The specific concept under consideration relates to a potential elimination of taxes levied on earnings derived from hours worked beyond the standard full-time work week. This would essentially mean that the government would no longer collect income tax, payroll tax, or other applicable taxes on the additional wages earned when an employee works more than forty hours per week. As an example, if an individual earns $50 in overtime pay and is typically subjected to a 25% tax rate, the entirety of that $50 would be received by the worker rather than having $12.50 deducted for taxes.
Such a policy change could theoretically stimulate economic activity by increasing disposable income for the workforce. Historically, tax policy has been used as a tool to encourage or discourage certain behaviors, and in this case, the potential aim would be to incentivize increased productivity and labor supply. Furthermore, it might be presented as a form of tax relief for middle- and lower-income workers who often rely on overtime pay to supplement their regular earnings.
