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Former President Donald Trump is known for making a lot of promises, only some of which he’ll be able to keep. Now, he’s pledging to end taxes on overtime pay should he be re-elected to the White House in November.
“Today, I’m also announcing that as part of our additional tax cuts, we will end all taxes on overtime,” Trump said Thursday evening during a campaign event in Tucson, Arizona. “That gives people more of an incentive to work; it gives the companies a lot. It’s a lot easier to get the people.”
The former president has not offered any specifics of his new proposal, which would add to the rest of his sprawling proposals for tax cuts, which also includes slashing taxes on Social Security benefits.
In 2019, his administration raised the salary level for exemption from overtime pay to $35,568 annually from the $23,660 threshold. That move was criticized by labor groups who argued that it covers far fewer workers than a proposal made by Former President Barack Obama in 2015.
That proposal, which was struck down by the courts, would raise the threshold to more than $47,000, making almost 5 million more people eligible for overtime; Trump’s made just 1.3 million workers eligible.
But that’s just one segment of Trump’s tax plan. Here’s what else the former president is promising voters ahead of Election Day 2024.
No Tax on Tips
One of Trump’s first tax-related proposals was to eliminate the federal tax on tipped wages, although such an act’s effects would likely be scattered.
For starters, many workers receive tips in cash, much of which is never reported to the Internal Revenue Service. And, many of the roughly 4 million workers in tipped occupations already pay zero federal income tax. Thirty seven percent of tipped workers paid no federal income tax in 2022 — before accounting for tax credits — compared to 16% of workers in non-tipping jobs.
That’s because their pay is already lower than average; The median weekly wage for tipped workers was $538 in 2023, almost half the $1,000 median weekly wage for people who worked jobs without tips. The workers more likely to benefit would be those few working at high-end restaurants or other establishments who interact with wealthier clients more likely to spend more and — sometimes — tip more.
Soon after Trump first touted his plan during a rally in Las Vegas, rival presidential candidate Vice President Kamala Harris announced her own plans to eliminate the tax. Although, her plan would also see the federal government eliminating subminimum wages.
The Committee for a Responsible Federal Budget (CRFB) estimates that potential proposals from both of the candidates would add more than $100 billion to the federal deficit over 10 years.
The nonpartisan budget watchdog assumes that Trump’s plan would make tips exempt from federal income and payroll taxes. On a static basis, that could add as low as $150 billion or as much as $250 billion to the federal deficit. If patrons became more generous and tipped better, the impact to the deficit would increase.
The CRFB found Harris’ plan to raise the federal minimum wage to $15 an hour would add about $50 billion to the deficit over the next 10 years. Combined with making tips exempt from federal income and payroll tax, between $100 billion and $200 billion could be added to the deficit. That low-end estimate assumes that high-earners are phased out of the exemption.
Tariffs, Tariffs — and more Tariffs
The former president has also advocated for increasing tariffs on foreign imports, especially those coming into the U.S. from China.
Between 2018 and 2020, the Trump administration raised taxes on U.S. imports from China by more than 500%. Those goods represented more than a fifth of everything that Americans purchased abroad, Quartz reported in 2020. Prior to Trump’s trade war, the U.S.’s tariffs were among the lowest in the world, averaging at around 1.6%.
Trump’s latest bid to take on foreign trade is to raise imports on China by as much as 50%, to 60% in total, while adding duties of 10% against products from the rest of the world. His tariffs could, by some estimates, add between $1,700 to $4,000 in annual costs to the median family in America, according to PBS.
Trump has said the 10% tariff on all products imported into the U.S., would protect American jobs and raise revenue to offset extending the 2017 tax cuts, which are set to expire in 2025 without Congressional intervention. Although analysts at Goldman Sachs (GS) are skeptical of the 10% increase, they expect him to “quickly” put new tariffs on imports from China and autos. Tariffs on Chinese electric vehicles are scheduled to be quadrupled later this month, thanks to a directive from President Joe Biden building on Trump’s own prior tariffs.
“He’s proposed 50%, or sometimes even more, tariffs on China, and Americans, particularly lower- and middle-income Americans, depend on access to Chinese goods,” Nobel Prize-winning economist Joseph Stiglitz told Quartz last month, adding that “those tariffs would create a significant increase in the cost of living, it would be a shock to the economy, and that inflation, in turn, would lead the Fed to raise interest rates.”
Trump has also floated replacing the income tax with tariffs. But, according to the non-partisan Tax Foundation, the individual income tax raises more than 27 times as much revenue as the U.S.’s current tariffs. To replace the $2 trillion of revenue generated by the income tax would require tariffs of almost 70% on all imports, although that analysis doesn’t account for several factors like noncompliance, the foundation said.
Expanding the Child Tax Credit
Trump’s running mate, Ohio Senator J.D. Vance, has floated expanding the Child Tax Credit to $5,000, compared to the current $2,000 it provides per child.
The CTC was created in the 1990s to help families with the cost of raising children and allows up to $2,000 per child annually. During the pandemic, Congress expanded that allowance to between $3,000 and $3,600, but it lapsed in 2021.
Senate Republicans in August blocked a $78 billion tax-cut package that would have expanded eligibility for the tax credit and adjusted payments for inflation for the 2024 and 2025 filing years; Vance missed that Aug. 1 vote where his colleagues voted against expanding the credit by a 48-44 vote. Independent Sen. Bernie Sanders of Vermont also voted against the bill, arguing it didn’t do enough to balance tax cuts for families with breaks for businesses. Senate Majority Leader and Democratic senator Chuck Schumer also voted against the bill to make it easier to bring it back up for a future vote, according to The Washington Post.
Along with expanding the CTC to $5,000, Vance has hinted that he would like to see an expanded CTC without income thresholds; currently, single filers who make more than $200,000 or married couples with combined income of more than $400,000 are not eligible.
The Harris campaign has announced a plan to restore the expanded CTC and make its benefits permanent, alongside a $6,000 tax credit for low-income or middle-income families within a newborn child’s first year.
Without intervention by Congress, the CTC will regress to $1,000 per child by 2026 after Trump’s Tax Cuts & Jobs Act expires next year. Expanding the CTC could “easily” add between $2 trillion and $3 trillion in federal borrowing over the next decade, a senior policy director for the Committee for a Responsible Federal Budget told CBS.
Even Lower Corporate Taxes
Trump recently proposed slashing the corporate tax rate to 15% for companies that make products with American workers. He had previously advocated for lowering corporate taxes to 20%, building on his 2017 tax cuts that slashed the rate from 35% to 21%.
At a meeting in June attended by top U.S. CEOs, including JPMorgan Chase (JPM) CEO Jamie Dimon, Apple (AAPL) CEO Tim Cook, and Citigroup’s (C) Jane Fraser, Trump vowed to make the cuts permanent, and to renew tax breaks for individuals and small businesses. Trump, in further appeal to Wall Street, has also promised to reduce business regulations if he is elected.
Harris has promised to raise the corporate tax rate to 28% from its current 21%, keeping in line with the budget the Biden administration proposed in March.
