What Trump's promise to reduce taxes on tips and overtime means in practice when it approaches the law

On the campaign path, President Donald Trump tried to win the voters of the working class in important swing countries with the promise, tips and overtime of federal income taxes.

Now the congress is approaching if you make this promise reality, despite some concerns how the movements would contribute to the deficit and potentially disrupt the labor market.

Both measures are still exposed to several hurdles. The leadership of House worked all day on Wednesday to say goodbye to its members to say goodbye to a budget that includes tax exemption for tips and overtime before the legislation changes to the Senate. A separate bill, the tips, but not overtime, would be freed from the federal income taxes, which the Senate unanimously adopted this week and must now be taken up by the house.

The tax breaks that Trump hovered for the first time on the campaign path have generated A rare coalition of the support of support Typical partisan differences by unions, including the teamster, and industry groups such as the National Restaurant Association, which are committed to tax exemptions together with some Democrats. At the same time, conservative think tanks and economists have expressed concerns about how the exceptions contribute to the deficit and possibly influence the labor market by rewarding some employees towards others.

When Trump increased the idea to end taxes for tips for the first time, several influential Republicans NBC News said that they were skeptical, cited increasing public debt and asked whether there were no tips for earners.

But now, with Trump in the White House, the tax exemptions would offer the Republicans of the Congress a sales argument for the voters of the working class in a broader budget bill, which is also stocked Advantages for Companies and households with higher incomes. The elimination of taxes on tips largely supports the public, whereby around 75% of voters support the move via non -party lines, according to an IPSOS survey last year.

“The working class has left the Democrats and came to the Republican party, especially with Trump, which he is what he appeals – and feeds the constituency of many of our members, and frankly it is really a good idea,” said Sarah Chamberlain, head of the Republican main road partner, a moderate Republican group. “It is clear to me that some of the Freedom Caucus boys don't like this, but we can find money in other areas to help the working man and woman.”

While the Democrats have largely supported the exceptions, with Senator Jacky Rosen, D-Nev., Helps to advance the legislation in the Senate, the party is still planning to highlight cuts in the Republican budget that could harm the same workers. B. Reduction of medicaid and food brands.

“The hypocrisy comes because the Republicans give a tax cut for tilted workers and decimate medicaid,” said Martha McKenna, a democratic strategist. “They give tilting -sex workers a little break and then put them in the face with these healthcards.”

The numbers for top workers and overtime

While some workers would have a significant increase in taxes after taxes, the more comprehensive effects on the economy would be relatively limited, economists said. According to an analysis of the Yale budget laboratory, about 2.5% of the workforce are about 2.5% of the workforce and about 12% of the hourly workers every year.

Up to 40% of top workers do not earn enough money to pay income tax for their income, the Yale budget laboratory found.

“This is really a closer segment of the employment population that gives no benefit from it at all – But that limits its costs, ”said Ernie Tedeschi, director of economics in the Yale Budget Lab, the chief economist of the economic advisor of the White House Economic Advisor during the bid administration. You can say that you help low-wage workers, even if it is not as many workers.”

The tax exemption would only apply to the federal income tax, so that employees together with state or local taxes would have to pay social security and medical taxes on their income.

Both tax exemptions are structured as deductions that the employees would claim when submitting their taxes the following year. This means that employers would still hold money for tax payments for tips or overtime via their regular salary checks, but income would be deductible from their final tax invoices if they submitted their annual taxes.

The overtime exceptions could benefit employees in various areas such as manufacturing, mining, construction and public security. The international association of fire fighters who According to the members, dozens of hours of extension per month often have to work due to a lack of staff, which belongs to the unions that support the measure.

“Firefighters work 53 hours a week before he even qualified for overtimeless. That is 35% more hours a week than the average worker. The proposal for eliminating taxes for overtime would bring the fire fighter a sensible relief and help them get more of what they earn for a long time,” said Edward Kelly, General President of the International Association of the International Association of Fire Fuls, “said that the International Association of the International Association of the Fire Brigade Associations of Fire Brigade Connections under control, said, said how the International Association of the International Association of the Fire Fire Association of Fire Fuls Association from Fire Fulpers in the in an explanation.

Restrictions and household costs

The invoices of the house and the Senate include some limits for typing exceptions that would make it more difficult for employers to manipulate the system – for example, more difficult To shift the occasional or employed worker in tip-based compensation. It would also rule out cross-income earners who earn more than $ 160,000 and would limit the number of tips that could be deducted from an annual tax return to $ 25,000.

“I think the worst-case scenario from a budget prospect was averted at least in this provision by limiting traditionally tapping industries,” said Alex Muresianu, a high-ranking political analyst at the tax foundation, a group that campaigns for the reform of the tax guidelines. “This limits the potential of behavioral change to turn more professions, and that could have really blown the budget.”

But the measures would still cost the federal budget. The exemption for overtime in household budget bill would lead to sales of $ 124 billion compared to ongoing politics, and tax benefits for tips would reduce tax recording by $ 40 billion.

According to the applicable legislation, the tax benefits would expire in 2028 – which would cause political pressure to expand them under the presidential elections in this year. The effects on the deficit could be even higher if the exceptions would go beyond the exception at the time, which would probably require the political challenge to increase taxes that benefited from the cuts, said Brett Loper, Executive Vice President of Peter G. Peterson Foundation, which is committed to reducing the national debt.

“You make it more difficult for a more limited basis to increase income, and in our view, the gaping hole that you have between the income and the expenses and the political appetite, the income is low and the expenses high, and creates continuing deficits,” said Loper, who has worked for Republicans in congress and in the White House. “They accelerate the amount of our public debt, which we believe that they will have serious long -term economic consequences.”

The opponents have also argued that the exceptions would be wrongly distributed the tax burden, with a worker who paid an hourly wage, like a caretaker who has a higher tax bill than a bartender who works in the same restaurant – a group of workers without a clear reason. It could also shift the demand for top jobs and people with overtime, which lacks workers in other areas.

Reducing taxes to overtime could also lead to more employees being ready to do overtime, which could mean fewer jobs on the labor market in certain sectors if employers are able to get additional hours out of their existing employees.

“The employees receive a tax advantage, but over time, employers will pay these employees a little less than they would otherwise have in wages,” said Tedeschi. “With tips, it relocates the load of compensation for the restaurant or the employer to the customer. With the overtime, these employers will pay these employees a little less in the basic salary or in the basic wages.”