Former president Donald Trump promised this week to eliminate income taxes on overtime pay if he wins a second term in November.
During remarks on the economy in Tucson, Arizona, Trump unveiled the policy which he said would give “people more of an incentive to work.”
“If you’re an overtime worker, when you’re past 40 hours a week, think of that, your overtime hours will be tax-free,” Trump said.
Any changes to the U.S. tax code require approval from Congress. In 2025, lawmakers will have an opportunity to rewrite the country’s tax laws, when Trump’s 2017 tax laws are set to expire. Trump’s new tax policies — which also include a proposal to end taxes on tips and a proposal that seniors should not pay taxes on social security benefits — are aimed primarily at hourly wage workers, a group that both presidential candidates are courting.
“The people who work overtime are among the hardest working citizens in our country and for too long, no one in Washington has been looking out for them,” Trump said. “They’re police officers, nurses, factory workers, construction workers, truck drivers and machine operators.”
The candidate’s latest tax-riddance proposal would cost $227 billion over 10 years, according to a conservative estimate calculated on Friday by the Tax Foundation, an independent tax policy research organization.
If enacted, the proposal could also spur a shift in those classified as salaried and exempt from overtime to those categorized as hourly workers, Garrett Watson, senior policy analyst at the Tax Foundation, told CBS News. “There are no guardrails on this, so the cost could go up from there,” Watson said.
Added together, Trump’s recent series of tax-exemption proposals “all add up to a multitrillion-dollar hole in deficit financing,” said Watson. “The big question is, to what extent does this make sense as a policy perspective,” he added.
“As an economist, I’m struggling to understand what the rationale is,” offered Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center.
Trump’s proposal raises ethical and administrative questions including, “Can the IRS handle this?” said Holzblatt, who previously worked as an analyst in the Congressional Budget Office, the U.S. Treasury and for the Senate Budget Committee.
“It has the possibility of unintended effects — by helping one group of people, you may be harming another group of people,” said Holzblatt, noting the potential impact of how the labor market, in terms of wages and salaries, gets restructured — it gives the employer an incentive to change the base rate, or regular pay.”
Both Hozblatt and Watson said additional details of what Trump’s proposal would entail are needed to have a better grasp of its potential impact.
Vice President Kamala Harris’ campaign calls Trump’s tax pitch is an attempt to “trick” Americans. It noted that the Trump administration in 2019 opted to cover far fewer workers in its overtime pay rule than had been proposed by the prior administration under former President Obama.
“Trump tried to rip away overtime pay for nearly 10 million workers and devastated families,” Joseph Costello, a spokesperson for the Harris campaign, said. “A second term will be even worse: Trump’s Project 2025 Agenda would allow employers to stop paying many workers overtime.”
The Harris campaign’s take was echoed by economist Heidi Shierholz, who leads the Economic Policy Institute, a left-leaning nonprofit think tank.
“Trump’s new playbook is to claim he won’t tax the earnings of the very groups of workers whose earnings he already has a clear record of undermining,” noted Shierholz, who was formerly chief economist at the Department of Labor.
Further, Trump’s proposal could wind up mostly benefiting the highest-paid Americans, according to Shierholz.
“To allow their salaried, overtime-exempt workers to get the tax cut, employers could easily switch them to hourly,” she noted. “It is not unreasonable to imagine that this policy would lead to a world where corporate CEOs earn $4,000 an hour plus $6 million in overtime.”
