Trump’s Proposal To Eliminate Income Taxes: 5 Ways It Could Impact Your Salary in 2025

During his successful presidential campaign last year, Donald Trump proposed eliminating individual income taxes for all Americans. To compensate for the lost revenue, he suggested increasing import tariffs. While this proposal would drastically reshape the country’s economic policy, it could also significantly impact how Americans negotiate wages and increase disposable income for many workers.

However, Trump’s plan raises concerns about how the government would fund essential programs and whether employers might adjust salaries to offset tax savings. Here are five ways the elimination of income taxes could impact your salary in 2025.

1. Increase in Take-Home Pay

One of the most immediate effects would be an increase in employees’ take-home pay since they would no longer have federal income tax deducted from their salaries.

“This increase in disposable income would have the effect of stimulating the economy, but at the expense of likely increasing real inflation,” said Crystal Stranger, CEO at Optic Tax. “Thus, while people might benefit in the short term, their wages could lose value over time, leading to minimal long-term benefits.”

2. Enhanced Benefit Packages

Some companies might restructure salary offers and compensation packages in response to the elimination of income taxes.

“I believe that employers would take advantage of this opportunity to enhance benefit packages, improve employee retention, and offer more attractive hiring incentives,” said Rick Miller, a financial planner and investment advisor at Miller Investment Management.

3. A Race to the Bottom

Stranger noted that eliminating federal income taxes could remove incentives for businesses to hire workers in low-income areas or within the U.S.

“We would likely see a faster shift to companies hiring lower-cost workers abroad where possible,” Stranger said. “Without business tax deductions and incentives, companies would prioritize hiring the cheapest labor worldwide, making it harder for domestic workers to get hired or secure raises.”

4. More Negotiating Opportunities

With income taxes removed, employers might shift tax savings into other forms of compensation, such as bonuses or additional benefits, rather than increasing base salaries.

“Employers would have maximum flexibility and creativity in compensation structures,” Miller said. “Job seekers could benefit from innovative pay plans and more room to negotiate attractive offers.”

This flexibility could particularly benefit those in commission-based or performance-driven fields.

“[Employees] could see significant advantages in the way commissions or bonuses are structured,” Miller said. “Higher-paying jobs would feel this impact the most, but even lower-wage earners could see improvements.”

5. Ripple Effects on State Taxes

Trump is not the only politician advocating for tax cuts. Many states are also considering reducing taxes on income, sales, and property this year.

Brian Sigritz, director of state fiscal studies at the National Association of State Budget Officers, told the Associated Press that while state budgets are tighter, legislators are still exploring tax relief measures.

Tax cuts are effective when state governments have surplus funds, as seen in the post-COVID-19 era when federal aid bolstered state budgets. However, eliminating federal income taxes alongside state tax cuts could lead to reduced funding for essential services like public schools and healthcare.

To make up for lost revenue, some states might raise sales taxes, also known as a “consumption tax.”

According to the Tax Foundation, 45 states and Washington, D.C., collect sales taxes. Louisiana, Tennessee, Arkansas, Washington, and Alabama currently have the highest combined state and local sales taxes, exceeding 9%.

“A consumption tax alternative would need to be structured in a way that does not disproportionately burden lower-income earners,” Miller said. “Even without income tax, lower-wage workers struggle with cash flow, and this should be taken into account.”

This article originally appeared on GOBankingRates.com: Trump Wants To Eliminate Income Taxes: 5 Ways This Could Impact Your Salary in 2025

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