Politicians want to eliminate taxes on tips. Economists aren’t so sure
Image via Marketwatch
In the hotly contested 2024 presidential campaign, one issue has emerged as a rare area of agreement: workers’ tips shouldn’t be subject to federal taxes.
Former President Trump first unveiled his proposal to eliminate taxes on tips at a Nevada rally in June. And this past Saturday, Vice President Kamala Harris also endorsed tax-free tips at a campaign rally in Nevada.
- Both candidates promote the plan as a way to help alleviate financial burdens for service workers, many of whom are lower-income individuals and rely on tips for their livelihoods.
The idea of tax-free tips is also gaining bipartisan political steam in Congress. In July, Sen. Ted Cruz (R-TX) introduced the No Tax on Tips Act with the support of Nevada’s two Democratic senators, while a companion bill is also making its way through the House.
- Typically, ideas like removing taxes on tips are difficult to pass on Capitol Hill – but Congress has a golden opportunity in 2025, when it’s widely expected to approve a new tax bill following the expiration of some Trump-era tax cuts.
On the flip side: Many economists on the left and right are skeptical of eliminating taxes on tips for a wide range of reasons. They argue the plan would be difficult to regulate and administer, would incentivize businesses and workers to push harder for tips (further shifting the burden of wages onto customers), and would open a loophole for high earners to potentially shield their income from taxes.
- Opponents of eliminating taxes on tips also cite projections that show the policy would cost the US government up to $250 billion in lost tax revenue over 10 years – a tab that would either be paid for by tax increases on other groups, or simply added to America’s sizable federal deficit.
Looking ahead… VP Harris is set to unveil her first major economic plan as a presidential candidate – likely including more details on eliminating taxes for tips – in a speech later today.
📊 Flash poll: Do you support the elimination of federal taxes for workers’ tips?
See a 360° view of what media pundits are saying →
Sprinkles from the Left
- Some commentators argue that removing taxes on tips is a misguided policy that rests on an arbitrary distinction among workers, and unfairly excludes many other lower-paying professions while saddling the nation with a tax deficit.
- Others contend that eliminating taxes on tips is a typically Trumpian move: completely detached from expert opinion on the left or right, but with an intuitive appeal and political edge.
- “Not taxing tips is a dumb gimmick. Harris is wrong to follow Trump.” –WaPo Editorial Board
- “Trump Has Somehow Stumbled Into a Very Likable Policy Idea” –David A. Graham, The Atlantic
- “No taxes on tips? Even bartenders reject Trump’s plan” –Star-Ledger Editorial Board
Sprinkles from the Right
- Some commentators argue that there’s no economic justification for eliminating taxes on tips, which would unfairly carve out one kind of income from taxation, and say the proposal is what happens when politicians treat the tax code as a tool for social policy and political favoritism.
- Others contend that tax-free tip income may be a tempting road as a means of putting more money in the pockets of middle class and low-wage workers – but it would also carry unintended consequences, which are likely to be significant.
- “A Bad Tax Policy Tips Over” –WSJ Editorial Board
- “No taxes on tips? Watch for unintended consequences” –Las Vegas Review-Journal Editorial Board
- “Harris Swipes a Bad Idea from Trump” –National Review Editorial Board
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