Vice President Kamala Harris’ call to eliminate tip taxes adds to bipartisan support for a proposal that his rival, former President Donald Trump, floated two months before. But the fate of the policy idea could depend on broader disagreements over base pay, regardless of who wins the election.
Unlike Trump, Harris has proposed combining the elimination of federal taxes on tip income with an increase in the national minimum wage, which has been $7.25 an hour since 2009.
Many who receive tips, however, receive a much lower “subminimum” wage, which requires employers to make up the difference whenever the tips do not add up to the federal minimum wage. The US subminimum, which some states have replaced with widespread hourly minimums, it has been $2.13 per hour since 1991.
“It’s encouraging that everyone is talking about this,” said Saru Jayaraman, president of the labor advocacy group One Fair Wage and director of the Food Labor Research Center at the University of California, Berkeley. But “it doesn’t mean anything until we raise these workers’ wages and end the subminimum wage for tipped workers,” she said.
Without these changes, Jayaraman – who set fire to Trump’s plan as a “phony solution” in June — said he would not support a standalone tip tax proposal. “The main issue for black voters, Latino voters and young voters this cycle is the cost of living and living wage jobs,” she added.
This criticism came amid concerns from fellow labor advocates that the proposal – which Republican Party legislators drafted in legislation backed by the National Restaurant Association — would encourage business owners to have more workers tip wage earners to save on taxes. Harris’ campaign said his plan would include strict rules to prevent that.
The National Restaurant Association, which represents major food and beverage chains, did not directly address Harris’ proposal, but reiterated its support for the No tip tax lawthat Sen. Ted Cruz, R-Texas, introduced in July. A spokesperson for the trade group called the bill “sensible legislation” for industry workers that would put “more money in their pockets at a time when we are all feeling the pressure of higher prices.”
Note from tax experts that many who receive tips earn too little to owe federal income taxes, and the approximately 4 million workers in tipped industries are greatly outnumbered by non-tipped hourly workers subject to minimum wage laws. Some tax policy analysts also say that making tips tax-free would be expensive and difficult to implement.
The increasing focus on tip revenue comes as consumers have become stingier tipperswith research indicating that many tip-weary customers are tired of being asked to help ensure baristas and waiters earn enough to live on. The political debate also coincides with a growing effort to raise minimum wages and end subminimum wages.
While support for higher base salaries is more widespread among Democrats on Capitol Hill, some congressional Republicansincluding Trump’s running mate, Senator JD Vance of Ohio, co-sponsored a minimum wage increase last year. But that policy was tied to the requirement that companies ensure that employees were authorized to work in the United States. Trump, in turn, gave voice Mixed positions on the minimum wage since entering politics. A campaign spokesperson did not immediately respond to a request for comment.
At least 25 states and Washington, D.C., increased the minimum wage last year, under legislation already passed, while 20 increased their tipped wages. In recent months we have seen more movements in the courts and also at the polls.
The Michigan Supreme Court this month cleared the way for the state’s subminimum to be phased out by early 2029. Jayaraman said One Fair Wage, which has driven such changes in many states, is optimistic about efforts in Massachusetts, where a A similar bill is in effect. vote in November. She also noted that Chicago began to gradually eliminate his subminimum last month.
Tip earners have already benefited at some places that recently increased base pay.
Chicago servers and bartenders at establishments using the Toast payment platform earned a average hourly base salary of $9.48 in the first quarter 2024, up from $9 in the same period in 2022, the software vendor found. In Washington, D.C. — which passed a measure last year to gradually increase base wages to $10 per hour — waiters and bartenders earned an average of $8 per hour in the first quarter, up from $5.05 in 2022 .
One potential offset: The district’s average tipping rates fell and only partially recovered after the change took effect, Toast found.
Heather Clark, 37, who works as a weekend bartender at Shigs in Pit, a steakhouse in Fort Wayne, Indiana, would like to receive tax-free tips. But since she’s paid less for night shifts — $4.36 an hour versus $10 during the day — Harris’ call for combining tax breaks with a pay raise seems much more appealing.
That combination “would make a huge difference,” said Clark, who also works full-time as a college enrollment coach. “I don’t have this job because I want it. I have this job because I need it now.”
Clark, an independent who told NBC News in June that Trump’s tip tax plan wasn’t enough to win her vote, said this week that he’s supporting Harris.
The fine print of any such plan can be important to tip earners. Cruz’s bill applies broadly to “cash tips,” while Harris singled out “service and hospitality workers” in her weekend speech.
“The moment I heard about it, I started keeping an eye out,” said Steven Garrett, a barber in Montgomery, Alabama.
The 40-year-old married father of five left his Tuskegee barbershop in 2022 because of high rent and equipment costs, and took a full-time job at a nonprofit social services group for more stability. financial. Garrett said he makes about $50,000 annually, but still earns about $15,000 from the barber shop — and would love to pocket more by filing tip earnings separately and getting an exemption.
“Sometimes I get more tips than I actually made for the services,” he said.
Any relief for tip earners would hurt federal coffers if not compensated. The Nonpartisan Committee for a Responsible Federal Budget appreciates Harris’ proposal would reduce government revenues by $100 billion to $200 billion over 10 years. Your review Trump’s proposal projected a deficit of $150 billion to $250 billion over that period.
This article was originally published in NBCNews. with
