No tax on tips: 4 reasons why Donald Trump and Kamala Harris both believe in this economic policy
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The two leading candidates in the 2024 presidential election disagree on many issues. But as Vice President Kamala Harris and former President Donald Trump seek to win the votes of America’s working class in swing states, their policy proposals have one thing in common: eliminating the tax on tips, which make up the majority of the income of tipped workers. Yale University’s Budget Lab estimates that this affects 2.5% of all workers in the U.S., or about 4 million people, CNBC reported.
Experts say the plan – which is currently just a promise as neither candidate has yet announced exact details – may not be best for the majority of voters or for the United States as a whole.
“The political strategy of our politicians is to pander, which makes the country much weaker,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget, told CBS News’ “Money Watch.”
According to the CRFB, such a policy could cost the United States about $150 billion to $250 billion over the next decade. The price could be even higher if employers restructure wages to create tax havens.
What are the candidates’ reasons for their joint support of this fiscal policy?
It would win the favor of restaurateurs
It’s not just waiters who would be happy to receive a significant portion of their wages tax-free. Restaurant owners would also benefit, as they could use the move to justify their already low wages. However, eliminating the tip tax essentially means that many hospitality workers will get a raise, which can also improve employee retention and morale. Overall, the hospitality industry could benefit from this move.
It shows support for low- and middle-income workers
Both candidates have spoken out in favor of easing the burden on low- and middle-wage workers.
Harris supports raising the minimum wage and the minimum wage, the base pay for waiters and other tipped workers, which is well below the federal minimum wage of $7.25.
Trump’s Tax Cuts and Jobs Act of 2017 lowered the marginal tax rate for most Americans, especially those in the middle and lower middle classes.
Many waiters and other tipped workers fall into this category. The median hourly wage for tipped service workers is $27, Vanessa Sink, director of media relations for the National Restaurant Association, told The Hill.
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It could win the favor of gig workers
Waiters aren’t the only ones who make money from tips. Gig workers who shop for Instacart or drive for ride-sharing platforms like Uber and Lyft also supplement their income with tips. According to the Gig Economy Data Hub, around 41 million people in the U.S. work as gig workers in some form. This potentially large voting base could vote for a candidate based on his promise to eliminate the tax on tips.
It creates equal opportunities
Donald Trump was the first candidate to promise to eliminate taxes on tips, but without providing details on how this would be achieved without increasing the national debt and creating loopholes for tax evasion by higher-income Americans. The move may have been designed at least in part to win support from unions.
Harris, who already had the backing of the hospitality workers’ union Unite Here before announcing her policy of exempting tipped wages, surprised many Democrats, especially progressives. She also hasn’t provided details on how such a plan would work. But the presence of both candidates helps level the playing field and gives tipped workers a chance to vote on other issues.
Editor’s note on election coverage: GOBankingRates is nonpartisan and strives to objectively cover all aspects of the economy and present balanced reporting on politically focused financial topics. For more coverage on this topic, visit GOBankingRates.com.
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