Yahoo Finance Trump Wants To Eliminate Income Taxes: How Will This Impact the Upper Middle Class?
Former President Trump said in a private meeting recently that, if he’s reelected in November, he would impose an “all tariff policy.” This would result in no income tax for Americans. During his first term, Trump also favored tariffs when it came to foreign affairs, so it’s no surprise that he would continue to propose tariffs during his second term. In the recent private meeting, Trump also said he would continue to use tariffs as a way to negotiate with “bad actors” abroad.
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Not having an income tax seems like it would be an automatic win, but what ripple effects would it have on American workers? What would this mean for the economy, specifically the upper middle class? GOBankingRates reached out to political and financial experts to get their take on what the upper middle class would see if there was no income tax.
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More Profit
The obvious benefit to a lack of income tax is that less would be taken out of paychecks, so the dollar amount in paychecks would increase.
As a result, we could see a stimulated economy as the upper middle class pours more money into it, thanks to their increased profits from work. “One implication of [no income tax] could be increased consumer spending, which would in turn drive economic activity in sectors such as retail, real estate and designer products,” said Chuck Warren, host of “Political Podcast.”
Warren said this would also increase the spending power of the upper middle class, which they could put toward other investment opportunities and use to grow their portfolio. That could mean good news for the stock market. “[The upper middle class] will be able to put more money into stocks, bonds and other financial assets, thereby increasing their wealth,” he said.
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Higher Real Estate Prices
Not all investments would benefit from the elimination of the income tax. Commonly, the upper middle class would invest in real estate as another stream of income. Jim Ronan, a lecturer in the department of political science at Villanova University, said home prices could go up to compensate for the lack of cash flow from income taxes.
“Higher tariffs and inflation would drive prices in the real estate market even higher, which coupled with the increased prices of other goods and services, would reduce the overall benefits of no income tax,” Ronan said.
Lowered Tax Deductions
Many individuals and couples in the upper middle class benefit from tax deductions. But if there is no income tax, Warren said those deductions might cease to exist.
“Many people belonging to the upper middle class receive benefits from several tax deductibles,” Warren explained. “Such allowances could, however, disappear if there were no taxes on earnings, hence resulting in a reconsideration of mortgage interests paid out, charity donations made and other kinds of expenses that are deductible.”
More Distance From the Top 0.1%
The upper middle class in America is generally defined by those households bringing home between $150,000 and $200,000 a year. The top 1% of earners make over $819,324 a year, and the very richest earners, known as the top 0.1%, make $3.3 million on average.
Doing away with the income tax will benefit the wealthiest individuals most, or those in the 0.1%, widening the gap between the 0.1% and the upper middle class.
History shows that income inequality can have drastic effects on the community. It can slow economic growth, ultimately hurting all classes. Large income gaps can lead to fewer opportunities for education and lower wages.
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This article originally appeared on GOBankingRates.com: Trump Wants To Eliminate Income Taxes: How Will This Impact the Upper Middle Class?
