What Would It Mean To Eliminate Taxes on Overtime Pay?

Campaign promises to eliminate taxes on everything from tips to overtime pay are gaining traction, drawing attention from voters and economists alike. But would these be effective policies?

Who Would This Help?

At a recent Arizona rally, former President Donald Trump proposed eliminating taxes on overtime pay, meaning hourly workers who work more than 40 hours per week would no longer have to pay taxes on the overtime income. Workers often earn more during overtime hours.

Proponents argue hourly employees who routinely work long hours, particularly blue-collar professionals, would effectively get a raise through the implied tax savings, at no additional cost to their employer.

However, critics argue that this would be bad for the wellbeing of the workforce. It could encourage employees to take on longer workweeks, which overtime laws were originally designed to discourage. Excessively long work weeks could lead to higher rates of burnout, which could result in workers dropping out of the labor force altogether in extreme cases.

From an economic standpoint, the Tax Foundation estimates that the proposal could cost more than $680 billion in lost tax revenue over 10 years.

Congressional Approval

All economic policies are delicate balancing acts, and this one carries both potential short-term benefits and long-term risks.

Either way, any proposed law would ultimately require approval from Congress, making it one of many potential policies that hinge on the outcome of the upcoming election.

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