President Trump has proposed eliminating federal taxes on Social Security benefits, tips, and overtime pay. These proposals would gamble with seniors’ and working people’s futures while failing to deliver a meaningful impact as companies continue artificially hiking prices on consumers. These proposals, combined with others put forth by President Trump, are a reckless and wasteful use of money, estimated to cost taxpayers at least $2.2 trillion in revenue over 10 years. Such a massive blow to federal funding would put in imminent jeopardy programs like Head Start, and long term would create even more fiscal challenges for Social Security, Medicaid, and Medicare which actually benefit millions of American families. 

High-Income Households Get Windfall, While Workers & Families Are Stuck With The Bill

If these tax exemptions are enacted, over half of the tax benefit would go to the top 20 percent of households, who would receive a $120 billion tax giveaway in 2026 alone. That is 70 times more than the bottom 20 percent of households, who would receive just $1.75 billion, and less than the tax cut for the top 1% of households. When combined with inflation and other proposals, it would do nothing to lower costs or provide breathing room to working people. Congressional Republicans have also promised to finance this massive tax giveaway by slashing public programs that predominantly benefit working and middle income families, making this tax cut highly regressive. 

By paying for tax exemptions on Social Security, tips and overtime pay with cuts to public service, Republicans are promising a major INCOME LOSS to tens of millions of families. The bottom 60 percent of families would suffer a net loss of over $1,000 of income on average in 2026, and the highest income households—who receive very little public assistance—would increase their take-home pay by over $4,000. Additionally, Trump’s plan would accelerate the Social Security trust fund going insolvent by three years, leading to a 33% across the board cut to social security benefits in 2031. 

Source: Americans for Tax Fairness, based on analysis of ITEP’s distribution of taxes & CBO’s distribution of public benefits

Tipped Workers Need A Raise, Not More Failed Trickle-Down Tax Policies

Workers know when they see a bad deal, and that’s why no one should be distracted by proposals like “No Taxes on Tips.” For years, low and middle-income workers have made their demands for improving their lives clear: higher wages, a voice on the job, and investments in affordable childcare and offering paid leave. Workers are demanding real reforms to our tax code, which, after decades of lobbying by the rich and union-busting corporations, is currently rigged to favor the wealthiest. 

Most Low-Wage Workers Don’t Get Tips And Would Get No Benefit from The Plan

Fewer than 5% of low-wage workers – those earning less than $25/hr – receive tips. Even among that group, over one-third do not make enough to owe federal income taxes anyway. So almost no low-wage workers would see any benefit from this proposal even as it distracts from real solutions to underpaid employees. 

Low-Wage Workers Have Made the Demand Clear: Higher Wages

Abolishing the sub-minimum wage paid to tipped workers in many states and enacting the “Raise the Wage Act” which would raise the minimum wage to $17/hr would be the quickest and easiest way of raising low-paid worker income. Right now tipped workers make significantly less than non-tipped workers, $538 per-week versus $1,000 per-week. This disparity could get even worse if employers are incentivized to classify more of their workers as tipped employees to avoid taxes. One proven method that would help low-income workers across the spectrum would be expanding the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). That would increase the take-home pay of all low-wage workers, not just those earning tips.

High-Salaried Executives Would Call Their Pay & Compensation “Tips” to Dodge Millions in Taxes

While the average service worker would see little to no benefit from this proposal, high-priced CEOs, money managers, lawyers, and other professionals could dodge millions of dollars in taxes by simply re-labeling their fees as “tips.” The Republican plan introduced in the House would do nothing to prevent this kind of gaming of the system by the nation’s highest-paid employees, the same ones that most previous Republican-led tax proposals have specifically set out to help. It has been proven time and time again, that when specific forms of income gain preferential tax treatment, the rich find a way to reclassify their income on paper to capitalize on the tax windfall. 

Enabling Tax Evasion 

Based on current tipping amounts, eliminating federal income taxes on tips would reduce federal revenue by $107 billion over the next 10 years. But this cost is almost certainly likely to balloon out of control because workers, employers, consumers, and tax planners would have an incentive to coordinate their behavior to take advantage of a new tax break.

