What No Tax on Overtime Might Mean for Nebraskan Workers
This post covers the House passing on the proposed tax cut for no tax on overtime and the potential effects that it will bring for Nebraskans.
Courtesy photo from Adobe Stock
Photo of women clocking into work at a check-in station.
What is no tax on overtime
During President Donald Trump's presidential campaign he proposed a new tax concept that he planned to implement during his presidential term; one of those practices would be no tax on overtime. A bill that would amend the Internal Revenue Code of 1986 to establish a deduction for certain overtime payments.
However, according to Adam Thimmesch, a professor of law at the University of Nebraska-Lincoln, the passing of this bill is just the beginning to a very long process.
Thimmesch said that this first proposal is “just this resolution that basically says, yeah. This is something that we think should be talked about.”
From here the bill will need to be negotiated with the Senate. Since this is only a small portion of Trump's tax proposal, Thimmesch said that there is still a likely chance that this concept could be negotiated out of the bill when the House and Senate are working during the reconciliation process. Once a negotiation is made they will then be able to pass the proposals into national law.
How National laws can impact state laws
Even when these bills are changed on a national level, there is still an opportunity that it will not be changed within a state government and that your own state will not see these changes.
Thimmesch said, “States usually follow national concepts but states can still decide to say no and decouple.”
A state needs to decide what is best for their individual economy. But as a Republican state, Thimmesch said that it is highly likely that if this proposal is passed, Nebraska would follow suit with no tax on overtime.
How do taxes impact the economy
The movement of this bill has more than just the potential to impact laws, but it also has the potential to have a direct impact on the economy on a national and state level.
Local taxes are key to thriving communities. One in seven tax dollars in the U.S., about $886 billion annually, is levied by local governments in support of education, infrastructure, public health, and other priorities. Three fourths of this funding comes from property taxes, 18% comes from sales and excise taxes, and 6% comes from income taxes.
According to Eric Thompson, a professor of economics at the University of Nebraska-Lincoln, said that “A decrease in tax collections can lead to a ripple effect into other areas.”
Without steep cuts to federal programs, Republicans won't be able to claim the savings they need to offset the costs of the tax breaks. With the give in one area, the governments will need to find a give in another, whether that means taxing more in other places or cutting funding.
However, Thompson said that it could also lead towards affecting general working conditions, such as incentivizing more people to work, inhibit the hiring process and ripple into making it more difficult for younger generations to get into the workforce since companies would likely prefer keeping more seasoned workers on overtime instead of hiring new.
How taxes help Nebraskans
While a tax cut might sound appealing, it is important to remember how local taxes trickle and give back to your local areas.
In the state of Nebraska, nearly half of all taxes go to education programs, 18% goes to health and human services while roads, transportations and public works receive the least amount of support from local taxes.
With this understanding, no tax on overtime takes away from the amount of support that Nebraska’s state government is able to offer to these programs. If this bill is passed through the Senate, Nebraskans will need to evaluate if a tax break over support towards local programs is the right decision for themselves.
How no tax on overtime can put Nebraska's
work at risk
One of Thompsons biggest disagreements with this proposal is that it offers too much leeway in creating differential treatment amongst workers.
While this proposal offers hourly paid workers the opportunity to save their overtime, it excludes contract workers or individuals that work multiple jobs that accumulate to more than 40 hours a week.
Thompson said, “Nebraska has one of the highest labor force participation rates in the nation and secondary job holdings are common in Nebraska.”
Thompson believes that this means Nebraskans are more likely to see the effects of differential treatment as the majority of workers would fall into the grey area of contract working and multiple job holdings, no longer qualifying for this tax break while still working a qualifying amount of hours.
Is no tax on overtime the right solution for Nebraskan people
Thimmesch said that the questions to keep in mind during all of this, when it comes to deciding if this proposal is the best for everyone is “What is the purpose? Who does this serve?” While a tax break can be seen as beneficial and serves the opportunity to help some people, you should consider if there are ways that this break can be made more equal for everyone.
From a tax and economic standpoint, both Thimmesch and Thompson, agreed that there are more efficient and equal proposals that could be passed if the end goal was to better our economy and tax concepts. So when deciding if this proposal is accurate for the Nations and Nebraska’s government, it is important to discuss the real “why” behind the proposal.