Harris wants to nix taxes on tips in move that could raise U.S. deficits

(The Center Square) – Vice President Kamala Harris has proposed exempting tips for service workers from taxation, similar to a proposal by her political rival, former President Donald Trump.

A new analysis of Harris plan to get rid of taxes on tips would raise deficits by $100 to $200 billion over the next decade before accounting for changes in tipping behavior, according to the Committee for a Responsible Federal Budget. The proposal could increase deficits more once behavioral effects are fully incorporated, the analysis found.

Harris said she wants to increase the federal minimum wage and skip taxing tips.

"When I am president, we will continue our fight for working families of America, including to raise the minimum wage and eliminate taxes on tips for service and hospitality workers," the vice president said at a recent campaign event.

Under existing law, tips are treated as income and subject to both federal income and payroll taxes. Tips are often underreported and employers are subsidized for paying their share of the payroll tax on tips through a FICA tip credit.

Trump made a similar pitch on tips earlier this summer. The same group said Trump's proposal "would reduce federal revenues by $150 [billion] to $250 billion over 10 years on a static basis and could reduce revenue significantly more once behavioral effects are incorporated," according to an earlier Committee for a Responsible Federal Budget report .

Harris' proposal to raise the minimum wage would also add to the federal deficit. Harris did not specify how high she would raise the minimum wage, although she has previously discussed a minimum wage of at least $15 per hour at the state level. Raising the minimum wage would likely increase deficits by $50 billion over a decade, although the deficit impact could be higher or lower depending in part on the details, according to the Committee for a Responsible Federal Budget.

The Congressional Budget Office said last Thursday the federal budget deficit was $1.5 trillion for the first 10 months of fiscal year 2024, which covers October through July.

The total U.S. national debt topped $35 trillion in July. The national debt has nearly tripled in the last 20 years.