By Ellen Brown / Original to ScheerPost

In February, President Trump said that tariffs would generate so much income that Americans would no longer need to pay income taxes.

The latest plan, according to U.S. Commerce Secretary Howard Lutnick, is to abolish income taxes for people who earn less than $150,000 yearly. That move would affect roughly 75% of workers, according to U.S. Census Bureau data. On its face, this could narrow the wealth gap by boosting disposable income for low- and middle-income households without raising taxes on the wealthy — a politically clever alternative to progressive tax hikes.

Eliminating the burden of income taxes is an exciting proposition, due to savings not just in money but in man-hours — the time spent anguishing over ledgers, forms and receipts. In 2024, according to the Tax Foundation, Americans spent 7.9 billion hours complying with IRS tax filing and reporting requirements. That is equivalent to 3.8 million full-time workers—roughly the population of Los Angeles — doing nothing but tax paperwork for the full year.

The question is, can tariffs and DOGE replace income taxes? If not, how else could the government fund itself? Is a growing debt bubble that is now carrying a $1.2 trillion interest tab, which must continue to expand just to sustain itself, the only alternative?

How Eliminating Middle Class Taxes Would Affect the Budget.

In a March 21 article titled “Ending Taxes Below $150,000 Would Lose $10 to $15 Trillion,” the Committee for a Responsible Federal Budget concludes:

“Even if enacted in a targeted manner, we estimate such a change would reduce revenue by roughly $10 trillion through 2035 if applied to income taxes only and $15 trillion if applied to employee-​side payroll taxes as well. …

If enacted relative to current law, ending taxes on income below $150,000 would boost debt by $12 to $18 trillion with interest, increasing debt-​to-​GDP to between 145 and 160 percent – compared to 118 percent under current law.… Importantly, Commerce Secretary Howard Lutnick has said the proposal would be contingent on achieving budget balance first.”

Dividing the $10 trillion lost over 10 years (2025–2035) gives a $1 trillion loss per year on average, though there may be year-to-year variations. Trump’s team proposes to offset this loss with savings from the Department of Government Efficiency (DOGE) and new tariff revenues, but the math doesn’t look good.

The Prospects from Tariffs and DOGE.

Elon Musk’s DOGE has identified significant areas of federal “waste, fraud and abuse,” but the program was originally projected to save $2 trillion by slashing misused funds. At Trump’s cabinet meeting on April 10, Musk said he expects the agency to find $150 billion in savings in fiscal year 2026, a number significantly lower than even the $1 trillion he said in February he was confident DOGE would find.

Tariffs remain Trump’s primary funding mechanism. He has frequently referenced the 19^th century, when there was no income tax, and tariffs were the principal source of revenue for the U.S. government. In his Liberation Day speech on April 2, he said, “From 1789 to 1913, we were a tariff-backed nation, and the United States was proportionately the wealthiest it has ever been.” Trump’s particular hero is Pres. William McKinley, whose 1890 tariff of nearly 50% was a high point of the tariff policy.

The problem is that in the 19^th century, the U.S. government had far fewer costs. Among other expenses, there was no Social Security, no Medicare and no trillion dollar interest to be paid to investors.

As originally proposed, Trump’s tariffs included a 10–20% universal tariff and up to 60% on Chinese imports. At that rate, the Tax Foundation estimated that the tariffs could raise $1 trillion over a decade ($100 billion/year) after accounting for reduced imports, while the Tax Policy Center put the figure as high as $2.8 trillion ($280 billion/year).

These projections remain speculative, since the results of the trade deals being negotiated are yet to be reported. On April 30, the president stated that negotiations had already resulted in $8 trillion in promised investment in U.S. production, an impressive number, but investments take several years to manifest as new tax income.

For the near term, DOGE cuts at $150 billion per year and tariffs estimated at $280 billion per year would cover less than half the trillion dollar loss projected from middle-class tax cuts. And that is without touching the $1.9 trillion deficit already projected by the Congressional Budget Office, something Commerce Sec. Lutnick said would have to be eliminated before income tax relief could be considered.

The Elephant in the Room.

Even if new trade deals manage to cover the full deficit, the unprecedented federal debt will continue to loom. Currently standing at $36.21 trillion, the debt comes with interest payments projected to hit $1.2 trillion in 2025. That works out to $3.3 billion per day. In effect, all of our middle-class income taxes are being spent just to pay interest to bondholders, foreign and domestic.

Interest costs are expected to rise from 9% of federal revenue in 2021 to 23% by 2034, crowding out federal priorities like infrastructure and healthcare. And that assumes bond buyers keep rolling over the debt at current rates. For FY 2025, an estimated $9.2 trillion — fully a quarter of the debt — will come due and need to be refinanced. What if foreign countries, which hold approximately 30% of the debt, decide to invest elsewhere?

The most efficient to fill the trillion dollar hole left in the budget if middle-class income taxes are eliminated might be to take an axe to the trillion dollar interest tab and the federal debt sustaining it. But how?

Even Quantitative Easing Won’t Work to Eliminate the Interest Burden.

