Here’s What Could Get More Expensive This Year If Income Taxes Are Eliminated
Written by
Marc Guberti
Edited by
Amen Oyiboke
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President Trump has floated the idea of eliminating income taxes since his campaign for a second term. Now that Trump is back in the White House, this proposal has gained momentum. Trump may not be able to eliminate income taxes this year, but he may be setting himself up to eliminate income taxes by the end of his second term.
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The elimination of income taxes can lead to some products and services becoming more expensive. Here are some of the things that could get more expensive if income taxes are eliminated.
Sales Tax
The government still has to collect money to remain solvent. Removing an income tax would shift taxes on consumption. Sales taxes may have to go up if income taxes are eliminated entirely, and that will make the cost of every product or service more expensive.
Some businesses may have to keep their prices at similar levels to present levels if they lose enough demand for their products and services. However, a national sales tax will result in higher prices across the board in the short run. It may take some time for markets and consumers to adapt to the new tax changes.
Rent
Brandon Blakeley, CTO and co-founder of Mirador Living — a platform that connects older adults with senior living communities — mentioned rent prices can go up if income taxes are eliminated.
“How much people spend on rent is fundamentally tied to their take-home pay, and so when the income tax is eliminated, we will see rents go up across the country,” he said. “The famous ‘30% rule’ advises renters to spend no more than 30% of their gross income on housing, but this is based on historic levels of income tax. Without an income tax, we’ll likely see this inflate to become the ‘40% rule.'”
Housing
The elimination of income taxes can also lead to higher housing prices. If landlords charge more for rent, it stands to reason that homeowners will charge more money for their homes. Property owners will charge as much as buyers and tenants are willing to pay. A large percentage of the extra money they keep may go toward housing.
Trump’s policies can further accelerate the growth in housing prices. The president may be forcing the Fed’s hand to lower interest rates amid recent economic uncertainty. Lower rates make mortgages more accessible, and cutting income taxes will make it even easier for people to access these valuable financial products.
Automobiles
Eliminating the income tax would solidify a government fiscal policy that leans on tariffs. Car manufacturers will face higher costs to produce their vehicles if tariffs remain in effect, and those extra costs can translate into higher automobile prices.
A recent study from the Yale Budget Lab projects that car prices will go up by 13.5% due to the tariffs.
A strong used car market and the average car lasting more than a decade are two key factors that can minimize car price growth. However, these manufacturers will have to raise prices to retain profit margins if tariffs become the new normal.
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