Tax Policy Debate: Exempting Tips and Economic Implications

The tax exemption on tips may benefit employers more than workers, risking fairness among low-wage earners.

### Tax Breaks on Tips: Economic Implications and Political Motivations
* 💼  Former President Donald Trump and Vice President Kamala Harris are both advocating for the **elimination of taxes on tips** for service and hospitality workers, a move that has **raised eyebrows among economic experts**.
* 📉  Experts warn that this policy could **disproportionately benefit employers rather than workers**, potentially **increasing the federal budget deficit** and **perpetuating a culture of tipping**.
* 💵  Currently, tips are classified as income and are subject to various taxes, but the Harris campaign proposes to **only exempt tips from income tax**, which could **cost about $150 billion over a decade**.
* 👥  This tax policy is particularly targeted at Nevada, a swing state with a **high concentration of tipped workers**, yet it would only benefit about **3% of the US workforce**, or roughly **4 million individuals**.
* ⚖️  Economists argue that the policy creates **unfair tax imbalances**, as it would favor certain tipped workers over others, such as delivery drivers, creating **inconsistencies in tax benefits**.
* 📊  The proposal may inadvertently **subsidize low wages for tipped workers**, reducing employers' incentive to **raise wages** and shifting the financial burden onto **customers**.
* 🚫  Critics also express concern that this tax break could encourage a tipping culture, which many Americans view negatively, with **35% believing it has become excessive**.
* 📜  Despite these concerns, the idea is gaining traction in Congress, with legislation expected to be introduced soon, indicating a **growing bipartisan interest** in the topic.

Why ‘No Tax on Tips’ Is a Bad Idea, According to Economists | WSJ

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Tax Exemption on Tips for Service Workers

Both Donald Trump and Kamala Harris are campaigning to eliminate taxes on tips for service and hospitality workers, a move criticized by policy experts.

The proposed policy could benefit employers more than workers, increase the federal budget deficit, and accelerate the tipping culture.

The tax exemption would only apply to about 3% of the US workforce, with many tipped workers already earning too little to pay federal income taxes.

The Flaws of Tax Benefits for Tipped Workers

The proposed tax benefits for tipped workers could create unfair imbalances among low-wage workers, as not all would qualify for the same support.

The policy may inadvertently subsidize employers' wages for tipped workers, reducing the pressure to raise wages and shifting the responsibility for payment onto customers.

Additionally, the tax break could perpetuate and worsen the culture of tipping, which many Americans already view negatively.

Tax Breaks for Tips: A Controversial Proposal

The idea of exempting tips from federal income tax is gaining momentum in Congress, with some lawmakers arguing it could help the service industry.

However, there are concerns that higher-income professionals could exploit the tax break.

The Harris campaign plans to include income limits to prevent abuse, while the Trump campaign has not clarified its approach.

Potential Impact of Bipartisan Support for Legislation

The legislation in question is not expected to pass standalone but may be included in a larger tax bill.

Its profile has risen recently due to discussions by Vice President Harris and Donald Trump, creating bipartisan agreement.

The legislation is likely to be pushed forward and featured in some way in 2025.