Trump Plan To Eliminate Federal Taxes At $150K: What It Means In CA

CALIFORNIA — The Trump administration has floated a proposal to eliminate federal income taxes for Americans earning less than $150,000 a year. During an interview with CBS News, Commerce Secretary Howard Lutnick said the tax reduction plan is part of President Donald Trump's economic vision.

"I know what his goal is: no tax for anybody who makes less than $150,000 a year. That's his goal. That's what I'm working for," Lutnick told CBS News chief White House correspondent Nancy Cordes.

Specific plan details, however, have not been released. Also, it's unclear whether the proposal aims to also cut payroll taxes (Medicare and Social Security taxes).

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Impact on California Residents

If the proposal comes to pass, a vast majority of Californians would be eligible under it.

According to U.S. Census Bureau data, California's median household income as of 2023 was $96,334. The median income is derived after dividing households into two groups: half having an income above the median and half having an income below it.

The state's per capita income for 2023 was $47,977, the census data show. The per capita income figure includes every adult and child in California. The state's population is hovering just under 40 million.

More than 76 percent of Americans earn less than $150,000 annually. The median U.S. household income in 2023 was $80,610, according to the census data.

Funding the Tax Cut

The devil is in the details. Firstly, a tax incentive is already on the table. Trump and the Republican majority are looking to extend key provisions of the president's Tax Cuts and Jobs Act (TCJA) of 2017, which are set to expire Dec. 31, 2025.

The TCJA was the largest tax code overhaul in nearly three decades. The $1.5 trillion tax reform cut the corporate tax rate to 21%, capped deductions for state and local taxes (SALT) at $10,000, doubled standard deductions, and expanded the child tax credit.

The latest Trump proposal may not be as expensive. Depending on where you draw the line, the tax revenue collected from the bottom 93 percent of U.S. taxpayers amounts to 24 percent of all income tax revenue, or a little more than $500 billion per year.

Still, if both the TCJA tax cuts (which disproportionately benefit high-income earners) and the elimination of income tax for individuals making less than $150,000 passed, it raises an obvious question: Who pays?

Additionally, the administration wants to "bring the money back" to Americans by eliminating taxes on tips, overtime, and Social Security benefits.

The top one percent of taxpayers currently pay about 40 percent of all income taxes. Would the middle class make up the funding deficit?

The administration alleges that cuts underway by the Department of Government Efficiency (DOGE) and ongoing tariffs can offset the revenue loss. That remains to be seen, but many economists disagree with the strategy.

No Pain, No Gain?

Trump and his advisers have offered that there will be pain in the short term.

A recession is possible, and maybe that wouldn't be that bad, they contend.

Lutnick has said Trump’s policies are "worth it" even if they cause a recession. Scott Bessent, the Treasury secretary, has said the economy may need a "detox period" after becoming dependent on government spending.

For his part, Trump's narrative is that there will be a "period of transition" as his policies take effect.

Economists have begun sounding alarms about the potential for a recession strongly tied to tariffs. If that is the case, stagflation — a period of elevated unemployment and rising costs, could also be in the cards.

Kris J. Mitchener, economics professor at Santa Clara University, told Forbes the chances of a recession this year are about 20%.