A new study by the Tax Foundation, Options for Reforming America’s Tax Code 3.0, details the economic, revenue, and distributional impacts of 86 potential tax revisions. Among these choices, four proposals focus on extending specific provisions introduced in the One Big Beautiful Bill Act (OBBBA) that are currently set to sunset after 2028: deductions for senior income, overtime earnings, tipped income, and auto loan interest payments.
While these “no tax on” policies enjoy bipartisan support from lawmakers and President Trump, extending them indefinitely would add an estimated $577.3 billion to the primary deficit between 2027 and 2036. Due to structural interactions among the policies, the total cost of adopting all four is lower than aggregating their individual price tags. Beyond direct revenue losses, critics note that these targeted carveouts increase tax complexity, distort equity among taxpayers, and invite further proposals for specialized tax exemptions.
Evaluating the Permanent Overtime Pay Deduction (Option 34)
Under existing law for tax years 2025 through 2028, workers can deduct up to $12,500 in qualified overtime pay (or $25,000 for married couples filing joint returns). The exemption applies exclusively to the premium “half” portion of time-and-a-half pay mandated under the Fair Labor Standards Act (FLSA).
Sample Tax Savings Calculation
The table below illustrates how the exemption reduces tax liability for an individual earning a 12% marginal tax rate:
| Metric | Details / Calculation | Amount |
| Regular Hourly Wage | Baseline rate |
$20 |
| Overtime Hourly Wage | $20 × 1.5 multiplier |
$30 |
| Annual Base Earnings | $20 × 2,080 standard hours |
$41,600 |
| Annual Overtime Earnings | $30 × 100 overtime hours |
$3,000 |
| Gross Annual Income | Combined earnings |
$44,600 |
| Deductible Overtime Amount | FLSA premium portion ($3,000 × 33.3%) |
$1,000 |
| Net Income Tax Reduction | 12% tax rate applied to $1,000 |
$120 |
Note: Calculations assume gross income equals modified adjusted gross income.
Economic and Policy Implications
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Accessibility & Limits: The deduction is available regardless of whether a taxpayer itemizes or takes the standard deduction. It begins phasing out for single filers earning over $150,000 and joint filers earning over $300,000 in modified adjusted gross income.
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Long-Term Deficit Impact: Permanently extending the overtime deduction would expand the 10-year primary deficit by $372.4 billion on a conventional basis.
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Economic Growth: By effectively lowering marginal tax rates for eligible workers below the phaseout thresholds, the permanent deduction is estimated to expand long-term GDP by 0.1 percent.
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Complexity & Horizontal Equity: The rule introduces administrative ambiguity for employers and employees regarding qualifying overtime. Additionally, it creates horizontal inequality: two individuals earning identical total incomes (e.g., $50,000) will face different tax burdens if one worker receives part of their compensation as qualified overtime.