Yahoo Finance Trump Wants To Eliminate Income Taxes: 3 Items That Will Instantly Get More Expensive
Donald Trump could return to the Oval Office and if he does, he might make federal income taxes a thing of the past. On the surface, having more money in your paycheck might sound amazing, but there’s more to it than that income.
Paying income taxes might not be your favorite thing, but they serve a purpose. Eliminating them could cause a ripple effect that actually raises the cost of living higher than it already is.
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“If Trump eliminates income taxes, almost everything will get more expensive because inflation will soar,” said Noah Damsky, principal at Marina Wealth Advisors.
Some costs might take time to increase, while others will be more immediate.
Here’s a look at three items Damsky said will quickly soar in price if income taxes become a thing of the past:
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Housing
“Rent and home prices could increase dramatically,” Damsky said. “Without income taxes, take-home pay will jump.”
This might sound like a good thing, but he said it could backfire for homebuyers.
“That additional monthly income will go into the most unaffordable area of the markets, like housing,” he said. “Buyers will be able to qualify for a higher mortgage, so they’ll bid prices higher, in line with what they can now afford.”
As of May 2024, the median sale price of a home in the U.S. was $438,483, according to Redfin. This marks a 4.8% year-over-year increase from May 2023 and a 25.9% year-over-year increase from May 2022.
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Wages
“As demand increases, prices will rise and wages will tag along,” Damsky said. “In areas such as Los Angeles where the minimum wage is $20 per hour [for fast food employees, $17.28 for everyone else] competitive pay required to hire employees could soar as inflation rises.”
As of June 2024, the average wage for private sector employees is $35 per hour, according to the Bureau of Labor Statistics. This varies greatly by industry, including $22.06 for leisure and hospitality employees and $50.83 for utilities workers.
Stocks
“As all the additional money flows into the economy, stock prices will rocket higher,” Damsky said. “Saving will become much more challenging as inflation increases, but savers will be rewarded as asset prices climb.”
Those with the means to save money during inflation may benefit from the ability to grow their assets faster. However, higher prices for everything — including stocks — could make building wealth harder for everyone else.
Here’s What Income Taxes Pay For
Congress passed the Current Tax Payment Act in 1943, which required employers to withhold taxes from employees’ wages and pay them quarterly. One year later, the Individual Income Tax Act was passed, establishing the standard deductions on Form 1040.
Most U.S. citizens or permanent residents who work in the U.S. pay federal income taxes, but nine states don’t levy individual income taxes. This includes Alaska, Florida, New Hampshire, Nevada, South Dakota, Texas, Washington and Wyoming.
Essentially, you can opt to live in a state without individual income taxes, but you’ll likely still be paying federal income taxes.
If you pay federal income taxes, you’re certainly aware of the money missing from your paycheck. However, you might not know much about the key services your tax money actually funds.
Individual income taxes are a major source of revenue for the federal government.
Specifically, 52% — $1.7 trillion — of the federal government’s total revenue in the Fiscal Year To Date 2024 has come from individual income taxes.
Some of the federal government’s main spending categories include income security, Social Security, health, national defense and Medicare. So far this year, the federal government plans to spend $1.10 trillion on Medicare, $1.03 trillion on Social Security and $874.01 billion on national defense, according to USASpending.gov.
Exactly what would happen to all of these programs without funding from individual income taxes is unknown. It’s possible the federal government would have to borrow significantly more money regularly, largely increasing the national debt.
It’s also possible some of these essential programs would no longer be able to function, or they might have to operate in a limited capacity. This could be detrimental to both Americans and the country as a whole.
Therefore, while the thought of not paying federal income taxes might initially sound appealing, it’s important to understand the widespread impact this would have. Increased inflation, paired with a potential threat to major essential services is definitely something worth noting.
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