No Taxes!
September 15, 2024
Taxes took center stage this week as politicians begging for votes made promises to eliminate taxes on overtime, tips, etc. I immediately saw flashbacks of President George H.W. Bush’s 1988 promise – “Read My Lips. No New Taxes!” – and the Omnibus Budget Reconciliation Act of 1990 that followed. That effort to reduce a ballooning federal deficit raised taxes (on higher earners), increased the gasoline tax (and prices at the pump, hitting the working class hard), and costing Bush conservative support and, ultimately, the election.
I am ineligible for overtime, something I knew when I took the job. I’m not an executive and I’m not a manager, but teachers are classified as “professionals” under Section 13(a)(1) of the Fair Labor Standards Act (FLSA) and are generally exempt from overtime pay. But for much of my early career I was an hourly union worker, and I tell my students about working as much overtime as I could. I was young, had a young and growing family, and needed to bring home as much as possible. My $20/hr rate jumped to $30 (1.5x after 37.5 hours), $40 (double-time after 40 hours), and $60 (triple-time holiday pay. Yes, I worked New Years Day, Thanksgiving Day, and Christmas Day). There were times I’d work 14 days straight and the checks were huge, but there came a point when the taxes on the higher amount diminished the value of working all the time.
I understand the allure of no-tax OT and tips. I also understand layman economics that if you reduce cashflow there needs to be reductions in spending. It works that way for my household; it should work that way for the government. So, I spent a couple of hours on Sunday morning reading about these latest populist promises, specifically looking for non-partisan, non-political, labor-centric, economist-based analysis of the viability of these proposals. Below the shiny surface, it doesn’t look promising.
“Trump has a long anti-overtime record,” Heidi Shierholz, senior economist at EPI Action, a labor-oriented advocacy group. “While president, he stripped overtime protections from millions,” she said, adding his Labor Department allowed companies to reclassify “5.2 million workers as managers or executives” eliminating their ability to earn overtime.[1]
“He’s looking for the populist appeal,” said Douglas Holtz-Eakin, president of the center-right American Action Forum, who once headed the Congressional Budget Office and advised President George W. Bush. “These are gimmicks and horrible ideas.”[2]
“While president, (Trump’s) Department of Labor set the overtime pay threshold for salaried workers at a disgraceful $35,500 per year — meaning any workers earning more than that were not eligible for overtime pay even if they worked more than 40 hours,” said Robert Reich, former Secretary of Labor under President Bill Clinton and an advocate for labor rights. “It’s estimated that the move eliminated OT for about 8 million workers.[3]
Changing labor laws to eliminate overtime is nothing new. The FLSA, enacted in 1938, originally offered overtime eligibility for teachers. That changed in 1974 when amendments to the FLSA ruled teachers were exempt from overtime pay if they were paid a salary and performing duties related to their professional expertise.
Changes to the FLSA were also enacted after the Trump administration allowed businesses to “pool” tips. FSLA designates a “tipped worker” as anyone who “customarily and regularly” receives $30 or more in tips monthly and, the Yale University Budget Lab estimates there were 4 million workers in tipped jobs in 2023, comprising about 2.5 percent of the U.S. workforce.[4] According to the Service Employees International Union, the regulation allowed the pooled monies to go to management and not exclusively to service workers, costing those workers an estimated $5.8 billion in tips each year. This “departs from long-standing practice and precedent and threatens the economic security of millions of working people and their families,” the union told the Labor Department.[5]
Nothing is ever as simple as it seems.
[1] www.latimes.com/politics/story/2024-09-15/2024-election-trump-tips-overtime-social-security-tax-cuts
[2] www.latimes.com/politics/story/2024-09-15/2024-election-trump-tips-overtime-social-security-tax-cuts
[3] www.instagram.com/p/C9fkrlepWAv/?igsh=MTJ1YTExZGsyeWVmbQ%3D%3D
[4] budgetlab.yale.edu/news/240624/no-tax-tips-act-background-tipped-workers
[5] www.latimes.com/politics/story/2024-09-15/2024-election-trump-tips-overtime-social-security-tax-cuts
