What if tips weren’t taxed?
The Venn diagram of policies that Donald Trump and Kamala Harris agree on may be pretty close to two distinct circles — but not entirely. Both the major candidates support eliminating federal taxes on tips.
It might attract votes from tipped workers, who make up 2.5% of the American labor force. But what would it mean for tax policy?
More than a third of tipped workers — including restaurant servers, bartenders and hair stylists — have incomes that are so low, they already don’t pay any federal income taxes.
“So if somebody’s tax liability is already zero and you want to reduce their tax liability, you can’t go any lower,” said Indiana University accounting professor Bridget Stomberg.
There’s concern that these tax policies would treat workers with similar incomes differently, she said.
For example, “you make $32,000 a year as a cashier, and I make $32,000 a year as a waitress, and part of my income is tips, and none of your income is tips. All of a sudden, I pay less tax than you do — just by virtue of the fact that I’m a waitress and you’re a cashier,” she said.
And it could make more people want to trade in being a cashier for being a waitress.
“I would expect to see the restaurant industry, industries that have tipping as a major source of income to see more interest by workers, if this were to become law,” said Garrett Watson, a senior policy analyst at the Tax Foundation.
The Tax Foundation estimates that eliminating income taxes on tips would cost at least $107 billion in revenue over 10 years.
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