Vice President Kamala Harris’ call to repeal the tip tax adds to bipartisan support for a proposal her rival, former President Donald Trump, floated two months earlier. But the fate of the policy idea could hinge on broader disagreements over base salaries, regardless of who wins the election.
Unlike Trump, Harris proposed combining the elimination of federal taxes on tips with an increase in the national minimum wage, which has been $7.25 an hour since 2009.
However, many tipped earners are paid a much lower “subminimum” wage, requiring employers to make up the difference when tips don’t add up to the federal minimum wage limit. The U.S. subminimum, which a handful of states have replaced with general hourly minimums, has been $2.13 an hour since 1991.
“It’s heartening that everyone is talking about it,” 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 the wages of these workers and end the minimum wage for tipped workers,” she said.
Without those changes, Jayaraman — who blasted Trump’s plan in June as a “phony solution” — said she would not support a standalone tip tax proposal. “The most important issue for Black voters, Hispanic voters, and young voters this cycle is the cost of living and living-wage jobs,” she added.
That criticism came amid concerns from fellow labor activists that the proposal — which GOP lawmakers turned into legislation backed by the National Restaurant Association — would incentivize business owners to have more of their workers tip to save on taxes. Harris’ campaign said the plan would include strict rules to prevent that.
The National Restaurant Association, which represents major food and beverage chains, did not directly comment on Harris’ proposal but reiterated its support for the No Tax on Tips Act, which Sen. Ted Cruz, R-Texas, introduced in July. A spokesman 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’re all feeling the pressure of higher prices.”
Tax experts note that many tipped earners earn too little to pay federal income taxes, and the approximately 4 million workers in tipped industries are far outnumbered by non-tipped hourly workers who are subject to minimum wage laws. Some tax policy analysts also say that tipping would be tax-exempt and difficult to implement.
The growing focus on tip income comes as consumers are becoming increasingly stingy, with studies indicating that many tip-weary customers are tired of being asked to make sure baristas and servers make enough to live on. The policy debate also coincides with a growing push to raise minimum wages and abolish subminimum wages.
While support for a higher base wage is broader among Democrats on Capitol Hill, some Republicans in Congress, including Trump’s running mate, Sen. J.D. Vance of Ohio, co-sponsored a minimum wage increase last year. But that policy was tied to a requirement for companies to ensure that workers are authorized to work in the United States. Trump, for his part, has taken mixed positions on the minimum wage since entering politics. A campaign spokesman did not immediately respond to a request for comment.
At least 25 states and Washington, D.C., have raised their minimum wages in the past year under legislation already passed, while 20 have raised their tipped wages. In recent months, there has been more movement in the courts and also at the ballot box.
The Michigan Supreme Court this month cleared the way for the state’s subminimum to be abolished by early 2029. Jayaraman said One Fair Wage, which has pushed similar changes in many states, is optimistic about the effort in Massachusetts, where a similar bill is on the ballot in November. She also noted that Chicago began working to abolish the subminimum last month.
Tip earners have already benefited in some places where the base wage has recently increased.
Servers and bartenders in Chicago at establishments using Toast’s payments platform earned a median hourly wage of $9.48 in the first quarter of 2024, up from $9 in the same period in 2022, the software provider found. In Washington, D.C. — which passed a measure last year to gradually raise its base wage to $10 an hour — servers and bartenders earned a median of $8 an hour in the first quarter, up from $5.05 in 2022.
One potential downside: Average tips in the district dropped and only partially recovered after the change took effect, Toast found.
Heather Clark, 37, a weekend bartender at Shigs at the Pit, a barbecue joint 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’s call for a tax break on tips along with a pay raise sounds 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 have to have it right now.”
Clark, an independent who told NBC News in June that Trump’s tip tax plan wasn’t enough to earn her vote, said this week she’s supporting Harris.
The fine print of such a plan could matter to tip earners. Cruz’s bill broadly applies to “cash tips,” while Harris specifically mentioned “service and hospitality workers” in her weekend speech.
“Once I heard about it, I started keeping an eye on it,” says Steven Garrett, a barber from Montgomery, Alabama.
The 40-year-old married father of five closed his Tuskegee barbershop in 2022 due to high rent and equipment costs and took a full-time job at a social services nonprofit for more financial stability. Garrett said he makes about $50,000 a year, but still makes about $15,000 extra from his barbering — and that he’d like to pocket more by filing tips separately and claiming an exemption.
“Sometimes I got more tips than I earned from the services,” he said.
Any relief for tip earners would put a dent in federal coffers if it wasn’t compensated for. The nonpartisan Committee for a Responsible Federal Budget estimates that Harris’ proposal would reduce government revenues by $100 billion to $200 billion over 10 years. An assessment of Trump’s proposal predicted a deficit of $150 billion to $250 billion over that period.
This article was originally published on NBCNews.com
