Trump’s Tax Policy Privileges Sophisticated and Wealth Individuals and Organizations at the Expense of the Working Poor

by | May 5, 2025

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About Stephanie McMahon

Dr. Stephanie Hunter McMahon is a professor of law at Indiana University Maurer School of Law and the University of Cincinnati College of Law. In addition to numerous articles on tax policy, she is the author or Principles of Tax Policy (3d ed. 2023).

No one enjoys paying taxes, but some level of taxation is inevitable in modern society. The question is not whether to have a tax system, but rather whether the system will be fair, effective, and efficient. Since taking office, President Donald Trump has taken steps to handicap the federal tax administration and to torpedo international tax cooperation, ensuring that the U.S. system will be none of these things. The economic damage and administrative chaos caused by these policy changes will disproportionately impact those least able to navigate these systems, most importantly low-income wage earners, while privileging those with the sophistication, means, and types of income to take advantage of the weakened system.

Domestically, the IRS is a major provider of economic assistance to families and the working poor. For decades the Internal Revenue Code has contained the U.S.’s largest sources of income redistribution: the refundable Earned Income Credit and Child Tax Credit. Recipients of benefits need a functioning IRS, something unlikely to exist with five acting commissioners since President Trump’s inauguration. Under President Biden, the IRS acknowledged the racial and class disparities within its audits and worked to minimize this disparity. Those efforts are no longer permitted in the Trump administration.

Cuts to the agency also ensure an unequal imposition of the federal tax. The hiring freeze and drastic cuts to the bureaucracy have resulted in more than 20% of IRS staff taking the deferred resignation plan, and the goal may be for a 25% reduction in workforce, which will surely hurt the agency’s enforcement and collection efforts. Moreover, the Department of Justice, which litigates tax cases in Circuit Courts and the Supreme Court, plans to dissolve its Tax Division, a victory for the well-heeled tax (non)payers who can afford to litigate with the government.

These cuts will not help those who live off of wages as long as we have a functioning withholding system. Those who benefit when the IRS does not function are those engaged in the most aggressive tax planning and with significant economic flexibility and mostly non-wage income. As they “win,” the government has less revenue to fund its programs and lower-income taxpayers pay disproportionately more in tax.

President Trump’s international tax policy, and not just his well-publicized tariffs, has also cost the country revenue and benefited the wealthy more than the poor. He terminated international tax cooperation that was working to ensure large multinational corporations could not avoid all taxes everywhere and that wealthy taxpayers could not hide money in tax havens. This will benefit multi-national corporations and individuals with liquid assets, including cryptocurrency.

Additionally, this administration’s back and forth on tariffs, raised through a power created when he declared a national emergency and possibly to be managed by a new External Revenue Service, has created a volatile stock market and had a chilling effect on worldwide economic activity. If maintained, tariffs at rates to protect domestic producers would not produce revenue but cost the government revenue. Moreover, tariffs, like all broad consumption taxes, are highly regressive, hurting poorer consumers the most, and when consumers compete for the goods produced domestically it often results in inflation which further harms the poor. However, tariffs imposed by executive order on February 1 were removed on March 2, and others imposed on April 2 were largely eliminated but for China on April 8. Even though volatile market prices may be good for certain wealthy investors playing the market, they remain bad for those saving for retirement or for their children’s college.

Unlike the blithe assurances given in these executive orders, changing tax policy through defunding the agency that administers it does not improve policy, it just ensures some tax evaders will not get caught. Imposing prohibitive taxes on imported goods on a whim does not encourage domestic production, it just destabilizes the market. The costs of these changes will be borne by those least able to afford them. While no one may love taxes, the government should at least ensure those taxes are fairly imposed and administered, which requires a tax administration and tax laws capable of doing so.

 

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