Many economists think new rounds of quantitative easing (QE) are necessary, as the only way to keep Treasury interest rates low. QE is a maneuver by which Treasury debt is purchased by the Federal Reserve with newly issued bank reserves. The debt could theoretically be eliminated by having the Fed buy the securities as they come due. Assuming $9.2 trillion in debt maturing annually, the whole debt could be moved onto the books of the Fed in about four years, and since the Fed is required to rebate its profits to the Treasury after deducting its costs, this could theoretically eliminate the interest burden. But there are two wrinkles:

1. The Fed is not allowed to buy federal securities directly from the Treasury. It primarily conducts its open market operations, including QE Treasury purchases, through primary dealers, a select group of large financial institutions designated by the Fed to act as its counterparties in the open market.
2. Ever since 2008, the Fed has been paying interest on the banks’ reserve balances (IORB), which counts in the costs it deducts from the profits it returns to the Treasury. The rate on IORB set by the Fed is 4.4% as of May 2, 2025, while the average interest rate on the federal debt is approximately 3.3% for the fiscal year-to-date 2025.

Thus if the Fed were to buy $9.2 trillion in federal securities this year, it would receive $9.2 trillion × 3.3% in interest but would have to pay IORB on the same $9.2 trillion at 4.4% to the banks, a net loss to the Fed. In effect, the banks would be receiving the interest rather than the Treasury, unless a couple of laws were changed, and changing them would no doubt meet with heavy resistance from the powerful banking lobby.

Why, you may ask, does the Fed feel it needs to pay interest on bank reserves? Good question. It’s a monetary policy tool designed to curb inflation by setting a floor on the fed funds rate, the rate at which banks lend to each other. Since banks won’t lend at rates lower than they can safely earn from the Fed, it’s a way to keep interest rates high. But the result has been that the banks have simply reduced their lending. Why lend to risky local businesses when they can sit back and collect a safe and ample return from the Fed itself?

It’s a controversial windfall to the banks, to support an interest rate that is itself controversial. But the bottom line is that the Fed is not able to bail out the government from its trillion dollar interest tab. What then is to be done?

A Radical Alternative Whose Time Has Come.

Given the president’s predilection for 19th century economics, he could go a bit further back than to President McKinley. Abraham Lincoln, the first Republican president, avoided a crippling national debt by resorting to the funding mechanism of the American colonists: let the government print the money directly, not through a banker-controlled central bank but through the Treasury. The government could buy back its debt with U.S. Notes or “Greenbacks,” as permitted under the Constitution (Article I, Section 8) and declared legal by the Supreme Court. These new currencies could then be used to repurchase maturing Treasury securities debt- and interest-free.

Critics will cry “hyperinflation,” arguing that the newly-issued currency would flood the economy, spiking demand and prices. But if new money is directed to productive investments — for example infrastructure, energy, and healthcare — supply and demand will rise together, stabilizing prices. The Chinese demonstrated this in the 25 years from 1996 to 2025, when their domestic money supply was inflated from 4,840 CNY (Chinese yuan) to 320,526 CNY, or by 5500%; yet the price level remained stable and low. For a fuller explanation with data, see my earlier article here.

To ensure that the Greenbacks finance growth, a national infrastructure bank could channel funds into projects such as affordable housing, high-speed rail, broadband, the power grid and large water and transportation projects. China is again the modern model. It has three giant “policy banks” assigned to implement the policies of the government, including China Development Bank, the world’s largest infrastructure and development bank. A U.S. version could prioritize projects with high economic returns, vetted by transparent, DOGE-like algorithms to prevent waste and cronyism.

We desperately need infrastructure funding, and the current federal budget has no room to adequately address those needs. A viable proposal for a national infrastructure bank, H.R. 4052, currently has 47 cosponsors. The bank would use off-budget financing on the model of the Reconstruction Finance Corporation, the federal financial agency that rebuilt the country’s infrastructure during the banking crisis of the 1930s. For more information, see the NIB Coalition website.

For state and city governments, public banks on the model of the Bank of North Dakota could address local infrastructure needs. See my earlier article here and the Public Banking Institute website.

Prosperity Without Debt.

It has been argued that “just printing the money” would jeopardize the federal government’s credit rating. Perhaps, but we wouldn’t need credit if we could create our own, debt-free. To repeat an editorial directed against Lincoln’s debt-free Greenbacks attributed to the 1865 London Times, which may be apocryphal but nevertheless demonstrates the possibilities:

“If that mischievous financial policy which had its origin in the North American Republic during the late war in that country, should become indurated down to a fixture, then that Government will furnish its own money without cost. It will pay off its debts and be without debt. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe.”

Lincoln’s Greenback policy was indeed destroyed, along with the president who dared to implement it. But the U.S. government is powerful enough today to pull that “mischievous financial policy” off. A Greenback-funded debt buyback could offer a way to pay down debt without interest costs, while spurring growth through targeted investments monitored through a national infrastructure bank and local public banks to absorb demand productively. In several years, the whole $1.2 trillion interest tab could be slashed from the budget, making our trillion dollar middle-class income tax payments that barely cover that expense unnecessary.

The full budget could even be funded with Treasury-issued Greenbacks, eliminating the need for taxes at all. DOGE has demonstrated the possibilities for monitoring the government’s expenditures transparently and accountably with artificial intelligence. And as AI progressively replaces jobs, the government will need some form of universal basic income to supplement or replace worker salaries, perhaps “Social Security for All.”

Granted, that raises new issues around the privacy and programmability of a government-issued digital currency. But as Cornell Prof. Robert Hockett argues in his book, The Citizens’ Ledger, these can be overcome with cryptographic protections. For people leery of digital government-issued dollars, the Treasury could exercise its constitutional power to issue coins and paper dollar bills. Those are all complicated issues for another article, but the possibilities are provocative. We can escape the debt trap engineered by a private banking system that creates money as debt at interest – and escape the middle-class income taxes paying for that interest – by returning the sovereign power to issue money to the Treasury.

First published on Scheerpost..com.

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