Vice President Harris and former President Donald Trump don’t agree on much — especially when it comes to economic policy. But they both want to get rid of tax on tips.

At a campaign rally in Nevada, Harris joined Trump in supporting tax-free tips.

“It is my promise to everyone here, when I am president, we will continue to fight for working families, including raising the minimum wage and removing taxes on tips for service and hospitality workers,” Harris told a crowd at the University of Nevada in Las Vegas on Saturday.

Trump has been campaigning for the “no tax on tips” policy since June, after a Las Vegas server told him the government was taking too big of a cut from her tipped wages. Trump touted this policy in Milwaukee during the Republican National Convention.

But shortly after Harris promised to scrap taxes on tips this weekend, Trump criticized the move as being made for “political purposes.”

“This was a TRUMP idea – she has no ideas, she can only steal from me.” Trump wrote about Truth Social. “Remember Kamala has proposed the BIGGEST TAX INCREASE IN HISTORY – it’s not going to happen.”

In response, a Harris campaign official told NPR that the vice president’s policy proposals differ from Trump’s — and she intends to deliver on them.

“As president, she would work with Congress to craft a proposal that would come with an income limit and with strict requirements to prevent hedge fund managers and lawyers from structuring their compensation in a way to try to take advantage of the policy,” said the official, who is not authorized by the campaign to speak publicly, said. “Vice President Harris would push the proposal alongside an increase in the minimum wage.”

Regardless of its origin and ownership, the idea of ​​no tax on tips is gaining partisan political steam. On Capitol Hill, Sen. Ted Cruz, R-Texas, introduced No Tax on Tips Act in July sponsored by Democratic Sens. Catherine Cortez Masto and Jacky Rosen, of Nevada, and the mighty Culinary Workers Union Local 226. A companion invoice — introduced by Florida Rep. Bryon Donalds — is also on its way through the House.

But for Urban-Brookings Tax Policy Center Senior Fellow Steve Rosenthal, this idea is “bad.”

“We’re in a campaign season — silly season,” said Rosenthal, who has years of experience crafting tax rules for Congress. “A race to the bottom would be a better way to describe tax policy here.”

For Rosenthal, the idea fails on three counts: equity, efficiency and revenue.

A national ban on taxing tips would disproportionately benefit, for example, a server in South Carolina who earns a reduced minimum wage and earns a large portion of his income through tips. Whereas a server in California, where tips make up a smaller portion of their income, would benefit less.

“Why treat employees, who perform similar types of services, very differently from a tax standpoint just because one earns a tip and the other doesn’t?” said the tax attorney.

Rosenthal went on to say that a no-tax-on-tips law would be extremely difficult to effectively administer, regulate and monitor.

“How will we know who is getting a tip and when that tip goes over a wage limit?” Rosenthal said. “How are we going to prevent investment banks, for example, from being tipped? And if we impose income limits, well, wouldn’t we expect low-wage workers to just demand a tip rather than compensation?”

Ultimately, he said, it would distort the labor market. But the biggest obstacle for Congress is the money they would lose.

“The revenue from this proposal to exempt tips from taxation is about a couple of hundred billion over a ten-year period,” he said. “That’s a big number for Congress to swallow.”

Garrett Watson, senior policy analyst at the Tax Foundation, largely agreed with Rosenthal.

“The underlying political foundation, I think, is tenuous at best,” Watson said.

He also pointed to a new one study from The Budget Lab at Yale University, which found that only 2.5% of workers would benefit from a no-tax-on-tips policy.

Despite this, Watson said he is eager to get more information from both campaigns about how they plan to implement this relatively new tax proposal.

“A lot of tax ideas that come up have had years or decades of ideas behind them,” Watson said. “Here, not so much. So I definitely think there are versions of this that are more defensible than others in terms of policy making.”

While Vice President Harris voiced his support for the no-tax-on-tips policy Saturday, the Culinary Workers Union Local 226 endorsed the Democratic presidential candidate and her new political position.

“As the largest organization of working women in Nevada, the chance to elect America’s first female president is both energizing and historic, and we are ready to make history together,” the union said in a statement during the weekend. “The Culinary Union has led the fight for over 30 years for the fair taxation of tips and our union supports the ban on tipping taxes.”

So far, neither campaign has released their full proposal for tax-free tips.

Copyright 2024 NPR

Loading…