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This campaign season has seen the blossoming of proposed tax breaks for select groups in a naked attempt to garner votes. The Trump campaign has led the way, but the Harris campaign is guilty of it as well. So is U.S. Rep. Angie Craig’s campaign. The tax break proposals include exempting tip income, overtime pay and currently taxable Social Security income.
Those not qualifying for the breaks may be supportive of the proposals in the misguided belief that the relief is going to poor, deserving recipients. Many people are apathetic, thinking the proposals do them no harm. The true effect at the federal level is that the loss in revenue if the proposals were implemented would result in increased deficits, federal program cuts or increases in other taxes.
The math is inescapable. Former President Donald Trump’s proposed exemption of tips alone would cost an estimated $107 billion over 10 years, according to the Tax Foundation.
All three of the proposed tax breaks raise issues of fundamental fairness. While the exemption of tips may benefit lower-income tipped servers, it would also benefit higher-income tipped servers. To the extent the tip exemption does benefit low-income servers, what about other low-income individuals who work at the same facilities, such as room cleaners at hotels with restaurants and casinos? While tipping room cleaners has become more common, it is by no means universal or equivalent to the amount of tips servers receive. For that matter, when was the last time you tipped a McDonald’s server?
The same fairness issue exists for Trump’s proposed exemption of overtime pay. The threshold for overtime pay varies by state. Some states’ laws require payment of overtime after 40 hours, others after 46 or even 48. A number of states have no requirement of overtime pay whatsoever.
Should an employee receiving overtime in a state requiring time-and-a-half pay after 40 hours receive that additional income tax-free while an employee in another state with no overtime law received no tax exemption for working similar hours? What about salaried employees or the self-employed, who receive no formal overtime under current law but who routinely work 50, 60 or even 70 hours or more a week? Do they merit no tax break despite their long hours? Even when salaried employees make less than coworkers compensated on an hourly basis?