When President Trump first floated the idea of ​​”without taxes on overtime” in a campaign demonstration last year, he did not explain how he would work. Could someone who works more than 40 hours a week claim a tax exemption? Would the payment of overtime really be completely free of tax?
The answer to both questions, as a result, is no.
According to the extensive internal policy bill that Republicans promoted the Chamber and are preparing to direct the Senate, the tax exemption would be limited. It would be available only for Americans who, according to federal law, must be paid at a time and a half rate to work at any time greater than 40 hours in a week. That is a broad group that includes almost all Americans who receive an hourly salary, but many salaried workers would not be eligible.
And fiscal relief would not be total. Americans must still pay payroll and potentially indicate income taxes, in their payment of overtime. Federal income taxes would be eliminated on these salaries, but only in profits attributable to the 50 percent increase in payment, only one third of money earned while working overtime.
Even with these limitations, both critics and supporters of the idea believe that tax exemption could remodel the US labor market. The White House Economic Advisors Council expects politics to motivate Americans to work more and help strengthen the economy.
The skeptics believe that change would mainly promote people to reclassify their profits or even change jobs to request overtime. They are concerned that if enough people were looking for work that offers extra hours, salaries in those positions could eventually fall.
“Ultimately, it will create involuntary consequences that encourage certain behaviors in the labor market and, therefore, create winners and losers from that,” said Emmet Bowling, a labor policy analyst at the American Action Forum, a conservative thought. “The work per hour can become more desirable due to this fiscal deduction.”
Tax experts grant the mixed review policy because people are treated in jobs that easily allow overtime differently from those with jobs that do not. Some occupations, such as teaching, do not qualify for the payment of overtime according to federal law, while in other cases, people could work more than 40 hours a week in multiple works and not receive tax exemption.
Even for occupations in which the payment of overtime is possible, employees may not be able to control their work schedules and decide for themselves to work overtime. The requirement that overtime receives the payment of the premium and discourages companies to ask their employees to work more than 40 hours a week.
Alex Brill, main member of the American Conservative Enterprise Institute, said that tax reduction could help attract people to work more hours and, therefore, help companies to be more productive. But employers would still have to allow it.
“If you are on the floor of a factory, not everyone can say: ‘Hey, give me overtime’, and then everyone is fighting who can operate the machinery,” he said. “The schedule must be administered.”
In general, the tax cut would be more valuable for people who could easily establish their own schedules, which means that it could ultimately favor white collar workers. A couple of economists studying a tax exemption for the payment of overtime in France discovered that politics did not affect the hours worked in general. Instead, they discovered that politics, a version in their place between 2007 and 2012, allowed people with flexible schedules to declare more extra hours of time.
“These results suggest that the result of overtime has been essentially tax optimization, without a real impact on the period of time worked,” wrote the authors of the study, Pierre Cahuc and Stéphane Carcillo. In an interview, Mr. Cahuc said it was too easy for some people to manipulate their schedules to save in taxes, and called politics a “bad idea.”
“Almost no country has this type of policy,” he said, “because it doesn’t make much sense.”
The Republican Plan would prohibit people who earn more than $ 160,000 per year by claiming tax exemption. That limit, which would increase over time, has dissipated fears that rich and sophisticated taxpayers can abuse politics and fly a giant hole in the budget. The disposition would still be relatively expensive; The joint non -partisan tax committee estimated the cost of $ 124 billion for only four years of tax exemption.
That could weigh on the future of tax reduction. Alabama experienced with a state exemption of income taxes for the payment of overtime, but the Republicans there decided to let the Lagara policy after 18 months because it ended up costing much more than expected.
In the bill, the Republicans recently passed through the Chamber, scheduled the federal version of the reduction of extra time taxes to last until 2028. The expiration would coincide with the end of several other temporary tax cuts in the bill, including the provision of income with inclination, establishing the Congress for another battle for tax cuts in a few years.
While analysts obstruct with the way in which the exemption of extra time could affect the labor market and fiscal compliance, Republicans have called politics a reward for working Americans.
As the Ways and Media Committee debated the bill last month, representative Jason Smith, the Missouri Republican and the president of the tax deed panel, gave the example of a constituent that won approximately $ 75,000 and worked around 300 hours of extra hours a year, which would support receive a tax reduction of $ 1,320 in case the provision becomes law.
“That is a real fiscal relief for one of the most working people I know,” said Smith, “and there are millions and millions of workers like him throughout the country.”
The Democrats have aligned against the Republican bill this year, but eventually they find it difficult to oppose the policy. In Alabama, the Democrats have led the position to try to maintain the exemption of extra time in place.
“How do you justify opposing something that will help working class people?” said Anthony Daniels, the Democratic leader in the State Representatives Chamber.
