Writeoffs of Tips, Overtime, Car Interest Mostly Helps Higher Earners & Are Paid for Through Cuts to Healthcare, Other Public Services Families Rely On To Lower Costs

The recently enacted Trump-GOP tax law–which is heavily tilted towards the wealthy and is paid for in part with cuts to vital public services like healthcare and nutrition assistance–includes temporary income-tax deductions for tips, overtime pay and car interest. These provisions will expire in less than four years; will help qualified higher-income households the most (like servers in high-end restaurants); and are like the rest of the law being paid for in part by cuts to public services like healthcare and nutritional assistance that families rely on to lower costs. Workers and families should not be distracted by these misleading provisions from the damage the Trump law will do to our economy and society. 

It’s Not “No Taxes”–Payroll Taxes Will Still Be Due on All the Work Income 

President Trump promised “no taxes” on tips and overtime. But that’s not what his law says: payroll taxes will still be due on tips and overtime. And that’s an important catch because two-thirds of Americans pay more in payroll taxes than income taxes; 40% of households pay no federal income tax, mostly because their income is too low. For these tens of millions of workers, the tips and overtime deductions will do little or nothing. The average server makes about $23,000 a year including tips, and would receive nothing from the no tax on tips law because they already make too little to owe any income tax.

A Tiny Target: Few Workers Receive Tips or Overtime, or Buy New Cars

Fewer than 5% of low-wage workers – defined as those earning less than $25 an hour – receive tips. Even among that group, over one-third do not make enough to owe federal income taxes anyway. Only about 8% of hourly workers regularly receive overtime pay. The deduction for auto-loan interest applies to the purchase of a new vehicle, which only about 5% of American households buy in any given year. 

Costly Deductions Are Paid For With Cuts to Vital Public Services & More Debt

The tips, overtime and car-loan deductions will cost around $245 billion in lost revenue over their four-year lifespan. The Trump law pays for them by cutting healthcare and other public services that lower household costs, and by raising public debt.  This is a terrible tradeoff for most families. 

What Working Families Need Is A Raise, Not Dodgy Tax Deductions

A higher minimum wage, expanded family tax credits, making it easier to join a union: all of these measures would boost family incomes more than Trump’s dodgy tax deductions.