Yahoo Finance Trump Wants To Eliminate Income Taxes: How This May Impact the Price of Travel
Former President and presumptive 2024 Republican nominee Donald Trump recently said he was considering eliminating income taxes and replacing them with tariffs, as GOBankingRates previously reported.
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Whether this would be feasible or not remains to be seen and experts are split on the issue. Yet, if this measure were to materialize, it could have tremendous impacts on a slew of economic sectors, such as travel.
For instance, the Peterson Institute for International Economics recently noted in a blog post that, if implemented, this policy would be “damaging global economic welfare,” “ignite inflation,” “cause a recession” and would “shift the tax burden away from the well off, substantially increasing the tax burden on the poor and middle class.”
While eliminating income taxes would theoretically provide consumers with more disposable income — which could help travel — replacing them with tariffs could introduce another layer of complexity, said Ned Priestly, CEO at MQL.
“This inflationary pressure could affect the overall cost of living, potentially offsetting the benefits of the tax cuts,” said Priestly. “Travel expenses, such as airfare and accommodation, which often rely on international trade and imported goods, could see price hikes as a result.”
According to him, the net effect on travel prices will depend on the balance between increased consumer income and the inflationary impact of tariffs.
A “Significant Impact on Travel”
Several experts, including Michael Collins, CFA, founder and CEO of WinCap Financial, have said that Trump’s plan to eliminate income tax and replace it with tariffs could have a significant impact on the price of consumer spending, including travel.
“If this were to happen, airfare, hotel stays, and rental cars could become more expensive due to increased tariffs on parts or materials used in these segments,” said Collins.
For instance, airplane replacement parts that come from other countries would be more expensive, leading to airfares becoming even more expensive than they already are.
“As a result, consumers may have less disposable income to spend on travel, leading to a decrease in demand for these services,” he said. “Additionally, if other countries retaliate with their own tariffs, it could further drive up the costs of travel for Americans.”
Increased Costs Passed Down to Consumers
Paul Miller, CPA, managing partner of Miller & Company, echoed the sentiment, noting that tariffs on imported goods (which would be the primary revenue source under this plan) could lead to increased costs for businesses across various industries.
In turn, he added, these costs may be passed on to consumers in the form of higher ticket prices, hotel rates and vacation packages.
“Travelers could potentially face a scenario where their leisure expenses become more expensive due to the broader economic impact of such a tax policy shift,” he added.
Economic Uncertainty
Another factor which could affect travel is that major policy shifts such as eliminating income taxes and replacing them with tariffs can create economic uncertainty, according to MQL’s Priestly.
“Businesses and consumers alike may adopt a cautious approach until the long-term effects become clear,” he said, adding that this caution could dampen immediate spending on travel as people wait to see how the changes play out.
In addition, the Peterson Institute for International Economics recently said that tariffs “would cost a typical household in the middle of the income distribution at least $1,700 in increased taxes each year.”
In turn, this would dampen the potential benefits of this measure, such as increased disposable income, which would put more pressure on consumers and leave little for extras, such as travel.
As Director of the National Taxpayers Union Free Trade Initiative Bryan Riley noted, while cutting income taxes could leave people with more after-tax income to travel, “increasing tariffs would increase the cost of goods ranging from gasoline and jet fuel to luggage and backpacks, imposing higher travel costs for Americans at a time when inflation is a top concern.”
Travel Prices Up in the Short-Term, but Down in the Long-Term
Yet some experts have said that while this policy shift could trigger an increase in the price of travel in the short-term, over the long-term,the trend could be reversed.
Karla Dennis, founder and CEO at Karla Dennis & Associates, conceded that tariffs on imported oil and fuel would increase airline operational costs — which would be passed along to the consumer — and that there could also be higher costs for aircraft parts and other integral supplies which would raise maintenance costs of the airline.
She added that in the long run, “we may find increased costs may lead to fewer people traveling which may ultimately drive down the price to fly as a result of normal supply and demand.”
“If there is no demand, prices will naturally come down,” she added.
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This article originally appeared on GOBankingRates.com: Trump Wants To Eliminate Income Taxes: How This May Impact the Price of Travel
