What does Wayne think about at 3am when waking up in the middle of the night? Tariffs and a potential reorganization of the US tax code.
For years, sections of the American political system have sought to shift the taxation structure away from an income tax (which arguably penalizes people for working) toward a consumption-based tax, such as a national sales tax or a ‘value-added’ tax, like those seen in Europe.
In a two-party system where power shifts back and forth and the wheels in Washington grind ever so slowly, a seismic move like this seems all but impossible. Yet, I want to suggest that this may be exactly what is happening, without the need for congressional action and the front-page fights over policy that we may think must occur for this shift to happen.
Which to Tax: Income or Consumption?
Consider two current actions taking place and their potential crossing implications:
The Big Beautiful Bill raised the personal deduction for tax filing purposes to $15,000 per person. This means a family of 4 pays zero income taxes on the first $60,000 of income earned in the household. Zero, Zilch, None!
The biggest slam on Tariffs is the idea that the cost will be passed on to consumers, thus raising the cost of goods and services purchased at the point of sale, as the cost must be worked into the supply chain, which inevitably ends at the consumer.
These two evolving policies, while evolving separately within our system, have the potential to reform and reframe tax policy toward a de facto national sales tax position without ever having to fight these fights in Congress in the following ways.
Could Tax Revenue Offset Some Need For Income Tax Revenue?
As Trump pushes and gets traction on tariffs, the revenue from that line item will rise.
We have seen in just a few months a move from roughly $80 total taken in from tariffs in all of 2024 to more than that taken in just in a single month in June of 2025. If this continues on this course, the administration could substantially outdo their earlier estimates of perhaps $1T a year in tariffs and potentially see that figure go higher and higher.
Estimates are that households earning $250K and below in 2024 paid around $750B in taxes. What would happen if this personal exemption were pushed higher? Perhaps to $20,000, $25,000 … what if it could be pushed to $37,500 per person? At that level, a family of 4 would pay zero income taxes on the first $150,000 of income annually. This is important as many of the policy makers in Washington have suggested this is Trump’s desired endgame: no income for households earning $150,000 or less.
These two policies being advanced simultaneously have the potential to fundamentally shift the epicenter of revenue generation for the US government and potentially lessen substantially the weight of income tax on the middle class. This policy would (I anticipate) create more volatility in government revenues as those revenues become more linked to purchasing within the economy than wages paid throughout the economy.
Time will tell and I am not attempting to predict what the behind-the-scenes thought process is coming from Washington. This kind of policy shift is something I do believe would be good both for our economy and for most of the wage earners in our society. It would reduce the punishment of income tax on working Americans and allow individuals to take control of how much tax they actually choose to pay by regulating their own consumption to meet their own needs.