This episode revolves around President Donald Trump’s claim that, due to the massive tsunami of tariff revenue that’s flowing into the U.S. coffers, Americans won’t have to pay income tax in 2026.
David McKnight looks at the 2025 fiscal year: the Federal Government spent about $7 trillion and brought in about $5 and a quarter trillion in revenue.
While breaking down the math related to the 2025 fiscal year, David points out that “Revenue from income taxes is the single largest source of Federal revenue”, while “Tariffs, by contrast, are one of the smallest.”
Even Trump’s own economic team, including Treasury Secretary Scott Bessent, has said that in an extremely optimistic scenario, tariff revenue might someday reach $500 billion a year – which is only about ⅕ of what gets collected in income taxes.
By looking at the numbers, it’s clear that the proposed tariff-funded $2,000 check for each of the 340 million Americans wouldn’t work: it would cost roughly $680 billion against a tariff revenue that only amounts to $195 billion…
David clarifies a key point about tariffs. They’re not paid by foreign governments, they’re paid by U.S. importers. In other words, tariffs are simply a tax on consumers.
There’s an additional problem that shouldn’t be overlooked. Not only do tariffs not generate enough revenue, but they can also lead to retaliation by other countries imposing their own tariffs on American exports.
This means that an American effort to try to raise trillions of dollars through tariffs could end up costing heavily on its own people.
David is crystal clear: While these types of claims make for great sound bites, the federal budget still has to obey the mathematical laws of the universe, and the math makes it clear: There’s no world in which tariffs could ever eliminate the need for an income tax.
By the look of things, the U.S. is marching into a future where the federal government will soon need huge infusions of cash just to pay the interest on its exploding national debt.
To forestall this, the U.S. government will have to double federal income taxes in or around 2035.
That’s why, David says, having a dialed-in strategy to get your retirement savings shifted from 401(k)s and IRAs to Roths is more important than ever.
Mentioned in this episode:
David’s new book, available now for pre-order: The Secret Order of Millionaires
David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track
Tax-Free Income for Life: A Step-by-Step Plan for a Secure Retirement by David McKnight
PowerOfZero.com (free video series)
@mcknightandco on Twitter
@davidcmcknight on Instagram
David McKnight on YouTube
Get David’s Tax-free Tool Kit at taxfreetoolkit.com
