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Former President Donald Trump and Vice President Kamala Harris have found themselves aligned on an unexpected issue: eliminating taxes on tips for service workers. This rare moment of bipartisan agreement has sparked debate among economists and policy experts about the potential impacts of such a proposal.
Trump first floated the idea at a campaign rally in June, with "No tax on tips" signs becoming a regular fixture at his events. Harris, not to be outdone, recently echoed the sentiment at a Las Vegas campaign stop, promising to "eliminate taxes on tips for service and hospitality workers" if elected president.
The proposal has gained traction with some voters, particularly those in the service industry who rely heavily on tips. According to the Bureau of Labor Statistics, the median annual wage for waiters in 2023 was just below $32,000, highlighting the financial struggles many tipped workers face.
However, experts warn that the policy may not be as beneficial as it appears on the surface. Heidi Shierholz, president of the Economic Policy Institute, cautioned that "a meaningful share of the [federal] expenditures on a tax exemption like this will go to the employers of tipped workers" rather than the workers themselves.
The Tax Policy Center argues that the proposal would do little for many tipped workers whose earnings are already so low that they are exempt from federal income taxes. Brendan Duke of the Center for American Progress notes that "95 percent of low- and moderate-wage workers don't get tips, and only about a third of those tipped workers pay income taxes and would benefit from this."
Critics argue that the policy could actually harm workers by discouraging businesses from offering competitive wages. Shierholz warns that "it will reduce employers' needs to raise wages" and could incentivize more sectors to shift towards a tipped model.
Some policy experts suggest that raising the minimum wage or eliminating the subminimum wage for tipped workers would be more effective in improving workers' livelihoods. Currently, the federal subminimum wage for tipped workers stands at just $2.13 per hour.
