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“U.S. Vice President Kamala Harris told supporters in Nevada [last] Saturday she supported eliminating taxes on tips, taking a similar position to her rival Donald Trump… Trump, who told a rally in Las Vegas in June that he would seek to end taxation of income from tips, accused Harris of stealing his policy proposal.” Reuters
Many on both sides are critical of the proposal:
“It is true that the tipped workers who do exist tend to have low incomes, but that means many of them already pay no federal income tax. Exempting tips from taxation would not help them reduce their income-tax bill, which is already zero. With refundable tax credits that already exist, many low-income workers in the U.S. end up making money from filing their income taxes…
“Since exempting tips from income tax wouldn’t really do much for workers, it would also not really do much to federal revenue, so it might be tempting to think there’s no harm in passing it anyway. The problem is that if the government makes it official that tips are not taxed, that creates incentives to shift more compensation into tips, opening up a potentially wide avenue for income-tax avoidance by people in any occupation and at any income level.”
The Editors, National Review
“This new loophole would open up tons of ways to game the tax system by reclassifying more earnings as supposed ‘tips.’ However many workers receive gratuities now — Yale’s Budget Lab estimates about 4 million people are in tipped occupations — we should expect that number to balloon. Heck, your favorite columnist should ask her employer to convert some of her pay to ‘tips’…
“Consumers are already aggravated by the proliferation of tip requests, as Tax Policy Center researcher Steven M. Rosenthal points out. Do we really want to encourage even more tin-can shaking, by cable companies, dental practices and clothing retailers, too? The Harris campaign has said it would work with Congress to ensure the benefit isn’t abused… [But] If you really wanted to help service-sector employees — along with other similarly situated low-wage workers — there are fairer, less distortionary ways to do so.”
Catherine Rampell, Washington Post
Other opinions below.
“Eliminating the tipped minimum wage, and raising the minimum wage for all workers, would have a significantly greater impact on working people than a tax cut on tipped wages. Inflation has increased significantly since 1991, the last year the tipped minimum wage was raised. Fluctuating wages along with mounting costs for child care and housing often leave workers scrambling to afford basic necessities. It’s long past time we saw real change in wages, not a meaningless tax cut that helps only a few.”
Lauren Hough, New York Times
“The whole idea of tax-free tips rests on an arbitrary distinction among workers. Why should a warehouse stocker, a grocery store checker, a security guard or a sanitation worker need to pay taxes on all their income but not a Black Jack dealer who earns most of her money from ‘tips’?… In 2025, Congress must decide how and whether to extend the expiring 2017 individual tax cuts. Pandering by the presidential candidates has ensured that the first bipartisan policy idea to affect that debate will be a bad one.”
Editorial Board, Washington Post
Some argue,“As a piece of campaign rhetoric, it sounds pretty compelling… ‘Even if it seems questionable, who wants to be on the record voting against cutting taxes for waiters and cabbies?’ [The rollout of the proposal by Trump] was ‘a typically Trumpian move: completely detached from expert opinion on the left or right but with an intuitive appeal and political edge.’…
“Now Harris is seeking to get in on that appeal—and in doing so, she’s dulling any political edge the proposal might have given her opponent… Harris’s calculus here seems as simple as ‘low risk, possible reward.’ By aligning with this proposal, she can weaken a Trump-campaign tactic, keep the Culinary Union happy, and signal to working Americans that she’s focused on them.”
Lora Kelley, The Atlantic
“Workers and many employers will inevitably rearrange their income, or how they structure compensation, to exploit the tips tax advantage. Lawyers might still bill by the hour, but why not make 20% tax-free in the form of a gratuity? The Trump-Harris special tax treatment would almost certainly lead to entirely new categories of tipped workers. This is what happens when politicians treat the tax code as a tool for social policy and political favoritism…
“Mr. Trump can’t outbid Democrats in treating the tax code as a tool of income redistribution. His advantage, as he showed in his first term, is tax cutting and reform to promote economic growth…
“[But] Chasing voter groups with tax carve-outs is a losing game that won’t help the economy, the federal fisc, or in the long run the tax favored. Oh, and by the way, Culinary Workers Union Local 226, which represents thousands of workers on the Las Vegas strip, endorsed a presidential candidate on Friday. It wasn’t Mr. Trump.”
Editorial Board, Wall Street Journal
Some argue, “‘No tax on tips’ can have the income-enhancing benefits of a minimum-wage increase without the risks — such as reduced working hours, automation and job displacement, or business closures, which would [result] in fewer overall job opportunities. ‘No tax on tips’ would also benefit employers, reducing the pressure on them to increase wages — as workers can earn an increase with every shift — and incentivizing employee performance (which is what earns tips)…
“Business incentives often matter more than number-crunchers are willing or able to anticipate. Bottom line: ‘No tax on tips’ is an innovative proposal that can increase benefits for low-wage workers while decreasing the costs of running and growing the businesses that employ them.”
Andy Puzder, National Review
