During the campaign, President Donald Trump tried to win working-class voters in major swing states and promised to exempt tips and overtime from federal income taxes.
Now, despite concerns over how these moves will promote deficits and potentially undermine the labor market, Congress is gradually approaching making that promise a reality.
Both measures still face multiple obstacles. House leadership works all day Wednesday to call on its members to pass the budget, which includes prompted tax exemptions and overtime work, and legislation will then go to the Senate. A separate bill that exempts federal income tax tips but does not work overtime, passed the Senate unanimously this week and now needs to be brought by the House.
The tax relief that Trump initially floated on the campaign has already emerged A rare support alliance Typical partisan splits with unions, including teamworkers and industry groups such as the National Restaurant Association, advocate tax exemption with some Democrats. Meanwhile, conservative think tanks and economists are on how exemptions will help deficits work and impact the job market by rewarding certain workers rather than others.
When Trump first proposed the idea of tipping to end taxes, several influential Republicans told NBC News that they doubted it, citing rising national debt and questioning whether those who don’t propose skills are fair.
But now, with Trump’s taxes at the White House, tax exemptions will provide a selling point for Congressional Republicans to work-class voters in a broader budget bill benefit Companies and high-income families. According to an IPSOS poll, taxes to eliminate tips have received widespread public support, with about 75% of voters across party boundaries supporting the move.
“The working class has left Democrats, especially the Republican Party with Trump, and that’s the one he calls for – so that gives us a lot of members’ constituencies, and frankly, it’s really a good idea,” said Sarah Chamberlain, head of the Republican main street partnership for the Republican Republican group. “I realize some guys in the Freedom Caucus don’t like this, but we can find money in other areas to help workers and women.”
While Democrats largely supported the exemption, Senator Jacky Rosen, who helped introduce the Senate bill, the party still plans to highlight cuts elsewhere in the Republican budget that could hurt the same worker, benefiting from tax cuts, such as reducing Medicaid and food stamps.
“The hypocrisy is because Republicans cut taxes to lean workers while cutting Medicaid,” said Martha McKenna, a democratic strategist. “They give tipped workers a break and then slam their faces with these healthcare cuts.”
Economists say that while some workers will have a significant increase in their after-tax income, the broader impact on the economy will be relatively limited. According to an analysis by Yale University's Budget Laboratory, tipped workers make up about 2.5% of employees, and about 12% of workers work overtime each year.
Yale University's Budget Lab found that up to 40% of tip workers have not made enough money to pay federal income tax on any of their income.
“It is really a narrow part of the workforce, and any benefits can be seen from it - But this does limit its cost. "I think Congress embraces this an important reason because it's one of the lower cost ideas and it's a very high victory," said Ernie Tedeschi, director of economics at Yale University's budget lab. You can say that you are helping low-paying workers even if not so many workers. ”
Tax exemptions apply only to federal income taxes, so workers still have to pay Social Security and Medicare taxes on their income and any state or local taxes.
Both tax-exempt taxes are deductions required by workers when submitting taxes the following year. This means employers will still be taxed through regular salary deduction tips or overtime pay, but when they file annual taxes, income can be deducted from the final tax bill.
Overtime exemptions can benefit workers in various fields such as manufacturing, mining, construction and public safety. International Firefighters Association, the association It said its members usually require dozens of hours of overtime for a month due to staff shortages, one of the unions supporting the measure.
“Firefighters have been working 53 hours a week, even before qualifying for overtime. This is 35% higher than average workers per week. The proposal to cancel the overtime tax will bring meaningful relief to firefighters, helping them maintain longer workloads while keeping their work hours while keeping their community working to keep their own community safe,” Edward Kelly, Edward Kelly, Edward Kelly, International Firn Firn Fighter Firing Firing Firing Firing Firing Firing Firning Firing Firning Firning Association of International Firn Fighter Fighter Firing Firing Firing Firing Firing Firing Firing Firing Firning Firing Firning Firning Firning Firning Association seap. In the statement.
House and Senate bills include some restrictions on tip exemptions, which will make it harder for employers to manipulate the system, for example, to make it more difficult Transfer hourly or paid workers to tip-based compensation. It will also exclude high-income earners who earn more than $160,000, which will limit the number of tips that can be deducted from annual tax returns to $25,000.
“I think the worst case, from a budget cost perspective, is at least avoided on that rule, by limiting it to traditionally skewed industries and excluding highly compensated employees,” said Alex Muresianu, senior policy analyst at the Tax Foundation, which advocates for tax policy reforms. “This limits the potential for behavioral change to introduce inclination into more careers, which can really be bragged.”
But these measures will still come at the expense of the federal budget. According to the Congressional Budget Office, overtime exemption to the House Budget Act will result in $124 billion in tax revenue compared to the current policy, while tax relief on tips will reduce tax collections by $40 billion.
Under current legislation, tax breaks will expire in 2028, which will create political pressure in that year's presidential election. Brett Loper, executive vice president of the Peter G. Peterson Foundation, said the impact on the deficit could be higher if the exemption was extended until then, which is likely to be a political challenge to increase taxes by workers who benefited from the cuts.
“From our perspective, the basis for increasing income is more limited, and the loopholes between income and expenditure, as well as the political demand that makes income lower and expenditure higher are creating a persistent deficit,” Lopper said. “You are accelerating our Treasury volume, which we think will have serious long-term economic consequences.”
Opponents also argue that the exemption would unfairly distribute the tax burden, with an hourly wage worker (such as an hour's wage) having a higher tax bill than a bartender working in the same restaurant - without clear reasons to detriment a group of workers. It may also change the need for tilt jobs and overtime jobs, thus creating a shortage of workers in other areas.
Reducing taxes on overtime could also lead to more employees willing to work overtime, which could mean less work in the labor market if employers can get more time from existing workers.
"Workers get tax benefits, but over time, employers will pay much less than they do to these workers," Tedski said. "By prompting, it shifts the pay burden from the restaurant or employer to the client. With overtime, this will make these employers pay a little less for the basic salary or basic salary."