No Tax on Tips: 4 Reasons Donald Trump and Kamala Harris Both Believe in This Economic Policy
Written by
Dawn Allcot
Edited by
Cory Dudak
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The two leading candidates in the 2024 presidential election don’t agree on much. But, as Vice President Kamala Harris and former President Donald Trump strive to win the votes of working-class Americans in swing states, their proposed policies have one thing in common: removing tax on the tips that make up the bulk of tipped-employees’ incomes. The Budget Lab at Yale University estimates that this represents 2.5% of all workers in the U.S., or roughly 4 million people, CNBC reported.
Experts have said the plan, which is just a promise right now, since neither candidate has released detailed specifics, may not be best for the majority of voters or the U.S. as a whole.
“Our politicians pander as their political strategy, which leaves the country so much weaker,” Committee for a Responsible Federal Budget president Maya MacGuineas told CBS News “Money Watch.”
Such a policy could cost the U.S. roughly $150 billion to $250 billion over the next 10 years, according to the CRFB. The price could go higher if employers restructure wages to provide a tax shelter.
What reasons do the candidates have for their common support of this financial policy?
It Would Gain Favor From Restaurateurs
It’s not only servers who would be happy about receiving a significant portion of their wages tax-free. It would also benefit restaurant owners, who could use the move to justify already-low wages. However, eliminating a tax on tips is, essentially, giving many hospitality workers a raise, which can also improve retention and morale in the workplace. Overall, the hospitality industry could win from this move.
It Shows Support for Lower- and Middle-Income Workers
Both candidates have supported relief for lower- and middle-wage workers.
Harris has supported raising the minimum wage as well as increasing minimums for “cash wages,” or the base pay servers and other tipped workers must earn, which is much lower than the federal minimum wage of $7.25.
Trump’s Tax Cuts and Jobs Act of 2017 reduced the marginal tax rate for most Americans, especially those who fall in the middle and lower-middle class.
Many servers and other tipped workers fall into this category, with the median hourly income of tipped service workers at $27 an hour, National Restaurant Association media relations director Vanessa Sink told The Hill.
It May Gain the Favor of Gig Workers
It’s not only servers who earn money from tips. Gig workers, such as those who shop for Instacart or drive for ride-share platforms like Uber and Lyft, supplement their incomes through tips, as well. Roughly 41 million people in the U.S. work some sort of gig, according to the Gig Economy Data Hub. This potentially large voter base may vote for a candidate on the basis of their promise to eliminate tax on tips.
It Levels the Playing Field
Donald Trump was the first candidate to promise to remove taxes on tips, albeit without providing details on how to accomplish this without increasing national debt and opening loopholes for higher income Americans to cheat on their taxes. The move might’ve been designed at least in part to win support from labor unions.
Harris, who already had the endorsement of the hospitality workers union Unite Here before announcing her no-taxes-on-tips policy, caught many Democrats, and especially progressives, off-guard. She also has not released details of how such a plan would work. However, having both candidates on board helps level the playing field, freeing tipped workers to vote based on other issues.
Editor’s note on election coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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