Getty ImagesIn the hotly contested US presidential election campaign, agreement has emerged on a rare issue: employees’ tips should not be taxed.
Former President Donald Trump, the Republican nominee, was the first to come forward with this proposal, announcing it at a rally in June.
Vice President Kamala Harris, the Democratic opponent, spoke out in favor of the plan over the weekend, earning her the nickname “Copy Cat Kamala” in the Trump campaign.
With this proposal, we hope to draw the attention of Americans working in the service sector, including restaurant workers, bartenders, hairdressers, manicurists, taxi drivers, and others who often receive a significant portion of their income in tips.
Where is this important and why?
Both candidates announced their support for the idea in Nevada, a state where the election is considered tied.
More than 20% of the workforce in the state known for its Las Vegas casinos is employed in restaurants and hotels.
Mr Trump said he began advocating for the policy after a waitress complained to him about her taxes.
Republicans, who have long advocated lower taxes, have made it part of their official party platform and there are several bills currently circulating in Congress supported by restaurant lobby groups.
Some Democrats also voiced their support, including President Joe Biden, whose press secretary said he supported the idea a day after Ms Harris endorsed the plan.
This discussion comes at a time when tips are becoming more easily traceable through electronic payments, increasing the risk that such income will be under-reported or not reported at all – a problem that has always been common.
Despite all the excitement that the abolition of the tip tax has caused, it is a relatively exclusive topic.
An estimated 4 million workers across the country receive regular tips – less than 3% of the total workforce, according to an analysis by the Budget Lab at Yale University.
In addition, a significant portion of these workers – about 37 percent – earn so little that they currently pay no income tax to the state at all, the analysis shows.
What rules currently apply?
Current law requires employees to disclose to their employer all tips over $20 per month.
The federal government then collects a portion through income and payroll taxes, which are used to fund programs like Social Security. (States also have their own income tax laws.)
In fiscal year 2018, the most recent year for which data are available, Americans reported $38 billion in tip income to the federal government.
On average, income per taxpayer was just over $6,000.
For some waiters, however, tips can make up more than half of their hourly earnings, so Estimates from the National Employment Law Project.
What impact would this have?
The financial impact is unclear: Some of the proposals in Congress focus exclusively on income taxes, while others would exempt tips from both income and payroll taxes.
The candidates themselves were vague in their comments.
The Tax Foundation estimates that any change within a decade would cost at least $107 billion and other estimates are higher.
Although abolishing the tip tax is a no-brainer from a political perspective, some analysts say it is far from a good strategy.
They argue that this would unfairly shift the tax burden onto workers who do not receive tips.
This could also lead to tipping being expanded to new occupations, which could have a far greater financial impact than expected.
Miscellaneous argue that Cutting the tip tax would benefit employers more than employees because it distracts from the real problem: that companies do not have to pay minimum wage to their tipped employees.
