Trump floats new income tax cut in bid to ease tariffs’ bite

US President Donald Trump suggested on April 27 that his sweeping tariffs would help him reduce income taxes for people making less than US$200,000 (S$263,000) a year, as public anxiety rises over his economic agenda.

He has previously argued that tariff revenue could replace income taxes, though economists have questioned those claims.

“When Tariffs cut in, many people’s Income Taxes will be substantially reduced, maybe even completely eliminated. Focus will be on people making less than US$200,000 a year,” he said on his Truth Social network.

His tariff stances have roiled markets, led to fears of higher prices for Americans, prompted recession warnings and sparked bouts of concern about the US’ haven status – a fear that

Treasury Secretary Scott Bessent questioned in an interview on April 27.

“I don’t think that this is necessarily losing confidence,” Mr Bessent said on ABC’s This Week. “Anything that happens over a two-week, one-month window can be either statistical noise or market noise.”

The Trump administration is “setting the fundamentals” for investors to know “that the US government bond market is the safest and soundest in the world”, he said.

“We’re going to make a lot of money, and we’re going to cut taxes for the people of this country” through income from tariffs, Mr Trump said on his way back to Washington from his golf club in New Jersey.

“It’ll take a little while before we do that,” he added.

For now, a CBS News poll released on April 27 said 69 per cent of Americans believe the Trump administration was not focused enough on lowering prices. Approval of Mr Trump’s handling of the economy in the poll declined to 42 per cent compared with 51 per cent in early March. 

Mr Trump wants to extend reductions in income taxes that were approved in 2017 during his first presidency, many of which are due to expire at the end of 2025. 

He also has proposed expanding tax breaks – including by exempting workers’ tips and social security earnings – while slashing the corporate tax rate to 15 per cent from 21 per cent. 

Trade deals

Mr Bessent said the administration is working on bilateral trade deals after Mr Trump imposed so-called reciprocal tariffs on many countries in early April, which he subsequently paused for 90 days for all affected countries except China.

The effort involves 17 key trading partners, not including China, Mr Bessent said on ABC.

“We have a process in place, over the next 90 days, to negotiate with them,” he said. “Some of those are moving along very well, especially with the Asian countries.”

He reiterated the administration’s argument that Beijing will be forced to the negotiating table because China cannot sustain

Mr Trump’s latest US tariff level of 145 per cent on Chinese goods.

“Their business model is predicated on selling cheap, subsidised goods to the US,” Mr Bessent said. “And if there’s a sudden stop in that, they will have a sudden stop in the economy, so they will negotiate.”

Mr Trump has said the US is talking with China on trade, which Beijing has denied. Mr Bessent said he did not know if Mr Trump and Chinese President Xi Jinping had spoken. 

He said he saw his Chinese counterparts when the world’s financial officials gathered in Washington last week “but it was more on the traditional things like financial stability, global economic early warnings”.

Mr Bessent said he thinks there is a path forward for China talks, staring with “a de-escalation” followed by an “agreement in principle”. 

“A trade deal can take months, but an agreement in principle and the good behaviour and staying within the parameter of the deal by our trading partners can keep the tariffs there from ratcheting back to the maximum level,” he said.

In Congress, the framework for a Bill that Republicans agreed on in early April would allow for as much as US$5.3 trillion in tax cuts over a decade. Trump trade adviser Peter Navarro has suggested Mr Trump’s tariffs will generate more revenue than that, while most economists project that they will bring in significantly less. BLOOMBERG