Why it matters: Typically, ideas like these are tough to turn into reality, but next year when the Trump tax cuts expire, Congress will likely pass some kind of new tax bill.
- That creates an opportunity to put new policies in place, says Brendan Duke of the Center for American Progress Action Fund.
The intrigue: Where things start to get wild is outside the restaurant industry, as Americans try to figure out ways to classify more of their income as tips. Think bankers’ bonuses or sales commissions — or even pay for a Substack writer or freelance podcaster.
- The U.S. tax code already has different rules for different kinds of income — capital gains, for example, are taxed at a lower rate than payroll income.
- When those kinds of divides happen, you create enormous incentives for people to game the system, says Howard Gleckman, a senior fellow at the Tax Policy Center.
- Those kinds of shenanigans typically happen with higher earners — think of the carried interest tax loophole, for example.
For the record: An official from the Harris campaign said the policy would include “strict requirements to prevent hedge fund managers and lawyers from structuring their compensation in ways to try to take advantage of the policy.”
- Trump’s campaign hasn’t offered much in the way of detail.
If anyone is going to exploit a “no tax on tips” law, it’s going to be high-income lawyers and hedge fund/high finance people, and the IRS will lose vastly more tax revenue from them than what they’d lose from service workers’ tips.
So while it may sound nice, it’s just another avenue for exploitation by the rich and not a good idea, Think about it: it’s Trump who brought up the idea (which ofc some advisor gave him since he doesn’t do ideas), and who do you think they are trying to benefit? Not service workers, we can be sure of that.
If we could just get rid of stupid tipping culture and pay a living wage that doesn’t depend on tips but is accounted for in the prices, then we could also not track and therefore not tax tips, since they’d rarely be given, and even if they are they’d be in smaller amounts than the usual 15-20% or whatever, since the customer is not feeling a burden of providing their living but just wants to add a small monetary recognition for especially good service.