President Donald Trump has repeatedly floated the idea of eliminating the federal income tax and replacing it with tariffs or other levies, raising a high-stakes question for states that depend heavily on Washington. If the income tax, which currently delivers $2.18 trillion in federal revenue, disappeared without a fully reliable substitute, the shock would ripple unevenly across the country. I look at three states that, based on current tax structures and federal reliance, could lose the most if Trump ever managed to “kill” the income tax.
1) California
California stands out because its residents pay a large share of federal income taxes while also relying on federal dollars to sustain expansive social programs. Analysts who have examined President Donald Trump’s trial balloon to scrap the income tax note that any replacement, such as a broad national sales tax or higher tariffs, would have to match the roughly $2.18 trillion that individual income taxes currently generate, according to federal revenue data labeled What. A detailed breakdown of Trump’s proposal to eliminate the income tax warns that shifting to tariffs or a national consumption tax would likely raise costs for consumers in high-cost states like California, where households already shoulder steep housing and state tax burdens, while offering disproportionate relief to higher earners who benefit most from cuts to progressive income taxes, a pattern that California officials have criticized in earlier rounds of federal tax changes.
The stakes are especially high because California’s own tax system leans heavily on progressive income taxes, which researchers describe when they say that “All the most equitable tax systems include personal income taxes which are progressive,” explicitly citing California as an example of a state that uses higher rates and limits on preferences for upper-income taxpayers to reduce inequality, according to the report titled All the. If federal income taxes vanished and were replaced by tariffs, the burden would tilt toward consumption, which tends to hit lower and middle income Californians harder, while the state might face pressure to raise its own taxes to backfill federal cuts to programs like Medicaid and marketplace subsidies. State leaders have already warned that President Donald Trump’s broader tax and spending agenda, including earlier tax cuts for the ultra-rich, could force California to choose between cutting services and increasing already high state taxes, a trade-off that would be magnified if the federal income tax foundation were removed.
2) Louisiana
Louisiana, known as The Pelican State, is another place that could be hammered if Trump succeeded in killing the income tax, because its economy and state budget are deeply intertwined with federal money. An analysis of state economies notes that, while The Pelican State does not have a large federal workforce, fully half of state spending is funded by the federal government, highlighting how vulnerable Louisiana is to any federal budget cuts or revenue shocks, a point underscored in the description that begins “Pelican State.” If the federal government suddenly lost its primary revenue stream from income taxes and tried to replace it with tariffs, Louisiana would face the double risk of reduced federal transfers and higher costs on imported goods that are crucial to its petrochemical and manufacturing sectors, potentially weakening an economy already flagged as one of the nation’s most fragile.
The broader context is that many states, including Louisiana, rely on Washington for a large share of their budgets, with one national review finding that the federal share of state budgets remains high but warning that uncertainties lie ahead as Congress debates long-term spending and revenue choices, a concern captured in the analysis of the federal share. If income tax revenue disappeared and tariffs failed to fully replace it, Louisiana would likely see cuts to Medicaid, transportation grants and disaster recovery funds that are central to its fiscal stability. In that scenario, state lawmakers might have to raise their own regressive sales taxes or trim already thin services, deepening inequality in a state with high poverty rates and limited economic diversification, and leaving local communities more exposed to hurricanes and industrial downturns without the same level of federal backstop.
3) New Mexico
New Mexico also appears near the top of lists of states most dependent on Washington, making it a prime candidate to lose big if the federal income tax were scrapped. A detailed ranking of state reliance on federal dollars, labeled “Ranked: States That Need the Federal Government the Most,” shows New Mexico among the states where a very high percentage of State Revenues comes from federal funding, as summarized in the table that organizes each Rank, State and share of State Revenues, described under the heading Ranked. If President Donald Trump persuaded Congress to eliminate the income tax and rely on tariffs, New Mexico would be exposed to any resulting drop or volatility in federal aid that supports its large low income population, extensive public lands and significant Native American communities, all of which depend on stable federal programs for health care, education and infrastructure.
The mechanics of Trump’s idea matter here. Fact checks of his claim that tariffs could replace the income tax point out that the scale of revenue needed is enormous and that tariffs function more like a tax on imports paid by domestic consumers and businesses, not a painless charge on foreign countries, a reality highlighted in a review of Trump’s tariff rhetoric that scrutinizes his assertion that tariffs could fully substitute for income taxes, as seen in the fact focus on those statements. If tariffs fell short, New Mexico could see reductions in Medicaid and other safety net programs, similar to the nearly $1 trillion in Medicaid cuts over 10 years that state health officials have already warned about in connection with a sweeping federal spending plan President Donald Trump signed, a concern detailed in reporting on how local groups in California are seeking new taxes to offset federal health care cuts in the Medicaid debate. For New Mexico, which lacks the tax base of larger states, trying to replace lost federal dollars with higher state taxes would be far more difficult, leaving residents particularly vulnerable if the federal income tax foundation were removed without a robust and reliable alternative.
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This article was researched with the help of AI, with editors refining and creating the final content.
Julian Harrow specializes in taxation, IRS rules, and compliance strategy. His work helps readers navigate complex tax codes, deadlines, and reporting requirements while identifying opportunities for efficiency and risk reduction. At The Daily Overview, Julian breaks down tax-related topics with precision and clarity, making a traditionally dense subject easier to understand.
