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Those of you who have followed this media outlet for some time know I was harshly critical of former president Donald Trump on a host of different fiscal issues. As a candidate in 2016, Trump promised significant tax relief for the middle class – and pledged to dramatically reduce deficit spending.
Neither of those things happened.
Unlike most “conservative” media – who conveniently ignored Trump’s fiscal betrayals – I began calling him out the moment he started reneging on his campaign promises back in 2017. And I continued to do so as his bad decisions escalated – and then escalated further.
None of this is to say Kamala Harris would be better on fiscal issues. She wouldn’t. In fact, she would likely be exponentially worse. But anyone who believes Trump 2.0 is the fiscal conservative champion America needs to right its sinking ship is deluding themselves.
Trump’s only articulated tax proposal this go-round – aside from making the modest tax cuts he signed in 2017 permanent – would be to eliminate taxes on tips.
Wait… which taxes on tips? The former president doesn’t say.
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RELATED | AMERICA’S FINANCES ARE TEETERING ON THE BRINK
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“We will eliminate taxes on tips for millions of restaurant and hospitality workers,” the recently adopted GOP platform (.pdf) stated.
There are two ways to cut taxes on tips. A bill introduced by Ted Cruz in the Senate (here) would specifically exempt tips from being taxes as income. Meanwhile, legislation introduced in the House by Matt Gaetz and Thomas Massie (here) would exempt tips from both income and payroll taxes.
Sounds good, right? Yes. From a purely political perspective, “no taxes on tips” is a home run. The problem – well, the first of many problems – is not a lot of people are currently working in tipped positions. According to a recent study from Yale University, an estimated 4 million people worked at tipped jobs in 2023. That’s a big number, to be sure, but it accounts for only around 2.5 percent of America’s workforce.
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Tipped workers aren’t even an especially large slice of the nation’s low-income workforce, the study found.
“This share does not rise substantially when just looking at low wage employment,” the Yale report added. “Among workers in the bottom half of hourly wages — those earning below $25 an hour in 2023 — less than 4 percent were in tipped occupations.”
The next big problem with Trump’s plan? It seems to apply to only to a small percentage of workers within this tiny slice of the economy. A Census-based report (.pdf) from the left-leaning One Fair Wage organization – which should be taken cum grano salis, obviously – found 66 percent of tipped workers either did not earn enough income to pay federal taxes or belonged to households which did not earn enough income to be taxed.
Even those “helped” by the tax cut could wind up being hurt, according to columnist Peter J. Reilly. In a column written for Forbes, Reilly explained how the House bill in particular could wreak havoc on the annual tax refunds received by many tipped workers owing to its reduction in their overall earned income.
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“The argument in favor of the no tax on tips proposal seems pretty weak,” Reilly concluded. “Proposed legislation does little or nothing for or actually harms low-paid servers.”
That’s not to say the concept is entirely without merit. Certain tipped workers would benefit if both income and payroll taxes were scrapped, according to an analysis (.pdf) from the Congressional Research Service. And employers – including small businesses which have borne the brunt of the post-Covid economy – could see benefits.
“For the workers (particularly lower-income workers) who pay more in payroll taxes than income taxes, excluding tips from payroll taxes would provide a larger benefit than excluding tips from income taxation would,” the report found. “Doing so could also benefit those who employ tipped workers, so long as their employer-side payroll taxes would have exceeded their tip credits against income taxes.”
The report also noted how employers “could better compete for workers by offering compensation in untaxed tips rather than taxed wages or salaries,” while also benefiting “from the share of any foregone employer-side payroll tax
they retained, rather than passed on in the form of lower wages.”
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Bottom line? I support tax relief that puts more money in people’s pockets – irrespective of their income bracket – and which stimulates job growth and income growth. I am especially supportive of tax relief for low- and middle-income earners who have been absolutely ravaged by out-of-control inflation.
To the extent Trump’s proposal does that, I support it as an option for low-income workers – and their employers.
Having said that, Trump needs to specify what his proposal would actually do – i.e. which taxes on tipped income he would cut. More importantly, he needs to show his work on how whichever proposal he supports would improve the financial position of tipped workers.
Most importantly, Trump must do better – significantly better – on the tax front than just maintaining the status quo for the remaining 97.5 percent of the American workforce. So far, the only thing his party’s platform promises to do is to “pursue additional tax cuts.”
Based on Trump’s first-term fiscal failures, such language is hardly inspiring …
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ABOUT THE AUTHOR …
Will Folks is the owner and founding editor of FITSNews. Prior to founding his own news outlet, he served as press secretary to the governor of South Carolina, bass guitarist in an alternative rock band and bouncer at a Columbia, S.C. dive bar. He lives in the Midlands region of the state with his wife and eight children.
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8 comments
Does that mean when employers steal their employees tips they won’t get taxed? Asking for a friend.
LOL! Good question!
Now I understand Trump’s plan. He pretty much only hires foreigners at his golf courses and resorts, so it’ll give his businesses another huge tax-break.
Thank god there are brave websites like this one to protect business owners from paying taxes.
How’s that Republican tax break for welfare bloggers going since the pandemic loan?
Trump should have said he was giving Stormy a tip. Problem solved.
Like Trump came up with this stupid idea….probably some douche at Mar largo or whatever passed it off on him.
In SC, nearly all tipped jobs pay less than $3 an hour base pay. Sure, don’t tax the tips that make up 90% of your total pay. Good luck, with a tax refund. Need unemployment….oops. When it comes time to calculate your Social Security payments….. ah, who are we kidding republicans will have done away with SS by then.
Republicans need to figure out something fast! Kamala is going to destroy them in November. Kamala is working for healthcare for tipped workers and everyone else.
Good article, Will! Thank you for qualifying your article with the fact that Trump was not great about keeping his promises (despite Trumptardians constantly bleating that stupid and false “Promises made, promises kept”, bs). Trump has also been making noises about taking the taxes on Social Security off. For many of us, that would be wonderful, but I know as sure as the sun will rise tomorrow, it will never happen. The talk about taking taxes on tips and SS is nothing more than election year blather. Sadly, many pitiful souls, devoid of critical thinking skills and abilities, are likely counting on Trump to fulfill those promises.
Also, you are correct about Kamala probably being many times worse than Trump, on multiple issues. Fact is, neither has earned my vote for 24. Trump got my vote in 2016. Never again.
As long as you don’t vote (like it ever mattered in 2016) our country is safe.
I have a few thoughts on this one:
1. My gut has always told me that a large portion of tip income was never claimed as income anyway. With the increase in card payments, that amount has certainly gotten smaller, as it’s much harder to hide that under the table.
2. A lot of lower income taxpayers qualify for the Earned Income Credit, which gets them “refunds” that they never even paid in. This exemption would lower earned income, and actually result in a smaller “refund”.
3. Social Security benefits probably make up the lion’s share of retirement income for former low-wage workers. If tips are no longer subjected to payroll taxes, the employee’s future benefit will decrease.