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Donald Trump and Kamala Harris keep making new promises.
Trump fans applauded when he said he’ll eliminate taxes on tips. Then Harris proposed that, too. Her audience applauded. Trump then proposed not taxing overtime. More applause.
But narrow tax exemptions are bad policy.
In my new video, Economist Allison Schrager explains how they create nasty, unintended consequences.
“No one likes tipping,” says Schrager, “but all of a sudden, you’ll have to pay tips for everything. … More people will be paid in tips.”
I want lower taxes, but awarding specific exemptions to certain people doesn’t just let some of us keep more of our money, it tells workers and employers to change their behavior.
“If you’re a restaurant owner, you need chefs, hostesses, managers,” says Schrager. “All of a sudden, one group of your employees isn’t paying taxes, and the rest are. Suddenly, it would be very hard to hire anyone who’s not a server.”
Likewise, Trump’s proposal to eliminate tax on overtime would reduce hiring.
“Employers may hire fewer people so they can give more overtime to employees they have already,” says Schrager.
“Do you know any economists who support these ideas?” I ask.
“No,” she says. “It’s actually nice that economists on both the left and right are coming together with a sort of mutual disgust.
