taxes – Life's Adventure

Recent tax policy debates have increasingly focused on radical changes to the U.S. tax system, including proposals to eliminate income tax entirely and targeted tax cuts for working-class Americans. These discussions take place as the Tax Cuts and Jobs Act (TCJA) provisions approach their expiration at the end of 2025. Analysis of current proposals reveals significant differences in how various approaches would affect Americans at different income levels. Some plans prioritize broad-based tax elimination. Others focus on targeted relief through refundable credits. Although proposals to eliminate income tax entirely represent the most dramatic shift, data suggests a different approach might be better. Working-class Americans could benefit more from expanded refundable tax credits. Many low-income households already pay little to no federal income tax. Despite this, they still face financial pressure from other tax types and rising living costs.

Proposals for Zero Income Tax Systems

Recent political discourse has revitalized discussions about eliminating federal income tax entirely. Former President Trump has advocated for a return to pre-income tax revenue systems, proposing to abolish income tax and replace it with tariff-based funding. “We’re going back to the old days. No income tax, just tariffs. It worked before, and it’ll work again,” Trump stated earlier this year in Las Vegas, adding that “The IRS is a disaster. We don’t need it. Tariffs will fund everything we need and more”3. This radical shift would fundamentally transform how the federal government collects revenue, moving away from the progressive taxation of individual and corporate income toward a system where import duties generate the majority of federal funds.

The concept of tariff-based revenue isn’t Trump’s proposal alone but connects to broader Republican discussions about alternative tax systems. Some Republican representatives have supported the Fair Tax Act, which while not identical to Trump’s tariff plan, similarly proposes eliminating income tax entirely3. The Fair Tax Act advocates argue such a system would simplify tax administration and allow Americans to keep more of their earnings. Under this approach, the Internal Revenue Service (IRS) would be eliminated and potentially replaced with what Trump has called the “External Revenue Service” to handle tariff revenue3. This structural change represents one of the most dramatic tax reform proposals in modern American politics.

Critics of these zero-income tax approaches warn about potential economic repercussions. Heavy reliance on tariffs might trigger trade wars, increase consumer prices, and potentially lead to economic instability3. Similarly, consumption-based tax systems like those proposed in the Fair Tax Act could disproportionately burden lower-income households who spend a larger percentage of their income on consumable goods, potentially widening wealth inequality rather than reducing it3. These criticisms highlight the complex trade-offs involved when considering fundamental changes to tax policy that would eliminate income tax entirely.

Impact of Recent Tax Cuts on Working-Class Americans

The 2017 Tax Cuts and Jobs Act (TCJA) has become a central reference point in discussions about tax relief for working-class Americans. According to Republican claims, working families making less than $30,000 saw the largest tax cut of any income group thanks to the 2017 law2. Ways and Means Committee Chairman Jason Smith has stated that “extending the Trump tax cuts delivers the biggest relief to working-class Americans and small businesses in a generation,” positioning the TCJA as primarily benefiting low and middle-income families while increasing the share of taxes paid by wealthy Americans2. This perspective frames the TCJA as a working-class-oriented tax policy despite common criticism that it disproportionately benefited higher-income Americans.

However, alternative analyses present a different picture of how tax cuts affect working-class families. Many working-class families with modest incomes owe little to nothing in federal income taxes, though they do pay other taxes, especially payroll taxes on their earnings5. This means that cutting marginal tax rates, as the TCJA did, or exempting certain types of income from taxation like tips or overtime, as has been proposed, provides them little to no direct tax benefit5. Therefore, simple extensions of the TCJA or similar rate reduction approaches may not provide substantial relief to many working-class households who already have minimal income tax liability.

The question of extending the TCJA has gained urgency as its provisions are set to expire at the end of 2025. Extending these expiring provisions would cost over $4 trillion through 2035, with analyses suggesting most benefits would go to wealthy Americans rather than working families struggling with basic expenses5. This has prompted policy experts to question whether simple extension represents the most effective approach to providing tax relief for working-class Americans compared to more targeted alternatives that would direct benefits specifically to lower and middle-income households.

Filing Tax Returns with Zero Income

Even when individuals have no income to report, filing tax returns can provide important benefits. The IRS allows people to file tax returns showing zero income, which can be advantageous for various reasons1. Recent years have demonstrated how important it is to have information updated with the IRS, making filing returns without taxable income increasingly common7. This practice gained particular relevance during stimulus payment distributions when having current information on file with the IRS facilitated receiving economic impact payments.

There are specific technical challenges to filing with zero income, however. If a taxpayer attempts to file a return without any taxable income, the IRS will typically reject it7. To circumvent this rejection, tax preparation services recommend reporting a nominal amount of income. “The simplest way to file without any taxable income is adding $1 of interest income to your return before submission,” according to tax preparation guidance7. This technical workaround allows individuals with no actual income to successfully submit returns and maintain updated records with the IRS.

Filing a tax return also serves important purposes beyond the immediate tax year. Filing starts the clock running for the amount of time the IRS can audit a return for a given year, providing eventual closure on potential tax issues1. Additionally, individuals with no income may still qualify for refundable tax credits, potentially receiving a tax refund even without having paid income taxes1. These factors make filing returns beneficial even for those who fall below the IRS minimum filing requirements, which vary based on filing status, age, and other factors.

