Former president Donald Trump pledged this week to eliminate the income tax on overtime pay if he wins a second term in November.
During a speech on the economy in Tucson, Arizona, Trump announced a policy he said would give “people more incentive to work.”
“If you’re an overtime worker, if you’re over 40 hours a week, think about it, your overtime hours are tax-free,” Trump said.
Any changes to the US tax code require approval from Congress. In 2025, lawmakers will have a chance to rewrite the state’s tax laws, when Trump’s 2017 tax law expires. The new Trump tax policy – which also includes a proposal to terminate tax on tips and the proposal that the elderly should not pay taxes on social security benefits – aimed mainly at hourly wage workers, a group that the two presidential candidates are courting.
“People who work overtime are among the hardest working citizens of our country and for too long, no one in Washington is looking out for them,” Trump said. “They are police officers, nurses, factory workers, construction workers, truck drivers and machine operators.”
The candidates’ latest tax-riddence proposal would cost $227 billion over 10 years, according to conservative estimates calculated Monday by the Tax Foundation, an independent tax policy research organization.
If implemented, the proposal could also lead to a change in what is classified as salaried and exempt from overtime to what is categorized as hourly workers, Garrett Watson, senior policy analyst at the Tax Foundation, told CBS News. “There are no guardrails, so costs can go up from there,” said Watson.
Additionally, Trump’s new tax relief proposals “all add up to a multitrillion-dollar hole in deficit financing,” Watson said. “The biggest question is, how much does this mean from a policy perspective,” he said.
“As an economist, I struggle to understand what the reasoning is,” said 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, US Treasury and for the Senate Budget Committee.
“It has the potential for an unintended effect – by helping one group of people, you might hurt another group of people,” said Holzblatt, noting the potential impact on how the labor market, in terms of wages and salaries, will be restructured – it gives employers an incentive to change the base rate , or regular salary.”
Both Hozblatt and Watson said additional details on what Trump’s proposal would do are needed to better understand its potential impact.
Vice President Kamala Harris’ campaign called Trump’s tax cuts an attempt to “deceive” America. He noted that the Trump administration in 2019 voted cover fewer workers in overtime pay rules than had been proposed by the previous administration under former President Obama.
“Trump is trying to rip up overtime pay for nearly 10 million workers and families who are devastated,” said Joseph Costello, a Harris campaign spokesman. “The second term will be worse: Trump’s Jobs 2025 Agenda will allow employers to stop paying overtime for many workers.”
The Harris campaign was joined by economist Heidi Shierholz, who heads the Economic Policy Institute, a left-leaning nonprofit think tank.
“Trump’s new playbook for the statement that he will not tax the income of the very group of workers whose income he has a clear record of undermining,” noted Shierholz, who was the former chief economist at the Department of Labor.
Furthermore, Trump’s proposal may benefit the highest-paid Americans, according to Shierholz.
“To allow salaried and overtime-exempt workers to get a tax deduction, employers can easily switch to hourly,” he said. “It is not unreasonable to imagine that this policy will lead to a world where corporate CEOs earn $4,000 an hour plus $6 million in overtime.”
