Former President Donald Trump and Vice President Kamala Harris are both vying for service and hospitality workers' votes by pledging to eliminate taxes on tips. However, experts suggest that this proposal may not benefit a significant portion of tipped workers.
During a campaign stop in Las Vegas, Trump assured workers that they would 'keep 100% of your tip income,' claiming that Harris had 'copied' the idea from his administration. Despite the promises, neither Trump nor Harris has provided detailed proposals, and the plan would need to pass through Congress.
According to the Budget Lab at Yale University, approximately 4 million people were employed in tipped occupations in 2023, representing about 2.5% of all employment. However, a substantial number of tipped restaurant workers, nearly two-thirds, do not earn enough to owe federal income taxes, rendering the tax elimination ineffective for them.
An analysis by One Fair Wage, an advocacy group, revealed that the majority of tipped restaurant workers would not benefit from the proposed tax exemption. Additionally, the plan may not significantly impact low- and moderate-income workers in general, as only a small percentage of them are employed in tipped positions.
Experts, such as Erica York, a senior economist at the Tax Foundation, have criticized the proposal, labeling it as 'good politics, but bad policy.' Questions remain unanswered regarding the specifics of the plan, including the extent of tipped income that would be tax-free, measures to prevent fraud, and the potential elimination of federal income and payroll taxes.
