President Donald Trump's ambitious plan to replace income taxes with tariffs sparks heated discussions about its economic implications for average Americans.

According to GO Banking Rates, Trump's proposed "External Revenue Service" aims to shift the tax burden from U.S. citizens to foreign entities through increased tariffs.

Commerce Secretary Howard Lutnick's announcement of Trump's radical tax reform proposal has raised concerns among economic experts about its potential impact on middle-class households. The plan, while promising to eliminate income taxes entirely, could lead to significant changes in consumer spending patterns and job market stability.

Tariffs driving consumer prices skyward

Tax attorney and author Thomas J. Cryan warns that the implementation of tariffs on imports from China, Mexico, and Canada would create economic inefficiencies resulting in price increases across various sectors. The proposed 25% tariff on imports would significantly affect the cost of everyday items, with most of the financial burden falling on consumers.

The impact would be particularly noticeable in the food sector, where the United States heavily relies on imports. With 60% of fresh fruits and 30% of fresh vegetables coming from foreign sources, American families could face a substantial 20-25% increase in their grocery bills.

Consumer goods ranging from electronics to clothing could also see marked price increases as businesses pass on the additional costs to customers. This shift would disproportionately affect middle-class households, who typically have less flexibility in their budgets to absorb such increases.

Employment landscape under tariff system

The proposed tariff system could trigger widespread job losses across various sectors of the economy. According to Cryan's analysis, protective tariffs designed to safeguard specific industries might inadvertently harm others, leading to economic slowdown and increased unemployment.

Cryan explains:

Tariffs do not gain jobs, but rather create inefficiencies within the economy that destroy jobs and hurt workers. Tariffs that protect certain industries — and jobs — will have the unintended consequences of harming other industries and the consumer via higher prices, which might slow down economic growth and trigger larger layoffs.

The situation could worsen as other countries implement retaliatory tariffs, potentially creating a domino effect of economic challenges. These measures could particularly impact export-dependent industries and their workers.

Middle class bears heaviest financial burden

Economic studies suggest that lower-income households would experience the greatest impact from tariff-induced price increases. The proposed system would create a disproportionate burden on middle-class families, who often struggle to maintain their standard of living with limited disposable income.

Cryan further elaborates:

Increased costs of daily necessities impacts the middle class and the working class the hardest, in that they have less disposable income. Specifically, it is important to recognize that the costs of tariffs do not impact the rich and the poor alike. Clearly, $1,000 means a lot more to a poor family working hard to cover all their bills than to a rich family with discretionary income.

The ripple effects of these economic changes could lead to reduced consumer spending, potentially triggering a contraction in GDP and further economic challenges for middle-class workers.

Trump's tax overhaul raises economic concerns

Trump's proposal to eliminate income taxes through the creation of an "External Revenue Service" represents a significant shift in U.S. tax policy. The plan, announced by Commerce Secretary Howard Lutnick, aims to replace traditional income taxes with a tariff-based system that would primarily affect imported goods. However, economic experts warn that this transformation could lead to higher consumer prices, job losses, and disproportionate financial strain on middle-class families, potentially triggering broader economic consequences through retaliatory tariffs and reduced consumer spending.