The problem with exempting overtime pay from taxes

How it works: The law requires companies to pay certain hourly workers, typically blue-collar ones, time-and-a-half if they exceed 40 hours a week.

• The idea is to make it more costly to push employees to work long hours.
• "That's really what overtime laws were meant to guarantee," says Paul Sonn, director of National Employment Law Project Action Fund.

The big picture: The proposal comes at a time when there's increasing attention on how ultra-long hours have real negative health effects.

• "Really what workers need are a decent wage for a 40-hour workweek and work-life balance," says Sonn.

State of play: When asked, the Trump campaign did not provide any details on how this policy would work, referring Axios to the former president's announcement last week at a rally.

• "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.
• (When he was in office Trump scaled back an Obama-initiated expansion of the overtime rules that would have made millions more workers eligible for time-and-a-half pay.)

Why do this? Trump summed up the rationale at his rally: "I think that gives people more of an incentive to work. It gives the companies a lot — it's a lot easier to get the people."

• Employers like this type of policy because it's effectively a raise for employees that the companies themselves don't have to fund (similar to the no tax on tips proposal).
• That could help companies retain workers amid a lingering worker shortage. And they may be able to squeeze more work out of their current staff, without hiring more people.
• Alabama last year passed a policy like this into law, as a way to address its labor shortage, Thomson Reuters reported. It's temporary, in effect from January 1, 2024 to June 30, 2025. A handful of states are also exploring policies like this.

Between the lines: Like Trump's proposal to ban taxes on tip income, the overtime tax cut appears to benefit only some kinds of workers. Overworked salaried employees wouldn't see a tax cut on their long workweeks.

• And workers who can't put in long hours, like many parents, wouldn't be able to take advantage of the tax benefit either. Neither would those working two part-time jobs for a total of 40+ hours a week.
• "Workers making the same income ought to be taxed the same way. It's true whether it's tips. It's true whether it's overtime," Howard Gleckman, a senior fellow at the Tax Policy Center, told the Washington Post.
• "As policy, it fails the equity test. And I have no idea what it's going to cost, but the cost will not be trivial."

The bottom line: While other countries are exploring ways to put guardrails around over-work, the U.S. is headed in a different direction.