VPresident Kamala Harris and former President Donald Trump have endorsed a policy to eliminate federal taxes on tips, a rare example of agreement between the two campaigns as they aim to influence a critical bloc of voters.
While the policy may address some immediate concerns of service and hospitality workers, it has sparked significant debate about its budgetary implications, fairness and potential impacts on the broader labor market.
During a rally in Las Vegas on Saturday, Harris unveiled her proposal to end tip taxes, positioning it as a potential cornerstone of her future economic platform. “It’s my promise to everyone here: When I’m president, we will continue our fight for America’s working families, including to raise the minimum wage and eliminate tip taxes for service and hospitality workers,” she said at the University of Nevada. , Las Vegas.
A Harris campaign official told TIME that the proposal would require legislation and that she would push it along with an increase in the minimum wage: “As president, she would work with Congress to craft a proposal that would come with an income threshold and with requirements strict measures to prevent hedge fund managers and lawyers from structuring their remuneration in a way that tries to take advantage of the policy”, says the person in charge.
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Harris’ proposal comes after Trump introduced a similar policy in June after having a conversation with a Las Vegas waitress who highlighted the financial burden of taxed tips. “To those hotel workers and people who receive tips, you will be very happy, because when I get into office we will not be taxing tips, people who tip,” Trump said at a rally. “We will do this immediately, at the beginning of the term.”
Trump accused Harris of borrowing his politics for political gain. “This was TRUMP’s idea – she has no ideas, she can only steal from me,” Trump posted on Truth Social on Saturday, labeling Harris as “Copy Cat Kamala.” The Trump campaign also said Harris’ stance contradicts the Biden administration’s previous proposals to establish a voluntary whistleblower program.
Economists say the proposed elimination of tip taxes could have profound effects on both federal revenue and the job market.
The Center for a Responsible Federal Budget (CRFB) estimated that Harris’ proposal to exempt tip income from federal income tax and increase the minimum wage would increase deficits by US$100 billion to US$200 billion over the next decade, while Trump’s proposal to ban federal taxes on tips could cost up to US$250 billion. The conservative-leaning Tax Foundation has estimated that removing tip taxes could cost around US$107 billion over the next decade, reducing income and payroll tax revenues that currently support Social Security and Medicare. The potential deficit raised concerns about the impact such a policy would have on the already overburdened federal budget.
But advocates argue that eliminating tip taxes would ease the financial burden on service workers, many of whom rely on tips for their livelihoods. Currently, tips are considered taxable income, which requires accurate reporting by workers and oversight by the Internal Revenue Service (IRS). The IRS has struggled with compliance and oversight, leading to ongoing debates about the fairness and viability of taxing tips.
An estimated 4 million workers receive tips regularly – less than 3% of the total workforce, according to to an analysis by the Yale University Budget Lab. The federal minimum wage for tipped workers is $2.13 per hour, but they are required to earn at least the federal minimum wage per hour of $7.25 with tips or their employers will have to make up the difference.
Detractors believe the policy would exacerbate existing inequalities in the tax system. Andrew Lautz, associate director of the economic policy program at the Bipartisan Policy Center, warns that the policy could create a two-tier system where tipped workers enjoy a substantial tax advantage over their non-tipped colleagues, a disparity which can distort salary structures and incentivize employers. transfer more compensation to tips to benefit from lower tax rates.
“We have to say that someone who makes $18 an hour in a fast food job, versus someone who makes $18 an hour including tips at a sit-down restaurant, those workers should be treated differently from a tax perspective ?” Lautz asks. “Policymakers need to carefully consider what this means for fairness in the U.S. economy and the jobs people seek.”
For example, the policy could lead more industries – such as grocery stores – to adopt tipping practices similar to those in the restaurant sector, thus increasing the overall cost of the policy. The proposal could also lead to increased pressure on workers to request tips, potentially leading to less predictable and stable income.
Lautz also raised concerns about the administrative challenges of implementing such a policy. “There is always the possibility of misuse or abuse of rules like this,” he says. “The intent is not for highly paid lawyers and accountants to reclassify their income as tips and escape some level of taxation.” He says Congress would need to write specific rules or direct the IRS to write provisions that limit misuse or abuse of the no-tax-on-tips policy.
Both the Harris and Trump campaigns have yet to release detailed policy proposals, leaving many questions unanswered about how their plans would be implemented and funded. The next administration will face significant challenges in addressing these issues, especially as large sections of the 2017 tax cuts are set to expire and broader discussions about tax reform loom.
Still, the tip exemption has already gained bipartisan traction on Capitol Hill. In July, Democratic Senators Catherine Cortez Masto and Jacky Rosen of Nevada signed the No Tax on Tips Act proposed by Republican Senator Ted Cruz of Texas. A complementary bill was presented in the Chamber of Representatives.
President Joe Biden also supports eliminating tip taxes, White House press secretary Karine Jean-Pierre said Monday. The Culinary Workers Union, a powerful labor union in Nevada, initially called Trump’s proposal a “wild campaign promise” but has since come to support the general idea.
This story originally appeared on Time.com read the full story
