Yahoo Finance Trump Wants To Eliminate Income Taxes: 4 Ways That May Impact the Housing Market
With the 2024 presidential election approaching quickly, former President Trump is campaigning hard to show voters how he can help the American people. One of his big campaign promises is to impose an all-tariff policy that would allow the U.S. to eliminate income taxes.
While not having income taxes might seem like an automatic win for most American workers, you must consider the long-term effects of such a move on things like the housing market.
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“While an income tax cut seems appealing, the broader consequences on housing affordability and stability concern me,” said Daniel Cabrera, founder of Sell My House Fast SA TX. “As someone who has helped hundreds of homeowners sell quickly during financial hardship, policies that could increase that burden worry me. The government plays an important role in promoting homeownership, and we must consider how reduced funding could undermine that goal before making drastic changes.”
Keep reading for a look into how eliminating income taxes could impact the housing market for both buyers and sellers.
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Higher Housing Prices
Without paying income taxes, potential homeowners could have more money to spend on other things, including housing. This could lead to bidding wars in desirable areas, all or partial cash offers, escalation clauses and rising prices. While these are all good things for sellers, they could make things more difficult for buyers, especially buyers without other advantages, like a large down payment.
This effect is already present in states that don’t have income taxes, including Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. According to Realtor.com, home prices in the U.S. rose on average 46.6% between May 2019 and May 2024. However, two-thirds of states with no income tax outpaced this price growth. For example, Wyoming had an 82% increase in housing list prices during this time period, the biggest increase of any state.
While increased housing prices are certain to affect some people more than others, additional disposable income will lead to homebuyers who may not have been in a position to buy a home otherwise.
“Eliminating income taxes would put more money directly into the pockets of consumers, potentially increasing their ability to save for down payments and afford higher mortgage payments,” said Tommy Mello, founder and CEO of A1 Garage Door Service. “This could stimulate demand for homes, driving up prices and benefiting sellers and the overall economy. As a leader in the home service industry, I see this as an opportunity for increased business as new homeowners look to renovate and improve their properties.”
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Increase in Property Taxes
If Trump’s income tax elimination extended to state income taxes, the states would need to find alternative ways to recoup the revenue loss. Money is still needed for infrastructure improvements and public schools. To accomplish this, some states could increase property taxes on homeowners. How this would affect families would depend on things like home values and income.
“Property taxes would likely increase to compensate local governments for lost revenue, Cabrera said. “As a result, current homeowners may struggle to keep up with higher taxes and some could face foreclosure. I’ve seen property taxes significantly impact homeowners, especially those on fixed incomes. Higher costs often force people to sell, even if they want to stay in their homes.”
Reconsideration of Mortgage Interest and Other Deductions
Without income taxes, the federal government may be forced to modify or remove some current tax deductions, including mortgage interest deductions, charity donations, etc.
“With more disposable income, many renters would likely become homeowners, increasing demand and driving home prices up,” said Cabrera. “However, reduced federal revenue would threaten mortgage interest deductions and programs that support affordable housing.”
Further Financial and Housing Disparity
Since income taxes are based on a percentage of your income, doing away with the income tax would proportionally benefit the top earners the most. Upper middle-class households in the U.S. make between $150,000 and $200,000. The top 1% of earners make over $819,324 annually, and the top 0.1% of earners make $3.3 million on average. This is quite a big difference and will get larger without an income tax.
Trump’s plan could widen the gap between the top earners, upper middle class and lower class American households. Large income inequality can negatively affect the country and individual communities, including leading to more competition for housing, further expanding the housing and economic disparities among these groups.
Editor’s note on election coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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