No tax on overtime is another gimmick that would do more harm than good
With Congressional Republicans having passed a budget resolution, one of the tax provisions certain to be discussed in federal budget deliberations will be President Trump’s expressed priority to exempt overtime pay from taxation. The idea has gained steam across the country, with lawmakers in 19 states already introducing bills in 2025 to exempt overtime pay from state taxes.
Like the misguided “no tax on tips” bills that have also been moving in some states, these “no tax on overtime” measures are a gimmick. Though pitched as support for regular working people, the primary beneficiaries of these proposals would be employers and high earners who game the system. Exempting overtime from taxation would do more harm than good, and there are far better ways to support workers putting in long hours.
In summary, exempting overtime from taxation would:
- Encourage excessive hours of work while exacerbating inequities between workers able to work long hours and those who cannot.
- Put downward pressure on base wages.
- Open up a tax loophole easily gamed by high earners that would drain public budgets while further complicating the tax system.
The macroeconomics of the Trump administration: Chaotic and harmful policies will make the United States poorer—either rapidly or gradually
The Trump administration inherited the strongest economy of any president since George W. Bush—and unlike that economy, there was no obvious macroeconomic imbalance set to pull down growth. In short, the stage was set for the incoming administration to ride the desirable trends of rapid growth in jobs and real wages—as well as declining inflation—for an entire term of economic strength.
Instead, the administration seems determined to squander and wreck the strong economy. Each of the individual policies they are pursuing—illegal layoffs of federal workers, mass deportations, constant threats and retractions of broad-based tariffs, and Medicaid spending cuts—would be bad for the economy. But each policy is also being pursued with maximum levels of chaos and incoordination, creating unprecedented levels of economic uncertainty. This uncertainty is itself a serious economic threat.
Below, we sketch out the macroeconomic dangers posed by each of the administration’s big policy initiatives so far, and end with an assessment of where this leaves the U.S. economy. The best outcome that could result from continuing these policies would be avoiding a recession but still sharply reducing growth and creating an U.S. economy that is significantly poorer than it would have otherwise been. The most likely outcome, however, is a recession in the coming year.
Job Openings and Labor Turnover Survey could signal warning signs ahead: Lower hires rate more concerning with layoffs on the horizon
Below, EPI senior economist Elise Gould offers her insights on today’s release of the Job Openings and Labor Turnover Survey (JOLTS) for January. Read the full thread here.
A strong Department of Education is critical to public schools
The Trump administration is reportedly preparing an executive order aiming to “abolish” the Department of Education—a prominent demand of far-right activists in recent years. His pick for Secretary of Education—Linda McMahon—is hostile to public schools and supports the privatization of public education.
The U.S. public education system needs all sorts of reforms to boost its capacity to provide an excellent education to all children. But public education is also why the United States became the richest country the world has ever seen, and its future depends on maintaining and strengthening this system—not tearing it down.
What does the Department of Education do?
The Department of Education (DOE) accounts for about 3.5% of the entire federal budget and provides crucial funding for public K–12 schools, narrowing some of the huge gaps between needed resources and state and local revenue. Specifically, the DOE provides funding for low-income children through Title I funds and funding for special education through IDEA programs. These resources help balance the scales of school funding, as high-poverty districts often get less funding from local sources, which rely heavily on property taxes. The DOE also administers crucial programs—like Pell grants and loans—that make college attendance possible for those who are not rich.
Trump’s federal workforce cuts jeopardize the careers of nearly 900,000 veterans and veteran or military spouses: Cuts to federal employment will affect veterans in every state
The Trump administration’s attacks on federal government workers will disproportionately harm veterans and their families. Nearly 900,000 civilian federal employees are either veterans, spouses of veterans, or spouses of active military, representing 30% of the entire federal government workforce.
Federal government employees are disproportionately likely to be veterans due to federal government hiring preferences. Table 1 shows that currently 758,300 civilian federal government workers are veterans, about 25% of federal employees based on January 2025 employment counts. Since there are about 7.3 million employed veterans, it follows that one out of every 10 employed veterans works for the federal government.
The federal government also employs nearly 250,000 spouses of veterans and spouses of active military. Together, the civilian federal government workforce consists of 895,900 veterans and spouses of veterans or active military. (Some federal government employed veterans are also spouses of veterans.)
