Trump Promises No Taxes On Tips: The Pros And Cons Explained

68
0

Former President Donald Trump has doubled down on his latest campaign promise to eliminate federal taxes on tips for service workers—a clear appeal to working class voters—and Senate Republicans jumped to introduce related legislation, but he’s encountering critics on the left and right who claim the idea offers little relief to workers, and could lead to increased taxes on everyone else.

Trump introduced the proposal in a June 9 campaign stop in Nevada, and has made the proposal his latest pitch in his platform, asking followers at a campaign stop this week to write on their restaurant receipts to “vote for Trump because there’s no tax on tips,” and posting Saturday morning: “WITH TRUMP, NO TAXES ON TIPS!!!”

Republican Senators, including Sen. Ted Cruz, Texas, and Sen. Rick Scott, Fla., have since introduced a bill this week to exempt tips from federal income tax, including tips from cash, checks or credit cards.

If approved by the House and Senate and signed into law, the so-called No Tax on Tips Act would allow taxpayers to claim a 100% deduction for tipped wages.

Not taxing tips could lead to a $150 billion to $250 billion loss in federal revenue from the exemption over the next 10 years, according to an estimate from the Committee for a Responsible Federal Budget.

The promise comes after Trump promised top business leaders he would further cut the corporate tax rate from 21% to 20%—after cutting it from 35% to 21% in 2017, part of a package set to expire in 2025.

Breaking News Text Alerts: We’re launching text message alerts so you’ll always know the biggest stories shaping the day’s headlines. Text “Alerts” to (201) 335-0739 or sign up here.

Trump said on his Truth Social campaign account he would “eliminate taxes on TIPS for restaurant workers, hospitality workers, and anyone else relying on tips.”

Restaurant and hospitality workers’ tips are subject to both income and payroll taxes, according to the federal Committee for a Responsible Federal Budget. The IRS also states cash and non-cash tips are considered income and subject to federal income tax.

If an employee’s tips are less than $20 in a single month, they are not taxed, and many tips—especially when they’re cash—go under the table. The CRFB notes tips are “notoriously underreported.” In 2016 alone, the Treasury Inspector General for Tax Administration identified over 15,700 employers with roughly $6.3 billion in unreported tip income.

Trump also has not stated whether his proposal would exempt tips solely from federal income tax, or whether it would also exempt tips from payroll tax, the federal tax used to fund Medicare and Social Security. As it stands, the Senate bill only includes an exemption for income tax.

Saru Jayaraman, president of advocacy group One Fair Wage, argued the proposal “may appear beneficial,” but claimed they distract from the “fundamental problem of low and subminimum wages.” The Wall Street Journal’s conservative editorial board, meanwhile, criticized the proposal as Trump “playing Biden-lite with tax handouts” that would lead to other tax increases, saying impacted workers “need rising incomes and better job opportunities.” Howard Gleckman, a fellow at the Urban Institute and Brookings Institution’s Tax Policy Center added the proposal could “benefit few tipped workers and hurt many,” and slow decades-long efforts to raise the minimum wage for service employees who rely on tips. Elyanna Calle, a union organizer with Restaurant Workers United also slammed the proposal, calling it a “misguided way of trying to fix a problem of uplifting the lower class.”

Nearly $4 trillion. That’s how much Trump’s 2017 Tax Cut and Jobs Act would cost between 2025 and 2035 if they are extended past their current 2025 expiration, according to the Congressional Budget Office.

[Read More…]