Trump Targets Middle Class with Tax Break Promises – But Can He Deliver?

During his campaign, President-elect Donald Trump pledged to reduce the tax load for middle-income American families. Yet, the feasibility of his proposed tax reforms is under scrutiny.

Experts have weighed in on Trump’s key tax proposals, which include making tips, overtime, and Social Security income tax-free, setting limits on credit card interest rates, allowing deductions for auto loan interest, removing the cap on state and local taxes (SALT), and enhancing the child tax credit. Here’s what they have to say:

No Income Tax on Tips for Service Industry Employees

According to Jim Czerniak, chief investment officer at Assume Wealth Management in Warrenville, Illinois, bipartisan approval might aid in passing the no-tax-on-tips law. Democratic presidential candidate Kamala Harris also embraced this proposal during her campaign.

However, the success of this proposal will depend on its implementation, experts argue. Trump has not yet provided specific details. Richard Pon, a certified public accountant in San Francisco, noted, “It wasn’t clear whether this exemption would apply to both income tax and FICA taxes.”

FICA taxes, which fund Social Security and Medicare, are split between employers and employees. Notably, Pon mentioned that while employers might save on their portion of FICA taxes for tip income, they generally benefit from the current arrangement due to eligibility for a FICA Tip Credit.

Brookings Institution, a non-partisan think tank, expressed skepticism about the broad impact of this proposal, noting that a minimal percentage of low-earning workers receive tips, and among them, many earn too little to owe federal income tax.

Exempting Overtime from Taxes

Trump’s details are sparse, but Lisa Green-Lewis, a CPA and expert at TurboTax, suggests that removing taxes on overtime could benefit many, including emergency responders and military personnel who often work extra hours. However, Pon cautioned that such a policy might be exploited, as higher overtime pay rates could tempt some to manipulate their earnings classification.

The Committee for a Responsible Federal Budget (CRFB) estimated that this could significantly decrease federal revenue, particularly if all eligible workers converted to hourly payment schemes to avoid taxes on overtime.

Social Security Income Tax Exemption

Mary Johnson, an independent analyst on Social Security and Medicare policies, noted that while eliminating taxes on Social Security benefits would be welcomed by seniors, it raises concerns about compensating for the lost revenue. The Tax Foundation warned that Trump’s proposal could accelerate the depletion of Social Security and Medicare funds.

Currently, around 40% of Social Security recipients pay federal income taxes on their benefits, a figure that increases annually due to static income thresholds that don’t account for inflation.

Deductibility of Auto Loan Interest

Trump proposed making the interest on auto loans fully deductible for vehicles manufactured in the U.S. While this mirrors the tax treatment of mortgage interest, Phil Battin, founder of Ambassador Wealth Management, criticized the proposal, pointing out that cars, unlike homes, depreciate in value.

Limiting Credit Card Interest Rates

With American credit card debt reaching $1.17 trillion, Trump suggested capping interest rates at 10%. However, Jim Czerniak doubts the feasibility of this regulation, noting potential resistance from laissez-faire Republicans who oppose such direct government intervention in pricing.

Raising the Cap on SALT Deductions

Trump has hinted at allowing the current $10,000 SALT deduction cap to expire in 2025. The CRFB noted that lifting the cap would predominantly benefit the wealthiest Americans and significantly reduce federal revenue. Conversely, House Ways and Means Chair Jason Smith suggests that while an unlimited deduction is unlikely, an increased cap might be feasible.

Expanding the Child Tax Credit

Vice president-elect JD Vance expressed intentions to expand the Child Tax Credit to $5,000 per child and make it available to all American families. However, Angela Rachidi and Matt Weidinger of the American Enterprise Institute pointed out the potential high costs and noted Republican resistance to similar expansions that lack work requirements.