It's a rare moment of bipartisanship in American politics. Donald Trump and Kamala Harris "both want to get rid of taxes on tips," said NPR . Trump has been campaigning on the promise since June, while Harris jumped on the bandwagon during a Saturday rally in Las Vegas. There has even been some movement by Republicans in Congress, signaling that the "no tax on tips idea is gaining bipartisan political steam." But the idea gets some skepticism from economists. "We're in a campaign season — silly season," said Steve Rosenthal of the Urban-Brookings Tax Policy Center.
Why the disbelief? Eliminating the tax on tips "could pile onto the already unsustainable federal deficit," said Politico . That could have knock-on effects on Social Security and Medicare . And it's possible that a bill to slash the tax could "open a tempting loophole for high-end earners like financiers" to classify their own earnings as "tips." Those unintended consequences have "economists on the left and right" sounding the alarm. Said one: "There are not a lot of tax upsides."
Most tipped workers 'already exempt'
Getting rid of taxes on tips looks "like a subsidy for big businesses," Abdallah Fayyad said at Vox . That's because employers might feel more free to keep their baseline pay low. Most tipped workers are "already exempt from paying federal income taxes" because they earn so little — the median wage for waiters, for example, is around $32,000. "Only about a third of those tipped workers pay income taxes and would benefit from this," said Brendan Duke of the Center for American Progress.
So why is the idea getting so much traction? Electoral politics. "The tax cut could be politically potent" in the swing state of Nevada, said The Washington Post . More than 300,000 people work in the hospitality sector in Las Vegas. Harris endorsed the cut to "maintain the support of Las Vegas's mighty service sector unions." The powerful Culinary Workers Union — with roughly 60,000 members — "could help determine who wins the state in November's election." (President Joe Biden won the state in 2020 by a 34,000-vote margin.) Trump's team, meanwhile, believes the proposal is a "great way to get the votes of the waitresses and busboys and the car valets and the caddies."
A 'complicated' battle in 2025
Presidents don't make tax laws. Congress does. Why hasn't it acted already? Because rewriting the law to eliminate tip taxes "would be complicated," said The Associated Press . Tax policy will be high on the agenda after the presidential election because the Trump-era tax cuts passed in 2017 are due to expire. The University of Michigan's James Hines Jr. said legislators might not want to get into the complexities of tipped wages when there will be so many other issues to deal with. "There's no way," he said, "that it wouldn't be a mess."
A better idea might be "banning subminimum wages for tipped workers," Michael Lyle said at The Nevada Current . The federal "subminimum" wage for tipped workers is $2.13 an hour — for all other workers , it's $7.25 an hour. Raise the pay that hospitality workers can earn from their employers and they won't have to rely so much on the kindness of strangers. "We need to break this idea," said Rep. Steven Horsford (D-Nev.), "that people can work for less than a fair minimum wage."
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