Buzz
Republican lawmakers are set to push a tax plan that disproportionately benefits wealthy Americans and business owners, despite its widespread unpopularity.
To promote the bill, the White House claims that every American will see a $2,000 benefit, and they’ve started calling Donald Trump the 'Paycheck President.'
That may sound appealing—who wouldn't want an extra $2,000? But as always, the situation is more complex.
Current details about the tax plan suggest that individual tax cuts will be temporary, fading within 10 years, while corporations will continue to receive large cuts. Furthermore, the tax relief isn’t as substantial as the GOP suggests—independent analyses estimate the cut to be closer to $1,200 in 2019, or roughly $23 per week. The wealthiest Americans stand to benefit the most, as noted by Howard Gleckman, a Forbes contributor:
On average, someone in the top 1 percent will see a tax reduction of about $8,700 in 2019, while a business owner will pay $87,000 less in taxes.
Furthermore, the Tax Policy Center argues that most people will end up worse off when considering the measures Congress will take to compensate for the projected $1.4 trillion revenue shortfall, which could include cuts to Social Security, Medicare, and Medicaid.
Let’s break this down.
Overtime Rule
At present, employers are required to pay overtime to most salaried employees earning less than $23,660 per year, a threshold that has remained unchanged since 2004. The Obama administration’s Department of Labor proposed a new rule last year to raise that threshold to $46,476, thus expanding eligibility to over 4 million workers.
Business organizations and 21 states challenged the rule, arguing that the Department of Labor (DOL) had exceeded its authority, leading a federal judge to strike it down in August. The Justice Department also chose not to defend the rule in September.
There is some potentially positive news for workers: the Trump Administration has announced plans to raise the salary threshold—just not to $46,476. However, nothing has materialized yet. But raising wages for 4 million workers would likely be a more effective way to boost their paychecks than a one-time tax cut they may not even benefit from.
Equal Pay Rule
In August, the Trump administration also put a stop to an Obama-era regulation that would have required large businesses to report salary data by race and gender to the Equal Employment Opportunity Commission.
The Equal Pay rule aimed to help close the gender wage gap by making pay across industries more transparent. Critics, including Ivanka Trump, argued that it would impose unnecessary burdens on businesses and would not ultimately resolve wage disparity.
Sorry, women who were hoping this would help reduce the $500,000 to $1 million lifetime pay gap you face—maybe you can invest that $1,200 in Bitcoin?
Sharing Tips
This month, the Department of Labor (DOL) introduced a rule requiring waitstaff and other tipped employees to share their tips with coworkers and possibly managers, as long as they earn at least the federal minimum wage. This reverses an Obama-era rule (spot the pattern?) that stated tips should go directly to the worker who received them.
The Trump administration argues this will benefit service workers who typically don't receive tips, such as cooks and dishwashers. Critics claim it would enable employers to take workers' tips. The Economic Policy Institute, which leans left, estimates that employers could pocket $5.8 billion in workers' tips since the rule doesn’t require that employers actually distribute the pooled tips.
The Fiduciary Rule
The Obama-era Fiduciary Rule would have required financial advisers to prioritize their clients’ best interests when giving advice on retirement investments. At present, commission-based advisers can push products that carry additional fees, even when there are equally good, fee-free options available—and even a seemingly small difference like 1% can have a major impact over time.
Although the rule was supposed to take effect this year, the Department of Labor (DOL) has delayed its enforcement multiple times, meaning that retirement savers may still be sold these fee-laden products. What does this cost investors? The Economic Policy Institute estimates about $10.9 billion over 30 years (since fees compound!). But perhaps that $1,200 tax cut will make up for the losses.
