Donald Trump made a big promise to the nation’s service workers at his recent campaign rallies: If they send him back to the White House for another term, he will ensure that restaurant servers and other tipped workers no longer pay taxes on their tips.
“No more tax on tips,” the former president said in Detroit on Saturday, first repeating a promise made in Nevada earlier this month.
But there are at least two reasons not to take Trump’s position so seriously. For starters, even Republicans were unwilling to embrace the tip idea after Trump personally pitched it to them at rallies last week. The proposal would add cost and complexity to the Republican Party’s tax plans for next year, when Congress will grapple with a host of expiring tax cuts for households and businesses.
“I think this has more to do with the Electoral College in Nevada than any other policy that has been vetted,” Rep. Richard Neal (Mass.), the top Democrat on the House Tax Committee, told HuffPost.
The other reason for skepticism: Trump’s own record as president.
When presented with the opportunity to help restaurant workers, Trump pursued one instead controversial policy to give employers more control over their employees’ tips. The proposal was intended to allow restaurants to “pool” their servers’ tips and redistribute them to untipped workers, such as dishwashers and cooks. But it was written in such a way that it seemed like nothing could stop companies from appropriating the tips for themselves.
My first reaction is that no one should pay attention to this Trump proposal.Sharon Block, professor of employment law, Harvard Law School
Trump officials bury an internal analysis which showed that tipped workers could lose billions of dollars a year in wages under the plan. “This puts complete control over the tips I give to the owners,” says one server from Illinois raged at HuffPost at the time. Democrats in Congress believed it was necessary to include a provision in a spending bill prevent employers from pocketing the tips.
But they failed to stop a separate Trump policy change for tipped workers. That rule made it easier for employers to pay tipped workers a subminimum wage of just $2.13 an hour for non-tipped work, such as mopping a restaurant bathroom floor. A Labor Department analysis predicted that servers would eventually spend more time on low wages. President Joe Biden reversed significant parts of that rule after taking office.
Sharon Block, a labor law professor at Harvard Law School and a former Biden administration official, said there was nothing in Trump’s record that indicated a desire to improve the lot of service workers.
She noted in an email that Trump never tried to raise the federal minimum wage during his presidency. The standard rate of €7.25 per hour has not conceded since 2009 due to opposition from the Republican Party.
“My first reaction is that no one should pay any attention to this Trump proposal,” Block said of the “don’t tax tipping” concept. “If Donald Trump cared at all about service workers, he would support raising the minimum wage, but instead he is advocating support from corporations who have lobbied to keep the minimum wage at $7.25 an hour for a shamefully long time. ”
Several Republican members of Congress told HuffPost that a tax break for tips was the one specific policy Trump seemed most interested in when he met with lawmakers on Capitol Hill last week.
Under current law, tips are treated the same as regular payroll wages for tax purposes. Employers reported that workers earned more than $38 billion in tips in 2018, according to the most recent IRS data, compared to more than $6 trillion in regular payroll wages. Furthermore, workers likely earned billions more in tips, because tips are often paid in cash and not reported to the government.
Rep. Jason Smith (R-Mo.), chairman of the House Ways and Means Committee, which oversees tax policy, praised Trump’s idea as a tax break for working people.
“Whatever helps improve the lifestyles of working-class Americans who struggle just to put food on the table and clothes on their backs,” Smith said.
However, Smith’s committee did not include a tip tax cut among the various tax policy measures it considered over the past year, and other Republicans sounded skeptical about the proposal.
“I think we want to make sure that we don’t have any unintended consequences when it comes to Social Security, [or] other payroll tax-focused programs that we don’t want to jeopardize,” Rep. Adrian Smith (R-Neb.), a senior Ways and Means member, told HuffPost.
I think this has more to do with the Electoral College in Nevada than any other policy that has been vetted.Rep. Richard Neal (Mass.), top Democrat on the House Tax Committee
Social Security and Medicare rely on payroll taxes to pay benefits, so making tips tax-free would reduce revenue for those programs. Tipped workers may also receive lower benefits when they retire because monthly payments correspond to income tracked by the government, and tips often don’t show up on the books.
“What happens if everyone goes to a tipped wage system? So we need to look at that,” said Rep. Kevin Hern (R-Okla.), chairman of the Republican Study Committee, an influential Republican policy group in the House of Representatives. “I think the president’s team is right. We need to work together through Congress to see how we can actually make that work.”
The Committee for a Responsible Federal Budget, a group that opposes budget deficits, estimated that the tax break would cost the federal government somewhere between $150 billion and $250 billion over the course of a decade, a significant revenue loss while Republicans are already hoping for a plethora of deficit-reducing tax breaks next year.
Another potential problem with a tax cut for tips is that it would result in tipping a major incentive for more businesses to ask customers to tip their employees – also as a replacement for regular wages – at a time when consumers are already frustrated by the increasing demand for tips outside of restaurants.
It’s not clear whether tip taxation will remain a focus for Trump as the campaign progresses. During his meetings with Republicans last week, the former president also proposed scrapping the entire tax code in favor of a system of tariffs on imported goods, which would be a radical change and essentially a huge tax increase on the working class.
Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center, said she had never heard of exempting tips from taxation.
“It’s just going to bring a lot of challenges that can be avoided,” Holtzblatt said.
It would be better to help tipped workers, Holtzblatt said, “by either raising the minimum wage or eliminating tips and putting servers on salaries like the rest of us.”
