Trump’s Big New Tax Pledge

Trump’s Big New Tax Pledge

Trump at his news conference
Reuters
By Yuval Rosenberg and Michael Rainey
Friday, September 13, 2024

Happy Friday the 13th! It’s been quite a week! Former President Donald Trump held a news conference at his golf course in the Los Angeles area a day after pitching another tax cut meant to appeal to working-class voters: no taxes on overtime wages. That proposal comes on top of earlier pledges to end taxes on tips and Social Security income. Trump today defended his association with a controversial conspiracy theorist and his repeating debunked claims about migrants eating pets. He also may have opened the door a crack to another debate against Vice President Kamala Harris, despite having explicitly ruled out the possibility just hours earlier. “Maybe if I got in the right mood, I don’t know,” he said.

Harris spent the afternoon and evening at back-to-back rallies in Republican-leaning parts of Pennsylvania, where she touted her plans for an “opportunity economy” and help for small businesses. Here’s what else you should know.

Trump Says He’ll Push to End Taxes on Overtime Pay

Republican presidential nominee Donald Trump has found another tax he wants to eliminate: federal taxes on overtime pay.

Campaigning on Thursday in Tucson, Arizona, Trump told supporters that his new proposal would reward people who work longer hours and incentivize them to do so. “The people who work overtime are among the hardest-working citizens in our country, and for too long no one in Washington has been looking out for them,” he said. “If you’re an overtime worker, when you’re past 40 hours a week, think of that, your overtime hours will be tax-free.”

Trump provided no details on how the tax break would work, but the proposal joins a list of other vaguely defined proposed cuts that now includes taxes on Social Security benefits and tip income, as well as an extension of the 2017 individual tax cuts that are scheduled to expire at the end of 2025.

Taken together, Trump’s proposed tax cuts would cost upwards of $6 trillion in lost revenues over 10 years.

Experts not thrilled: Not surprisingly, Trump’s opponent, Vice President Kamala Harris, didn’t appear to be impressed, although she may feel pressure to imitate his pledge eventually, as she did with his proposal to eliminate taxes on tips.

“He is desperate and scrambling and saying whatever it takes to try to trick people into voting for him,” Joseph Costello, a Harris campaign spokesman, told The Wall Street Journal. “If he takes power again, he will only look out for himself and his billionaire buddies and their big corporations.”

Some Republicans also expressed their doubts. Douglas Holtz-Eakin, who led the Congressional Budget Office during the George W. Bush administration and now works at a conservative think tank, criticized Trump’s approach for its lack of logic.

“The 180-degree transformation from Reagan to Trump is now complete—from low tax rates on a principled definition of income to zero tax rate on a completely unprincipled definition of income,” he told the Journal. “Tax policy by drunken sailors would be more disciplined.”

An analysis by the conservative Tax Foundation found that on a static basis — that is, without accounting for changes in behavior and dynamic feedback — eliminating federal income taxes on overtime would cost $227 billion over 10 years. If the cut included payroll taxes used to fund Social Security and Medicare, another $145 billion would be lost. However, the change would likely drive significant changes in behavior, which, when modeled by the Tax Foundation, add up to a revenue loss of more than $1 trillion.

More broadly, the Tax Foundation analysts criticized the seemingly random nature of Trump’s proposal. “From a tax policy perspective, there is no principled reason to treat income derived from overtime work any differently than income earned from a taxpayer’s first 40 hours of work,” they wrote. “In short, exempting overtime would unnecessarily complicate the tax code, increase compliance and administrative costs, and reduce neutrality by favoring certain work arrangements over others.”

Other critics noted that the proposal would be easy to abuse. “Trump’s claim that he would exempt overtime from taxes is deeply unserious. This policy would be incredibly easy to game,” said Heidi Shierholz, who heads the liberal Economic Policy Institute. “Employers could (and would) easily switch salaried, overtime-ineligible workers to hourly—and set the hourly wage so that, with overtime, they are paying no more than they paid before—and allow their workers to get the tax cut.”

Shierholz added that the winners from the plan would likely be high-income. “[A] huge share of the expenditures on this tax exemption would go to very highly paid workers,” she said. “And good lord, big-firm lawyers would love this.”

Column of the Day: Harris’s Fiscal Edge

The federal budget deficit was mentioned just twice in Tuesday’s presidential debate (both times by Vice President Kamala Harris). Natasha Sarin, a contributing columnist at The Washington Post and former Treasury Department official in the Biden administration, writes that the relative lack of attention to the fiscal outlook is “unfortunate, because the issue is pressing.”

Sarin writes that on the issue of the deficit and national debt, there’s a sizable difference between Harris and former President Donald Trump. “Trump’s proposals would add at least $4.5 trillion to the deficit over the next decade,” she writes. “In contrast, Harris could actually achieve some deficit reduction depending upon how much of the GOP tax cuts she opts to extend. At worst, her plan would increase deficits only modestly, by less than one-fifth of the Trump total.”

The difference is the result of proposed tax plans. Trump is promising more tax cuts, including lowering the corporate rate from 21% to 15% for qualifying companies. Harris supports higher taxes on top earners and large corporations, but cuts for low- and middle-income earners. As Sarin writes: “Harris has been clear that she embraces essentially all of the tax increases outlined in President Joe Biden’s budget, with the exception of his capital tax changes. (She would raise capital gains rates for high earners by less than Biden has proposed.) Overall, these proposals would generate around $5 trillion in additional tax revenue from the wealthy and corporations over the next decade.”

Sarin also pushes back on the idea that Trump’s tax cuts can pay for themselves. “The best empirical evidence on the impact of the 2017 Tax Cuts and Jobs Act is that economic growth offset just two percentage points of the 41 percent decrease in corporate tax collections that resulted from the legislation,” she says. “Doubling down on those approaches will be just as problematic for our nation’s finances.”

The bottom line, Sarin argues, should be obvious to fiscally focused voters: “Any fair fiscal comparison shows this election is not a close call. If the deficit is your top issue, Harris is the clear choice.”

Read the full column at The Washington Post.

Number of the Day: 3.8%

The Census Bureau said Thursday that the cost of renting — rent plus the average monthly cost of utilities and fuels adjusted for inflation — grew at a 3.8% annual pace in 2023, which was faster that the rise in real median home values (1.8%) for the first time in 10 years.

“This marked the largest annual real increase in rental costs since at least 2011,” the Census Bureau’s Jacob Fabina wrote. “Despite this large spike, the share of renter income spent on rent and utilities remained at 31.0% in 2023, an indication that renter household incomes kept pace with rent hikes.”

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