Trump Wants To Eliminate Income Taxes: 3 Ways It Could Limit Your Home Buying Potential
Written by
Jamela Adam
Edited by
Amen Oyiboke
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
President Donald Trump has once again made headlines with his proposal to eliminate income taxes — he wants to replace them with alternative revenue sources like tariffs or a national consumption tax. This might sound like something worth celebrating to many Americans who dread tax season, but the potential economic consequences could be far-reaching, especially for prospective homebuyers.
Removing income taxes means the government will have to change the way it collects revenue, which could potentially lead to higher interest rates and shifts in housing demand that could make it harder for average Americans to afford a home.
Higher Interest Rates
One of the biggest concerns around eliminating income taxes is the higher interest rates it would create. According to the Tax Policy Center, individual income tax has been the largest single source of federal revenue since 1944, and in 2022, it comprised 54% of total revenues. This means that removing income taxes will require a pretty significant restructuring of the tax system.
“Once the income taxes are removed, this will create a hole in the federal revenue and could result in fiscal deficits,” said Alexander Kalla, a realtor at Keller William Bay Area Estates. “This could lead to the government increasing their borrowing, which may increase treasury yields and mortgage rates, which then will impact the majority of the homebuyers.”
Even a tiny increase in mortgage rates can have a big impact. For example, depending on the loan amount, a 1% increase in mortgage rates could add hundreds of dollars to a monthly mortgage payment and price some buyers out of the market entirely.
Effects on Housing Demand and Prices
Eliminating income taxes might initially sound like it would put more money in Americans’ pockets, but the reality is more complicated. If Trump were to implement a national consumption tax to replace the revenue from income taxes, and we’re all paying zero in income taxes and a 10% tax on what we buy, “we might make up the difference and collect enough to remain at the status quo,” said Anthony Termini, a seasoned investment advisor and expert contributor for Annuity.org.
“Being able to replace the government’s sources of income with a system that would collect taxes every day, all year round with little risk of noncompliance (bartering will likely continue to take place unnoticed) and less complexity to calculate might make the whole process more efficient,” he explained. “But it would also make everything more expensive. That means that inflation won’t abate and that the Federal Reserve will be disinclined to easy monetary policy. So interest rates on mortgages could stay at around 7% to 8% for a generation. That would be a drag on home sales.”
Increased Cost of Homeownership Due to Inflation
Switching to a different tax system could also have inflationary effects. If consumption taxes replace income taxes, consumers would pay higher prices for goods and services — including building materials, home maintenance, and utilities.
For homebuyers, this could mean higher costs, not just for purchasing a home but also for maintaining one. Everything from home repairs to homeowners’ insurance could become more expensive, making long-term affordability a challenge.
“Higher consumption taxes would lead to higher inflation. And the transition period in the tax system would likely be very choppy,” Termini said. “Major dislocations would take place throughout the economy and upset commerce in ways I haven’t calculated or even guessed at yet. There will be big winners and big losers in lots of different industries.”
More From GOBankingRates
