At a rally in Arizona, former President Donald Trump unveiled a new policy proposal: eliminating income tax on overtime pay.
At a rally in Arizona, former President Donald Trump unveiled a new policy proposal: eliminating income tax on overtime pay.
The idea, much like a previous suggestion to end taxes on tips, aims to ease the tax burden on hourly employees. At first glance, also much like the tax-free tip proposal, it seems like a move that would put more money in the pockets of those working extra hours—folks Trump describes as among the “hardest working citizens.”
The sop to business is that it would incentivize workers to put in longer hours and in so doing effectively provide for an expanded labor force for employers—without needing to hire more employees. Win-win, right? A closer look reveals many flaws.
Removing taxes on overtime could inadvertently place selective pressures on the economy, creating unfair advantages for certain workers while leaving others behind. Instead of a rising tide that raises all boats, this policy would strictly favor those able to work extra hours—disadvantaging workers, like working parents, that may not have the ability to work extra hours and earn overtime. At its core, the policy would not provide economic relief for all hourly employees, but merely have a distortionary effect on the labor force.Disadvantage to Regular Wage Earners
The most glaring issue with eliminating taxes on overtime pay is the inherent disadvantage it creates for regular wage earners. Those that log a standard 40-hour week, who may not be able to work additional hours due to other responsibilities, health, or their particular job’s duties, would continue to pay taxes on their income while their colleagues that can work overtime would enjoy tax-free earnings in addition to extra hours.
