Presidential candidate Donald Trump shocked the Internet Thursday on Fox & Friends by announcing “the ultimate tax cut” — ending the income tax altogether. Economists and opinion makers rushed to their keyboards to share their reactions.

Such a move would send shock waves through all levels of the global economy – a system so complex that even minor changes are impossible. difficult to predict.

Elimination of income tax: unpredictable effects

For starters, replacing income tax with tariffs would immediately increase the cost of imported goods across the board. Consumers would face higher prices on everything from electronics to clothing, putting inflationary pressure on the entire economy.

Customs duties are essentially taxes on the consumption of foreign goods. With U.S. consumers heavily dependent on imports, from raw materials to finished goods, price increases would be substantial.

Over time, the rate of inflation would slow as capital investment in U.S. supply chains and manufacturing is restored. However, this could take a long time and it is difficult to predict how much price inflation could intensify in the meantime.

On the other hand, if the personal income tax were eliminated at the same time, Americans would keep a much larger share of their income and have much more money to pay much higher prices.

The central question here is which of these effects – rising prices or rising incomes – would dominate people’s perceptions of the economy and their personal financial well-being.

Change in time preference

Bitcoin provides a critical lens through which to examine this potential change – particularly with its concept of time preference.

Time preference refers to an individual’s tendency to prefer immediate consumption over future rewards (high time preference) versus the preference to delay gratification in order to enjoy greater rewards in the future (low time preference).

This concept is rooted in the logic of Bitcoin software. As it is a naturally deflationary currency, the purchasing power of a bitcoin tends to increase over long periods of time. Whenever you are faced with the choice of whether or not to spend money on consumption today, your alternative is to save that money in Bitcoin, with the payoff of consuming 10x, 100x, or even more, some distant day in the future. the future.

If Americans suddenly find themselves with more disposable income but also face higher prices for goods, they might start thinking more carefully about their consumption choices. For those with a lower time preference, the natural response might be to postpone unnecessary purchases and focus instead on saving or investing. In a world where property prices are inflated, more prudent individuals may begin to look for other stores of value to protect their wealth. This is where Bitcoin could find a significant new cohort of adopters.

Could Bitcoin experience a short-term boom?

If Americans suddenly find themselves blessed with extra cash due to the elimination of the income tax, they could experience a short-term surge in speculative investments. This could reflect the cryptocurrency bull run seen during the COVID-19 recovery period, when stimulus checks fueled a wave of retail investments in everything from Gamestop to Bitcoin and other crypto -currencies.

Bitcoin is much more accessible to consumers today than just a few years ago, with the advent of Bitcoin Spot ETF And smoother user experiences. At the same time, Ethereum’s struggles since its migration to proof-of-stake, as well as the failure of the NFT fad, mean that bitcoin could be more easily distinguished of the noise of speculative bubbles in the minds of individual investors.

Eliminating the income tax could lead to a glut of disposable income, which could in turn trigger a wave of demand for bitcoin that would drive the price higher in the short term. However, as tariffs drive up consumer prices, people could liquidate some of their bitcoin holdings to cover the rising cost of living. This could lead to a sharp sell-off, or even a prolonged price correction, as we saw after the stimulus-induced Bitcoin rally in 2020-2021.

In the longer term, trading income taxes for tariffs would completely reshape the U.S. economy, with both positive and negative effects. If domestic manufacturers become more competitive as imported products become more expensive, we could see a resurgence of American manufacturing. This “reshoring” of production, whereby companies bring their manufacturing operations back to the United States to avoid tariffs, could increase job creation domestically and boost overall economic growth.

As labor force participation increases and domestic production accelerates, Americans may feel a greater sense of economic stability. With more consistent income streams and increasing confidence in the future, people could begin to reduce their time preference and invest in long-term stores of value – Bitcoin included. Economic growth, combined with the realization that fiat currencies will always lose purchasing power over time, could lead to a long-term structural increase in demand for bitcoin.

The role of Bitcoin after the elimination of income tax

The income tax is deeply woven into the fabric of American financial life, determining everything from personal budgets to national policy. Completely eliminating the income tax would be nothing short of a financial revolution. In the ensuing upheaval, and ultimately the new status quo, what role would bitcoin play?

In the short term, we could see an impulsive rise in bitcoin prices, similar to what happened with COVID-19 stimulus checks. However, the long-term trend could be a sustained increase in Bitcoin’s market capitalization, particularly if the relocation of U.S. industry strengthens the domestic economy while inflationary pressures from tariffs push more people to seek out healthy monetary alternatives.

As Americans adapt to higher prices and more disposable income, there is a good chance that many will reduce their time preference, prioritizing savings and investments over immediate consumption.

Ultimately, this change could accelerate the rise of Bitcoin as the ultimate store of value in the post-income tax United States. Hopefully, the revolution will inspire ordinary Americans to understand and recognize the importance of sound money.