February jobs report is the calm before the storm: Full impact of Trump administration’s federal layoffs and chaotic policy shifts still to come
Below, EPI economists offer their insights on the jobs report released this morning, which showed 151,000 jobs added in February.
Updated EPI tracker shows more states obstructing progress on workers’ rights: Harmful preemption laws are increasing inequality and repressing democracy
In recent decades, local governments have stepped up to tackle some of the most pressing economic challenges of our time, including raising minimum wages, developing popular paid leave programs, and ensuring that public contracts lead to good jobs and stimulate local economic development. Local action to raise wages or strengthen labor standards has often been motivated by state and federal inaction in the face of stagnating wages and growing income inequality. Many such local policy innovations have in turn served as important models for popular new state legislation and for the inclusion of important labor standards in major federal laws, such as the Bipartisan Infrastructure Law and Inflation Reduction Act.
At the same time, the ability of local policymakers to innovate and address local economic conditions has increasingly faced obstruction from state legislatures through the abusive use of preemption—state laws that block, override, or limit local ordinances on workers’ rights.
For nearly a decade, the Economic Policy Institute has tracked the spread of state laws that preempt workers’ rights and limit local democracy. New updates to EPI’s workers’ rights preemption tracker document the most recent legislative changes and point to both troubling and promising developments:Read more
Child care is unaffordable for working families across the country—including in New Mexico
EPI’s updated fact sheets calculate the costs of child care in every state, showing that child care is unaffordable for working families across the country. This early care and education is crucial for children not only because it allows their parents to participate in the labor force, but also because it boosts their socialization, cognitive development, and school readiness. Child care is one of the largest expenses in a family’s budget partly due to early care and education requiring long operating hours for better access and a low student-to-teacher ratio for better quality.
Child care costs vary widely across the country, ranging from as low as $521 per month in Mississippi to as high as $1,893 per month in Washington, D.C., for a household with one 4-year-old child. This variation is even wider across counties and metro areas, as can be seen in our recently updated Family Budget Calculator.
In our fact sheets, we use state-level data from the Department of Labor and Child Care Aware of America on the cost of infant and 4-year-old care to determine child care costs for one- and two-child families. We incorporate the latest available data, in most cases for 2023, and adjust everything to 2024 dollars using the appropriate indexes.
Below, we use New Mexico as a case study to show the different data points offered in the fact sheets. As federal COVID-19 relief funding for child care stabilization grants came to an end in September 2023, New Mexico was the first of a number of states to step up and address the child care needs of working families. While these investments have already begun having positive effects, there is more work to be done.
Trump will likely continue attacking the federal workforce in tonight’s joint address to Congress
Tonight, President Trump will deliver an address to a joint session of Congress where he will outline his political agenda for the next year. Among many other topics, the president is expected to highlight the numerous actions directed at reducing the federal workforce and federal spending, expelling a narrative of rooting out waste and fraud in the federal government. In reality, these actions are nothing more than attacks on federal workers and the services they provide, and an attempt to erode the public’s faith in the federal government.
President Trump has issued a record number of executive actions aimed at the federal workforce, including issuing an executive order to make it easier to fire federal workers in jobs that are normally apolitical; revoking an executive order that protected their collective bargaining rights; eliminating remote work options; and requiring all agencies to identify and review retention needs of all probationary federal employees, resulting in the firing of thousands of federal workers.
The era of cheap cynicism about government is over
You could plausibly claim that the 2024 presidential election was about any number of issues— immigration, inflation, or tariffs. But nobody can seriously claim that the candidates ever debated whether a corrupt billionaire should be given the illegal power to destroy vital state capacity on a whim. Yet that’s precisely what the so-called Department of Government Efficiency (DOGE) has been doing.
The cynical response to the illegal firings and impoundments pursued by DOGE has been, “So what? Government doesn’t do anything useful anyhow.” But that’s far too cheap a response given the stakes involved. The federal government performs functions that are vital for a decent society. It performs a number of them suboptimally and could use a good faith drive to improve its efficiency and step up its capacity. But compared with the other big centers of power in the U.S. economy—say the tech or finance sector—its employees do far more valuable work for far less money. Relative to these sectors, it is the epitome of efficiency.
