President Trump has proposed eliminating income taxes for individuals earning less than $150,000 annually. His plan also includes removing taxes on overtime pay, Social Security benefits, and tips. At first glance, this might seem like a win for middle-class workers, allowing them to keep more of their earnings.
However, financial expert Christopher Stroup, CFP and president of Silicon Beach Financial, warns that this change could have hidden downsides that may hurt the middle class over time.
If income taxes are removed, the government will need to find other ways to raise revenue. This could lead to higher sales taxes, property taxes, and other fees. Since middle-class families spend a larger share of their income on essentials, these increased costs would hit them hardest. For example, a 10% national sales tax would make everyday items more expensive, while wealthier individuals might pay less tax overall.
Income taxes fund important programs like Social Security and Medicare. Without this funding, these programs could face cuts, delayed benefits, or even privatization. This would create financial uncertainty for middle-class workers and retirees who rely on these benefits for stable income.
Small-business owners often use income tax deductions for expenses such as health insurance and retirement contributions. If income taxes disappear, these deductions would vanish too. This could increase the tax burden on entrepreneurs and make it harder for them to reinvest in their businesses, while larger corporations might find new tax loopholes.
States depend heavily on federal funding, much of which comes from income taxes. If this funding decreases, states might raise property and local taxes to compensate. This would disproportionately affect middle-class homeowners, leading to higher costs without better public services.
Eliminating income tax mainly benefits high earners who make most of their money from investments. Middle-class workers, who earn wages, would still pay taxes through sales or payroll taxes. This shift could increase income inequality and make it harder for working families to build wealth.
Currently, these proposals remain theoretical and have not been enacted by Congress or executive order. Yet, experts caution that the consequences could be significant for the middle class if such tax reforms move forward.
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