Last weekend, a candidate for president said he wanted to get rid of taxes on tip income in a key battleground state. This made critics nervous because they thought it would be a bad idea to give people a tax break.
This time, the idea was first brought up by Vice President Kamala Harris at a rally in Las Vegas on Saturday. The idea was first brought up by former President Donald Trump in the same city, which has a lot of workers who get tips, two months earlier.
Some people, including Trump, who called the Democratic nominee a “copycat” a few days after Harris’s announcement, don’t see much difference between the two candidates’ ideas.
He wrote on his social media site, Truth Social, “This was a TRUMP idea. She has no ideas, she can only steal from me.”
The Harris campaign has given some details to set her plan apart, pointing out that it would go along with a push to raise the minimum wage. The exemption would only be given to people with a certain amount of income, and the campaign said that “strict requirements would stop hedge-fund managers and lawyers from structuring their pay in ways that try to take advantage of the policy.”
The campaign confirmed that any changes to the law that would allow such an exemption would only affect income taxes and not payroll taxes. Social Security and Medicare are paid for by payroll taxes.
The proposal gives Harris a new way to talk about her tax views as her campaign heats up. Before he stopped running for re-election last month, President Joe Biden hadn’t said anything about ending taxes on tips.
The “No Tax on Tips Act” was introduced by Republicans after Trump’s plan. Some Democrats are now also in favour of the bill. Notably, Nevada’s two Democratic U.S. senators are among them.
“An attempt to deal with the affordability crisis on a surface level”
But some people aren’t sure that not taxing tips is a good idea, no matter who is pushing it.
The policy is catchy, so it makes sense from a political point of view, said Erica York, a senior economist at the Tax Foundation, a think tank leaning to the right. “As far as policy goes, it’s a very bad idea.” It’s not a good way to help working-class people pay less in taxes. It’s a smart move. It’s not a good idea.
York also said that the exemption would only help a small group of taxpayers who get tips on the job and then report that income on their taxes. It would also be hard to put into place because of the limits on income and profession.
To her, a better way to help everyone would be to increase the standard deduction, which lowers taxable income for everyone, no matter what they do for a living.
People are already having a hard time with tip requests that are becoming more common and start at higher rates. York said that people might tip even less if they know that some workers are getting a tax break. This would make the plan to get more money for tipped workers backfire. “We don’t know for sure what the behavioural effects are,” she said.
Some labour activists say that the real problem is that workers who get tips are paid less than the minimum wage. People who get tips only have to get $2.13 an hour in direct pay as long as the total amount they get in tips is at least $7.25 an hour. Feds say that someone is a tipped worker if they get more than $30 a month in tips.
“As our group said when Trump proposed a similar policy, getting rid of taxes on tips is just a surface-level attempt to fix the affordability crisis that service workers are facing,” said Saru Jayaraman, president of One Fair Wage, a group that wants to get rid of subminimum wages.
There are a lot of different state minimum wages and minimum wages for people who get tips. Nevada is one of only seven states that doesn’t have a lower minimum wage for people who get tips. Its minimum wage is $12, and it’s also one of only nine states that doesn’t have an income tax.
When asked right away, the Harris campaign did not say if its call for a higher minimum wage also included the minimum wage for tips.
In her speech, Jayaraman said that the federal tipped minimum wage has not been raised in thirty years.
In a statement, she said, “The Harris-Walz campaign should demand that all workers be paid a living wage plus tips.” “This is where the Harris-Walz campaign can make a difference in the lives of working people who get tips.”
People who are worried about the budget deficit are also worried about the bill that would come out of Trump and Harris’s ideas.
A nonpartisan group called the Committee for a Responsible Federal Budget says Harris’s plan could add $100 billion to $200 billion to the federal debt over ten years. The group predicted that Trump’s idea could bring in an extra $150 billion to $250 billion.
Goldwein, the group’s senior vice president and senior policy director, said that the difference in those amounts is because the Harris campaign said that payroll taxes would not be waived. Adding payroll taxes to the plan lowers the cost, but raising the minimum wage adds to the cost.
Goldwein said he was worried about how the candidates were “tit for tat” about who they would cut taxes for to beat out the other candidates.
“Our kids and grandkids will have to pay a big bill, and we’ll have to pay more in interest than we already do,” he said.
Nevada is on the way to victory.
Still, the idea is gaining support. This happens at a time when the tax debate is about to get even louder, because next year, most of Trump’s tax cuts will end.
Last month, Sen. Ted Cruz of Texas, a well-known Republican and Trump supporter, said that the GOP presidential nominee could get most of the votes in Nevada, a swing state, because he wants to get rid of taxes on tips. Cruz was the first senator to support the No Tax on Tips Act.
Cruz said, “I think Trump wins Nevada on that one issue alone.” He was referring to the fact that many workers in the state get tips. During the Republican National Convention, on July 17, he said these things in Milwaukee at a meeting about economic policy.
A Cruz spokesperson said about Harris’s campaign promise, “It’s not surprising that Kamala Harris would also try to support the policy. But voters will rightly ask why she and Democrats spent the last three and a half years raising taxes and promising to send the IRS after average Americans.”
Numerous times, Republicans have brought up studies that say the Democrats’ Inflation Reduction Act could cause tax hikes for almost all income groups and cause worries about the IRS getting more money. Biden promised that if he becomes president, he will not raise taxes on people who make less than $400,000.
A trade group for the restaurant business that had backed the No Tax on Tips Act liked the latest development.
Sean Kennedy, executive vice president of public affairs at the National Restaurant Association, said, “We’re glad that the idea of getting rid of taxes on tips is still being talked about on Capitol Hill and during the election.” “These workers are very important to the hospitality that keeps restaurants open in every town.”
After Harris’s rally, the Culinary Union told lawmakers they should back a higher minimum wage and “no taxes on tips for service and hospitality workers.”
Ted Pappageorge, the secretary-treasurer of the Culinary Union, said, “Nevada and the Culinary Union are the way to victory.” He also said that the union “will deliver Nevada” for Harris and her running mate, Minnesota Gov. Tim Walz.
Last month, after Nevada’s two Democratic senators joined the No Tax on Tips Act, Pappageorge said he supported it. He had earlier said that Trump’s idea was bad and called it a “wild campaign promise.”
