Trump floats replacing the Income Tax — why these 3 states could lose the most

The US President Donald Trump has suggested that money from tariffs could one day replace the federal income tax. Experts say this idea would need approval from Congress and is very hard to implement. Even so, the idea has restarted a big debate about how removing income tax could affect US states.

Some states depend more on income tax money, so they could be hit harder if the system changes. Based on this risk, analysts have pointed out three states that could suffer the most if income tax is reduced or replaced, according to GOBankingRates.

California

California depends heavily on personal income taxes to run the state. A large part of California’s general fund comes from income taxes paid by residents, according to the California Budget & Policy Center. The state uses a progressive tax system, so rich people pay a big share of the total tax.If federal income tax rules change, rich taxpayers may change how they earn or report money, which could hurt state revenue.


California does not rely much on sales taxes or natural resource taxes, unlike some other states. The state’s income tax money comes from wages and investment gains, which can go up and down. Because of this, California’s budget often rises and falls with the economy, as per GOBankingRates. Experts say this makes California more vulnerable to big tax policy changes.

New Jersey

New Jersey’s risk is linked more to its spending needs than how it collects taxes. The state has some of the largest pension payments in the US. It also has long-term costs for retired workers that must be paid no matter what. These fixed costs make it hard for the state to adjust quickly if tax money falls.

Even small drops in income tax money can cause big problems for the budget. Pew researchers say states with heavy pension burdens have less freedom to handle financial shocks. If federal income tax rules change, New Jersey may need to cut services or raise other taxes, as noted by GOBankingRates.

Oregon

Oregon relies mostly on personal income taxes to pay for public services. The state does not have a general sales tax, which is rare in the US. Because of this, Oregon has fewer backup options if income tax money drops. Changes that affect people’s income can quickly hurt Oregon’s budget.

Pew researchers say states with many types of taxes handle shocks better than states with narrow tax systems. Oregon’s lack of a sales tax makes switching to other revenue sources harder. If federal income tax policy changes a lot, Oregon could face tough budget decisions, as cited by GOBankingRates.

FAQs

Q1. What is Trump’s idea about replacing income tax?

Trump has suggested using money from tariffs instead of federal income tax, but experts say it would be very hard to do.

Q2. Why could some US states lose money if income tax is removed?

Some states depend heavily on income tax and may face budget problems if that money changes or drops.