Stop pandering for votes with tax breaks for select taxpayers

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This campaign season has seen the blossoming of proposed tax breaks for select groups in a naked attempt to garner votes. The Trump campaign has led the way, but the Harris campaign is guilty of it as well. So is U.S. Rep. Angie Craig’s campaign. The tax break proposals include exempting tip income, overtime pay and currently taxable Social Security income.

Those not qualifying for the breaks may be supportive of the proposals in the misguided belief that the relief is going to poor, deserving recipients. Many people are apathetic, thinking the proposals do them no harm. The true effect at the federal level is that the loss in revenue if the proposals were implemented would result in increased deficits, federal program cuts or increases in other taxes.

The math is inescapable. Former President Donald Trump’s proposed exemption of tips alone would cost an estimated $107 billion over 10 years, according to the Tax Foundation.

All three of the proposed tax breaks raise issues of fundamental fairness. While the exemption of tips may benefit lower-income tipped servers, it would also benefit higher-income tipped servers. To the extent the tip exemption does benefit low-income servers, what about other low-income individuals who work at the same facilities, such as room cleaners at hotels with restaurants and casinos? While tipping room cleaners has become more common, it is by no means universal or equivalent to the amount of tips servers receive. For that matter, when was the last time you tipped a McDonald’s server?

The same fairness issue exists for Trump’s proposed exemption of overtime pay. The threshold for overtime pay varies by state. Some states’ laws require payment of overtime after 40 hours, others after 46 or even 48. A number of states have no requirement of overtime pay whatsoever.

Should an employee receiving overtime in a state requiring time-and-a-half pay after 40 hours receive that additional income tax-free while an employee in another state with no overtime law received no tax exemption for working similar hours? What about salaried employees or the self-employed, who receive no formal overtime under current law but who routinely work 50, 60 or even 70 hours or more a week? Do they merit no tax break despite their long hours? Even when salaried employees make less than coworkers compensated on an hourly basis?

That brings us to the proposed exemption of Social Security. The benefit is already tax-free for single taxpayers whose modified adjusted gross income plus tax-exempt interest and half of their Social Security is less than $25,000, and for married joint taxpayers where the same is less than $32,000. The exemption phases out after that, but it’s never less than 15% of the Social Security benefit.

For my wife and I who are in the top 10% of households by income in Minnesota and receive $74,000 in Social Security annually, that means $11,100 of our income is federal and state tax-free. Our combined federal and state tax savings under current law exceed $3,300, while a younger couple with the same total income, except from wages or salaries instead of partly from Social Security, would pay more than $3,300 more in taxes. Is that fair? If our Social Security were totally tax exempt as has been proposed, our tax savings would increase to more than $22,000! Is that equitable for the 90% who make less than us and will never see that level of tax relief?

A final concern with the proposed exemption of all Social Security is that the Social Security Trust Fund would lose the revenue dedicated to it from the current federal income tax on Social Security. The proposal from the Craig campaign offsets that by eliminating the ceiling on the current FICA payroll tax for high-income individuals. That delays the looming shortfall in Social Security benefit funding but does not solve it.

In the end, all these proposed tax breaks ignore the basic maxim that money is money. It doesn’t matter how that money is earned; it should all be taxed the same regardless of source. If low-income individuals need tax relief, then give that relief to all low-income taxpayers, not just those paid from certain favored sources.

Keith Carlson, of Roseville, is retired. He is a former fiscal analyst for the Minnesota Senate Tax Committee and former enrolled agent.