Seniors Need A Benefit Raise, Not More Failed Trickle-Down Tax Policies

President Trump’s proposal to eliminate taxes on Social Security benefits, which was rhetorical and included no policy or legislative specifics, is a trojan horse for the eventual privatization and dismantling of one of the most cherished government programs. This reckless tax cut would not only worsen the revenue shortfall of Social Security, the benefits of such a giveaway would go mostly to the wealthy while offering little financial relief to struggling seniors. 

The Cost of Exempting Social Security from Taxes is Astronomical

Multiple independent budget projections of this proposal find that it would reduce federal revenue by $1.5 trillion over ten years. This would mean the Medicare trust fund would reach insolvency six years earlier than currently projected, and the Social Security trust fund would reach insolvency two years earlier. Additionally under this proposal once Social Security reaches insolvency the automatic cut to seniors benefits would increase from 21% to 25%. 

Exempting Social Security from Taxes is a Windfall for the Wealthy

Trump’s proposal is very regressive, endangering the benefits of poor seniors so that the richest can get a big tax cut. Social Security benefits already have favorable tax preferences, with only the top 4-in-10 recipients paying any taxes on their benefits currently. According to the Tax Policy Center, the 45 million lowest- income Social Security recipients paid an effective tax on their benefits of less than 3% ($637). Compare that to the wealthiest seniors who would each get a $12,000 tax break if Trump’s proposal was enacted. 

Source: Americans for Tax Fairness, based on analysis Tax Policy Center data 

Robbing our Grandchildren

While current high-income seniors would gain over $100,000 over their remaining lifetime under Trump’s proposal, those under age 30 would be dramatically worse off. It is estimated that children currently being born would lose $10,000 on average of lifetime benefits if this tax policy is enacted. 

It is Time to Raise The Cap To Save Social Security

Rather than passing a reckless tax cut which would rob Social Security, Congress should raise the arbitrary tax cap which allows high-income earners to contribute significantly less to the trust fund than working families. This is already the case for Medicare taxes which tax all wages and salaries at the same amount, and has a $2.5 trillion larger tax base than taxes that fund Social Security. By just scrapping the cap, Congress would be extending the solvency of Social Security by over 30 years. Currently no Social Security taxes are levied on income over $176,100. 

Workers Need More Time Off, Not More Failed Trickle-Down Tax Policies

President Trump’s proposal to eliminate taxes on overtime would lose between $1.3 trillion to $1.7 trillion in federal revenue over the next decade. To pay for this, Congress would have to cut critical public programs that help working people and therefore raise costs on Americans in other ways. Additionally, it would worsen income inequality and make it easier for employers to game the tax code to exploit their workers. The Trump Administration is also expected to reduce the dollar threshold for overtime, thereby reducing the number of Americans eligible for overtime pay and cutting off access to this proposal for millions. What workers need is to maintain the overtime threshold adopted under the Biden Administration and expand overtime protections for workers.

Encouraging Tax Avoidance by the Rich

If overtime pay was exempt from taxes, the highest-income families would get over 50% of the tax benefit, while the lowest-income families would get less than 1%. But this likely underestimates the distributional benefits, because employers would be incentivised to restructure compensation to classify more income as “overtime” to reduce how much they have to pay in taxes. Corporate executives who love to claim they work long grueling hours could get a massive tax windfall on their multi-million dollar pay packages by reclassifying their income. 

Undermine Key Worker Protections

One of the greatest achievements of the American labor movement was the creation of the 40-hour work week, but this would undermine the time off workers have earned and deserve. Many low-income workers might feel pressured to work excessive hours to benefit from tax-free earnings, leading to many health and quality of life issues. Some businesses might manipulate schedules to classify more hours as “overtime” reducing their payroll tax obligations while overworking employees. Instead of hiring additional workers, employers might push existing staff to work more overtime, reducing job creation in favor of exploiting a smaller pool of workers.

Increase Administrative Complexity

Implementing such an exemption would add unnecessary complexity to the tax code. Businesses would need to track and report overtime earnings separately, creating administrative burdens. The IRS would need additional resources to prevent abuse. Workers might also struggle to correctly report exempt vs taxable income, leading to errors and more audits.

Trump’s Agenda Would Steal $1.5 Billion of Overtime Pay from 4.3 Million Workers

Last year the Biden Labor Department made a massive improvement to overtime compensation rules that would have given multi-billion dollar pay raises each year to over 4 million workers. But President Trump’s transition team and Labor Department plans to water down this rule further, resulting in millions of workers losing access to overtime and increased pay.