Why Donald Trump’s Plan to End Taxing Tips Is a Lame Political Move – Mother Jones

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This story was originally published on Judd Legum’s Substack, Popular informationwhich you can subscribe to here.

As president, Donald Trump’s tax policies have largely favored big business and the wealthy. Trump’s signature tax bill, the Tax Cuts and Jobs Act, has largely benefited these groups.

But as a presidential candidate, Trump is campaigning as a populist. In his 2024 campaign, he is pushing a proposal to end the federal tip tax. He made the announcement last month in Nevada, a key battleground state where the service industry relies heavily on tips.

“Hospitality workers and people who get tips are going to be thrilled because when I take office, we’re not going to tax tips,” Trump said. “We’re going to do that as soon as we take office because it’s been a divisive issue for years and years and you’ve done a great job of service.”

This week, Trump’s proposal to end the tip tax was one of 20 “promises” included in the Republican Party’s official 2024 platform: “HIGH TAXES ON WORKING WORKERS, AND NO TAX ON TIPS!”

Trump’s plan to eliminate tip taxes could help him politically with service workers. His campaign is encouraging people to write “Vote Trump for NO TIP TAX!” on their restaurant receipts.

Republicans in Congress have already introduced a bill to implement Trump’s plan and end the federal tax on tips. Notably, the bill would exempt only tips from income tax, not payroll taxes, which account for the majority of federal taxes owed by low-income workers.

But if the proposal were implemented, it could have a negative impact on most tipped workers. The main beneficiaries would be the owners and operators of hotels, restaurants and other businesses that employ tipped workers — people like Trump.

First, many people who rely on tips make so little money that they already pay no federal income tax. For example, half of all servers make $32,000 or less. A server whose family earns $32,000 does not have to pay federal income tax and therefore would not benefit at all from Trump’s proposal.

The biggest problem is that the federal minimum wage for tipped workers is $2.13 per hour. The minimum wage for tips has not increased since 1991. When you add tips, these workers are supposed to earn at least $7.25 per hour. That is far from a living wage in the United States in 2024.

As a result, seven states (Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington) have eliminated the minimum wage for tips and require all employers to pay their employees the same minimum wage, whether or not they receive tips. The Biden administration is requiring “federal contractors to pay tipped workers the same minimum wage as all other workers.” Major cities like New York and Chicago have recently implemented similar policies. Many other cities and states are considering following suit.

The hospitality industry is desperate to halt state initiatives to raise the minimum wage. The National Restaurant Association, which represents restaurant owners, has endorsed Trump’s proposal.

Eliminating the tip tax could undermine efforts to eliminate the minimum wage on tips and raise the minimum wage overall. While most service-sector workers would see little or no benefit from eliminating the income tax on tips, many would benefit from raising their minimum wage to $15 an hour or more. The Tax Policy Center notes that this tradeoff would be particularly brutal for “back-of-house workers, such as dishwashers, who often receive only a small share of tips—enough to be considered tipped workers but not enough to live on or pay taxes.”

That’s why the Restaurant Workers United union, which represents many workers in the industry, is opposing Trump’s plan. “The call to eliminate the tip tax is just a misguided way to try to solve the problem of improving the situation of the lower class,” said Elyanna Calle, a bartender and organizer with RWU in Austin. Saru Jayaraman, president of the labor advocacy group One Fair Wage, said Trump’s proposal “is not only a bad solution, it’s a false solution.”

There are some Employees who earn tips, including the 10% of servers who earn $60,000 or more, would benefit greatly from eliminating the income tax on tips. But why should these higher-paid tipped workers get a special tax break while those who earn the same income in industries where tips are not paid are excluded? Why should a server who earns $60,000 a year pay less tax than someone who earns the same amount in a warehouse or grocery store?

There is no clear answer to these questions, except that the proposal to end the tip tax could have political advantages for Trump.

Eliminating the federal tip tax could prompt more industries to shift from paying wages to soliciting tips. In addition to potential tax benefits for employees, it would shift some of the responsibility for paying workers from the company to its customers. For example, the wall street journal notes that “a body shop could limit its prices and wages and strongly encourage tips as a way to provide workers with tax-free income.”

If a broader approach to tipping is taken, the cost of the proposal would also increase. The Committee for a Responsible Federal Budget estimates that encouraging more tipping by eliminating the federal tax could cost the federal government as much as $500 billion over 10 years.

According to According to the Conference on Civil and Human Rights, “tipping in the United States is rooted in a racist system that was designed to keep African Americans in an economically and socially subordinate position after the end of slavery.”

Before the Civil War, “tipping was frowned upon: many viewed it as an aristocratic, European practice that was incompatible with American democracy,” one fact sheet notes. But after slavery was abolished, “many restaurants and railroad operators adopted tipping because it allowed them to ‘hire’ newly freed slaves without having to pay them—they were forced to work only for tips.” The practice was intended “to keep African Americans in an economically and socially subordinate position.”

Even today, “40% of people who work for tips are people of color.” Additionally, studies show that “customers discriminate against African-American servers, consistently tipping them less than white servers, regardless of the quality of service.”

The movement to end the tip-based minimum wage in order to create a single, fair wage for all workers aims to recognize the dignity and worth of all workers. Trump’s proposal would push the United States in the opposite direction, making millions of Americans even more dependent on wealthy customers.