Alternative Approaches to Working-Class Tax Relief

Policy experts have proposed alternatives to simply extending existing tax cuts that would more directly benefit working-class families. One comprehensive approach builds on the TCJA’s tax simplification gains while focusing benefits on working families through expanded refundable tax credits5. Under this proposal, the TCJA’s larger standard deduction and repeal of personal exemptions would be retained, while most other temporary provisions would expire since they provide limited benefit to families at the lower end of the income distribution5. This selective approach to extending tax provisions redirects resources toward more targeted relief.

The centerpiece of this alternative approach involves reforming and expanding key tax credits that benefit working-class families. A new worker credit of up to $2,500 for individuals earning at least $10,000 annually would replace the current Earned Income Tax Credit (EITC), while a new child benefit credit would provide up to $4,000 per child for households with at least $10,000 in annual earnings5. The child credit would be structured with half ($2,000) available regardless of earnings, while the second half would phase in proportionally over the first $10,000 in earnings, providing faster benefit accumulation for larger families5. This design specifically targets relief to working families with children who face the highest expenses.

The impact analysis of this alternative approach shows substantially different distributional effects compared to simply extending the TCJA. Nearly all benefits would go to the bottom 60 percent of households, increasing their after-tax incomes by $1,270 to $1,560 annually on average5. For families with children in this income range, the benefits would be even more substantial, increasing after-tax incomes by $2,810 to $4,130 on average5. This targeted approach would also benefit low-income workers without children at home, addressing a group historically excluded from many safety net benefits despite facing significant financial hardships5.

Current Tax Landscape and Future Implications

The tax landscape for 2025 includes important adjustments that will affect working-class Americans. The IRS has announced inflation adjustments for tax year 2025 that increase standard deductions and adjust tax brackets. For single taxpayers, the standard deduction rises to $15,000, an increase of $400 from 2024, while for married couples filing jointly, it increases to $30,000, up $800 from the previous year4. These adjustments help ensure that inflation doesn’t push taxpayers into higher tax brackets without real income increases.

The marginal tax rate structure for 2025 maintains the same percentages established under the TCJA, with rates ranging from 10% for the lowest income bracket to 37% for the highest incomes. Specifically, the 10% rate applies to incomes of $11,925 or less for single filers ($23,850 or less for married couples filing jointly), with rates progressively increasing through six additional brackets4. These rate structures and bracket adjustments are particularly relevant given ongoing debates about extending the TCJA provisions before they expire at the end of 2025.

Concerns about regressive taxation appear in discussions of alternatives to income tax. Critics point out that taxes like excise taxes place disproportionate burdens on lower-income individuals, requiring “less-affluent people to pay a larger share of their incomes on essential goods such as food than more wealthy people”6. This perspective challenges proposals that would shift from income taxes to consumption taxes. As Will White from the Hawaiʻi Appleseed Center for Law & Economic Justice noted regarding a Hawaii proposal, “Lower-income residents generally pay very little in income taxes,” making it unclear how income tax elimination would substantially benefit them compared to addressing high housing and food costs6.

Conclusion: Evaluating Approaches to Working-Class Tax Relief

The debate over zero income tax proposals and working-class tax relief represents fundamentally different visions for the American tax system. While eliminating income tax entirely through tariff-based or consumption-based alternatives would represent the most radical change, analysis suggests such approaches might not provide the greatest benefits to working-class Americans who already pay little income tax. Instead, targeted expansions of refundable tax credits appear to deliver more substantial benefits to lower and middle-income households, particularly those with children.

The impending expiration of the TCJA provisions at the end of 2025 creates both urgency and opportunity for tax policy reform. Policymakers face crucial choices about whether to simply extend existing tax cuts, implement more targeted approaches focused on working families, or pursue more radical alternatives like eliminating income tax entirely. These decisions will significantly impact federal revenue, income inequality, and the financial well-being of working-class Americans. The analysis suggests that the most effective approach for providing working-class tax relief may not be eliminating income taxes but rather expanding refundable credits that deliver benefits even to those with limited tax liability.

As these debates continue, working-class Americans would benefit from understanding how different proposals would affect their specific situations. With proper targeting, tax policy can provide meaningful financial relief to working families struggling with rising costs of living. However, the analysis reveals important distinctions between tax policies that appear to benefit working-class Americans and those that would deliver substantial, measurable improvements to their financial circumstances.

Citations:

Answer from Perplexity: pplx.ai/share

Tag: taxes

Working-Class Tax Relief: Exploring Alternatives to Income Tax

Proposals for Zero Income Tax Systems

Impact of Recent Tax Cuts on Working-Class Americans

Filing Tax Returns with Zero Income

Alternative Approaches to Working-Class Tax Relief

Current Tax Landscape and Future Implications

Conclusion: Evaluating Approaches to Working-Class Tax Relief

Citations:

Project 2025: Impact on U.S. Taxpayers and Economy

Simplified Tax Brackets

Changes to Deductions and Credits

Corporate Tax Rate Reduction

Capital Gains Tax Changes

Elimination of Green Energy Incentives

Potential Introduction of a National Sales Tax

IRS Restructuring