President Donald Trump has repeatedly floated the idea of replacing the federal income tax with tariffs, telling Americans that future federal operations could be funded without traditional income levies. If that vision ever moved from rally line to law, the shock would not be evenly distributed, and some states would be far more exposed than others. I look at three states where Trump’s broader economic record suggests that killing the income tax could be especially punishing.
1) Hawaiʻi: Solar whiplash and fragile revenues
Hawaiʻi offers a vivid warning about how quickly federal policy shifts under President Donald Trump can destabilize a state economy that leans on targeted incentives. Local advocates argue that Trump “killed” the state’s rooftop solar boom by undermining the policy environment that had supported rapid adoption, a change detailed in reporting on how federal moves left Hawaiʻi’s clean energy sector facing what one analysis called a looming “bloodbath” without swift state intervention. The same critique appears in a widely shared community post titled “Trump Killed Solar In Hawai, The Legislature Must Act Now Without,” which warns that, without immediate legislative action, installers and small contractors could see a wave of business failures linked to the loss of predictable support for renewables, as described in the Hawaiʻi solar discussion. A detailed policy analysis of the state’s energy transition similarly concludes that Trump killed solar in Hawaiʻi and urges lawmakers to act now to prevent deeper damage to jobs and investment, underscoring how dependent the sector had become on stable federal and state tax structures, as outlined in the clean energy report.
If President Donald Trump succeeded in eliminating the federal income tax and replacing it with tariffs, Hawaiʻi’s vulnerability would likely intensify. The state’s remote location makes it heavily reliant on imported goods, so a tariff-centric system would effectively tax Hawaiʻi consumers and businesses more heavily than those in many mainland states. At the same time, federal income tax deductions and credits have been central tools for steering private capital into rooftop solar, battery storage and efficiency upgrades that help Hawaiʻi manage high energy costs. Removing the income tax would strip away those levers unless Congress built bespoke alternatives, leaving the Legislature to shoulder even more of the cost of stabilizing a sector already shaken by what advocates describe as Trump’s decision to kill solar in Hawaiʻi. For residents, that combination of higher import costs and weaker clean energy incentives could mean higher utility bills, slower progress toward energy independence and a state budget squeezed between climate goals and a shrinking federal toolkit.
2) Michigan: Trade war scars and manufacturing risk
Michigan’s manufacturing-heavy economy shows how Trump’s broader economic agenda can collide with local realities when federal revenue tools are in flux. During Trump’s first term, his administration’s trade wars were described as “crushing” U.S. small businesses that depended on predictable global supply chains and stable input prices, with particular pain for manufacturers facing retaliatory tariffs and higher costs on imported components, as detailed in an analysis of how the trade wars hit smaller firms. Michigan’s auto parts suppliers, tool-and-die shops and export-oriented factories fit that profile, relying on both international markets and finely tuned margins. When tariffs drove up costs, many of these firms had little room to absorb the shock, and some responded with layoffs, delayed investment or price hikes that eroded competitiveness.
Layering the elimination of the federal income tax on top of that history would create a new set of risks for Michigan. President Donald Trump has suggested that tariff revenue could eventually replace the income tax, an idea examined in reporting on whether he might actually try to replace the income tax entirely with border levies. If that happened, Michigan’s manufacturers would be hit twice: first by higher tariffs on the imported steel, electronics and machinery they rely on, and second by the potential loss of federal programs funded by income tax receipts that currently support workforce training, infrastructure and small business financing. Critics of Trump’s tax agenda, including business leaders such as Elon Musk who called one Trump tax bill a “disgusting abomination,” argue that poorly designed federal tax changes can distort investment and hurt long-term growth, as noted in coverage of Musk’s criticism. For Michigan, where communities from Detroit to Grand Rapids still depend on a delicate mix of manufacturing jobs and federal support, a sudden shift to tariff-only funding could revive the worst aspects of the trade war era while stripping away the stabilizing role of the income tax.
3) Colorado: Cannabis windfalls and federal tax traps
Colorado’s legal cannabis industry illustrates how deeply state economies can be entangled with federal tax rules that President Donald Trump now says he wants to upend. The state has built a multibillion-dollar market around regulated marijuana, with businesses still constrained by Internal Revenue Code Section 280E, which limits standard deductions for companies that traffic in federally controlled substances. Trump’s recent cannabis rescheduling order has been described by one expert as a move that could finally kill this “crushing” tax rule and transform U.S. weed stocks, since reclassifying cannabis would allow operators to deduct ordinary business expenses and dramatically improve profitability, according to analysis of the rescheduling order. For Colorado, where tax receipts from cannabis fund schools, public health and local infrastructure, the end of 280E would likely mean stronger balance sheets for dispensaries and growers, more stable employment and potentially higher valuations for publicly traded firms tied to the state’s market.
Yet Trump’s parallel push to eliminate the federal income tax could complicate that apparent win. Reporting on his campaign rhetoric notes that President Donald Trump has repeatedly floated the idea of eliminating America’s income tax and instead generating revenue from tariffs, a concept summarized in coverage of how America might adjust. If Washington abandoned the income tax, Congress would need new mechanisms to share revenue with states or risk squeezing federal grants that Colorado uses alongside cannabis dollars to fund public services. At the same time, a tariff-driven system could raise the cost of imported cultivation equipment, lighting systems and packaging materials that Colorado cannabis businesses depend on, offsetting some of the gains from ending 280E. Earlier coverage of Trump’s suggestion that Americans may soon pay “no income tax” notes that the White House has explored alternative revenue streams built around tariffs, as described in reporting on no income tax scenarios. For a state that has carefully balanced cannabis revenue with broader fiscal planning, the combination of a welcome fix to a punitive tax rule and a radical overhaul of federal income taxation could leave budgets more volatile, not less.
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Grant Mercer covers market dynamics, business trends, and the economic forces driving growth across industries. His analysis connects macro movements with real-world implications for investors, entrepreneurs, and professionals. Through his work at The Daily Overview, Grant helps readers understand how markets function and where opportunities may emerge.
