and 1913, federal revenues came almost entirely from tariffs and excise duties, keeping government spending capped at about 8% of GDP – years marked by intense entrepreneurial growth.

All that changed with the ratification of the 16th Amendment in 1913, which authorized the federal government to impose an income tax without state apportionment. The Revenue Act of 1913 introduced a progressive income tax with rates ranging from 1% to 7% on incomes above a $3,000 exemption. Like in Europe, this marked the beginning of an expanding state sector. The bureaucratic machinery, with its invasive and regulatory instincts, has since pushed the federal share of GDP from 8% to 40%.

This “Europeanization” of the United States, which accelerated under FDR’s New Deal, is now facing a historic reckoning. What began in 1933 has now hit the limits of fiscal gravity. With national debt at 120% of GDP and annual interest payments of $1.5 trillion, debt servicing has become the largest item in the federal budget. A majority of Americans now recognize that the country is on a collision course, and the time for reform is now. Still, the road ahead is likely to be rocky. Courts are pushing back against budget cuts – such as those targeting USAID – and unions are mobilizing, while the opposition is waiting for Trump’s polling numbers to dip so they can go on the offensive.

What’s the Roadmap?

Trump has limited time to turn fiscal policy around. Alongside tariff reform, his administration is rolling out a broad deregulation package, and they’re especially targeting the energy sector. Natural gas exploration, pipeline expansion, and nuclear energy are once again a top priority. Fast-tracking permits via executive orders is the new normal – because in America, elections are won at the gas pump. A positive side effect: A national energy strategy will reduce dependency on global supply chains and strengthen US geopolitical leverage.

Another core element of Trump’s economic agenda is the United States Investment Accelerator, aimed at onshoring private-sector investment. According to the Department of Commerce, over 200 companies have already committed to building new factories in the US in 2025 alone, projects that could create roughly 150,000 jobs. At the same time, illegal immigration is being curbed through stricter border enforcement to protect American workers and stabilize wages. Trump’s long-term goal is to position the US as a global leader in next-generation technologies – a re-industrialization based on AI, robotics, and advanced energy production. Could this become a model for Europe?

Meanwhile, in Brussels, the mood is one of frantic inertia. Neither the European Commission nor the heads of government across the EU have offered a coherent response to Washington’s new tariff policy. Instead, they are stalling, offering vague promises of reduced tariffs with no substantive concessions. In Germany, tax hikes are being prepared while Brussels clings to its climate regulation agenda. Nothing moves.

Are EU leaders bluffing in hopes that Trump will blink at the end of the 90-day tariff moratorium in the face of a looming recession? From the EU’s perspective, the best-case scenario is for Trump’s strategy to fail – to prevent the US from gaining the upper hand in global trade talks. But every successful American trade deal further weakens Brussels’ hand.

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For over 25 years, Thomas Kolbe he has worked as a journalist and media producer for clients from various industries and business associations. As a publicist, he focuses on economic processes and observes geopolitical events from the perspective of the capital markets. His publications follow a philosophy that focuses on the individual and their right to self-determination.