MICHEL MARTIN, HOST:
On the campaign trail, Donald Trump promised to put more money back in Americans' pockets by cutting their taxes.
LEILA FADEL, HOST:
Here he is at an event in Raleigh, North Carolina, the day before the election.
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DONALD TRUMP: My plan will massively cut taxes for workers and small businesses. And we will have no tax on tips, no tax on overtime and no tax on Social Security benefits.
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FADEL: So what will a second Trump presidency mean for your taxes? It might mean a lower tax bill, but it could have drastic consequences for the national budget.
MARTIN: Here to explain all this is Laurel Wamsley, who covers personal finance for NPR. Good morning, Laurel.
LAUREL WAMSLEY, BYLINE: Hey, Michel.
MARTIN: OK, so Trump is making a lot of promises about taxes. What's the most important thing for people to know?
WAMSLEY: Well, the biggest thing is that Trump is very likely to extend the big tax changes that he pushed through in 2017. That was a pretty sweeping law, and it did lower most people's tax bills. For households that, say, make $60,000 to $100,000 a year, extending these tax cuts means that those folks get to keep about a thousand extra dollars a year. But wealthy people saw the most benefit. For those who make more than $1 million, it means reducing their taxes on average by about $70,000. And there are also big corporate tax cuts as part of that package, too. But all these cuts are expensive. Extending the 2017 law could increase the national debt by more than $4 trillion over the next 10 years. And that really matters. Less tax revenue coming in means cutting government programs, for example.
MARTIN: Let's talk about some of Trump's other proposals. For instance, no taxes on tips - what sort of impact would that have?
WAMSLEY: Yeah, this is a tax cut that made big headlines. But it only impacts a small part of the labor market, only about 2.5% of all jobs. And many tipped workers, over a third of them, earn so little that they already don't pay federal income tax. So now, there aren't too many details on how exactly all of this would work. But eliminating tax on tips would probably lead to some kind of squirrely effects. For example, say I hire a guy to trim the tree at my house and that's something I usually pay him $500 to do. Now he might tell me that it costs $300 to trim my tree, but that he expects a $200 tip, knowing that he won't be taxed on that portion of the income.
We could see tipping proliferate into places we haven't seen it before. And employers could also attempt to reclassify employees as tipped workers and drop their pay to the tipped minimum wage. And for that, the federal minimum wage right now is $2.13 an hour. And like the 2017 tax cuts, this would blow another hole in the federal budget. This one would cost us about $100 billion over 10 years.
MARTIN: Trump also says he would stop taxing Social Security benefits. What sort of effects would we see from that?
WAMSLEY: Well, for most current retirees, it wouldn't have any effect. Only about 40% of people who get Social Security pay federal income tax on it. But again, the effects of this change would be huge, and it would make things worse for those of us who are still years away from drawing Social Security. That's because a big chunk of those taxes on Social Security goes straight into funding the Social Security trust fund, so eliminating these taxes means reducing the money that's available for Social Security. And that's a program that's already at risk. If no one pays taxes on their Social Security benefits, that fund is going to run out sooner, perhaps two years earlier than it's already on track to do.
MARTIN: That is NPR's Laurel Wamsley. Laurel, thank you.
WAMSLEY: You're welcome.
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