How Trump could impact overtime pay for millions of workers

Donald Trump’s first term included many anti-worker policies. His administration rolled back workers’ rights to form unions, made it easier for employers to fire employees, and restricted where and how workers can discuss workplace issues. Trump also reduced the number of workers who received overtime pay.

On the campaign trail, in Erie, Pennsylvania, Trump spoke about how he hated paying overtime. “I know a lot about overtime,” he bragged and bemoaned. “I hated to give overtime. I hated it. I’d get other people, I shouldn’t say this, but I’d get other people in. I wouldn’t pay.”

And again in Saginaw, Michigan, Trump complained about having to pay workers overtime. “I’d say, ‘No, get me 10 other guys. I don’t want to have time and a half,” he said.

Despite this track record, Trump also has claimed that he would eliminate taxes on overtime pay. This inconsistency has created confusion about how exactly a Trump presidency will impact overtime pay.

What did Trump do in his first term

During Trump’s presidency he worked to minimize the number of people eligible for overtime pay.

According to the Economic Policy Institute (EPI), in 1975 more than 60% of full-time salaried workers earned less than the threshold necessary to qualify for overtime pay.

In 2004, the George W. Bush administration set the salary threshold for overtime eligibility to $23,700. By 2016, just 7% of workers qualified to earn overtime pay based on this threshold. Therefore, the Obama administration proposed increasing the overtime eligibility threshold to $47,500 so that some 4.2 million workers, about 33% of the workforce, would qualify for overtime pay.

But this measure was blocked by a federal judge soon after Trump was elected and Trump’s administration instead finalized a rule that raised the threshold to just $35,500, which led to just 1.3 million more workers eligible for overtime pay.

“The rule leaves behind millions of workers who would have received overtime protections under the much stronger rule, published in 2016, that the Trump administration abandoned,” says Heidi Shierholz, president of the EPI and former chief economist at the Department of Labor.

Trump’s proposal could cost $1.5 trillion

Since his first term, Trump has pledged to cut taxes on overtime pay. In Tucson, Arizona, he said, “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.”

The Tax Foundation, a nonpartisan nonprofit that collects data and publishes research studies on U.S. tax policies, estimates that if Trump’s proposal to exempt overtime pay from income taxes and payroll taxes were to be enacted, it could cost the government $1.5 trillion over the next decade.

“On the one hand, it would incentivize an increase in hours worked, which would have a positive effect on the economy,” Erica York, senior economist and research director at the Tax Foundation’s Center for Federal Tax Policy, explains over email. “But on the other hand, it could lead to significant gaming as people try to rearrange their work and compensation patterns to take advantage of the tax exemption.”

The impact of eliminating taxes on overtime pay

While the proposed exemption might result in a modest increase in labor supply and long-term economic growth, the Tax Foundation says there are simpler ways to achieve these goals without tax cuts. One way is lowering statutory tax rates, which wouldn’t complicate the tax code with additional exemptions.

This tax cut would lead to more time spent on overtime-related decisions and worker-classification arrangements between employees and employers solely for tax purposes, diverting attention from productive tasks. This could lead to gaming, or the use of legal strategies or loopholes to reduce tax liabilities.

“Gaming could significantly increase the cost of the exemption, leading to greater revenue losses that aren’t necessarily associated with more work overall,” says York, “just with reclassifying existing pay structures.”

All this could significantly distort labor market decisions, explains the Tax Foundation. Employees would be incentivized to take on more overtime work, while employers would face rising labor costs due to the potential increased employee drive to take overtime work.

Additionally, Trump has proposed cutting taxes on earned tips and social security. This latest proposal would raise Trump’s previously promised $6.1 trillion in tax cuts to $6.8 trillion according to the Tax Foundation. These massive price tags beg the question: How would Trump pay for such cuts?

To be sure, it is yet to be seen exactly how this proposed policy would impact workers. Plus, it is impossible to know if such a policy will actually be a priority for Trump, whose primary policy proposal on the campaign trail was to enact mass deportations of undocumented immigrants.

“It’s not a question of a price tag,” Trump tells NBC News. “When people have killed and murdered, when drug lords have destroyed countries, and now they’re going to go back to those countries because they’re not staying here. There is no price tag.”

And then of course, there are the statements Trump made when he launched his first presidential campaign in 2015. “When Mexico sends its people, they’re not sending their best,” he famously said. “They’re bringing drugs. They’re bringing crime. They’re rapists. And some, I assume, are good people.”

About 8.3 million U.S. workers were unauthorized immigrants, many of whom qualify for overtime pay.