WASHINGTON — Economists across the ideological spectrum over the weekend expressed doubts about the cost and feasibility of former President Donald Trump’s proposal to exempt tips from federal taxes if he wins in November.
During a campaign rally in Las Vegas on Sunday, attended by hundreds of thousands work In the restaurant industry, Trump promised service workers that they would no longer have to pay federal taxes on tips if the likely Republican candidate wins a second term.
The approximately 6 million employees in the United States who receive tips Data Although they represent only a compact portion of the country’s 150 million taxpayers and will be available from 2018, the campaign for tax cuts for certain population groups is becoming increasingly crucial in the run-up to the presidential election in November.
“This is the first time I’ve said this, and those who work in hotels and get tips are going to be very happy because when I get into office, we’re not going to tax tips, people who tip,” Trump said. said to cheers at the rally.
Trump said he would do this “immediately, as soon as he takes office,” but that any change to the tax code would require an act of Congress.
Tax code needs to be updated
Large parts of the comprehensive tax of 2017 Law The bills passed by the Trump administration along party lines expire at the end of 2025, and lawmakers and advocates are already drumming up their priorities.
Tipped workers earned an average of $6,000 in addition to their base salary in 2018 and paid a total of about $38 billion in taxes on tips, according to the Internal Revenue Service’s most recent survey. PayIn 2018, the IRS collected a total of about $7 trillion in taxes.
“In terms of macroeconomic impact, they are pretty small,” says Erica York, senior economist and director of research at the right-leaning Tax Foundation.
“When you think about what Congress will be debating next year, one of the biggest challenges lawmakers will face is the revenue impact. Every dollar of tax revenue for one type of tax cut is a dollar less for another type of tax cut. So it’s going to be a real exercise in prioritizing trade-offs between different policy areas,” York said.
Trump has promised to extend all the tax cuts passed under his leadership, but the cost of extending them over the next decade would reach $4.6 trillion, after based on estimates from the Joint Committee on Taxation and the bipartisan Congressional Budget Office.
Trump’s proposal for tipped workers “smacks more of campaign politics than a really well thought out and principled tax policy proposal,” York added. “And I think the big problem with both candidates is that they haven’t fully addressed the question of what they’re going to do with these huge tax shortfalls that are coming next year.”
The Trump team did not respond to requests for further details.
Incentives for working with tips
Andrew Lautz, deputy director of the Bipartisan Policy Center, said that while tipped workers make up only a “small portion” of tax revenue, “we forego a potentially large portion of revenue each year,” depending on how the policy is implemented.
“Our current tax system is certainly not designed to treat all income equally, but this proposal, if enacted, would add a new category of income, so to speak, that is not subject to tax,” Lautz said. “And you know what economic theory would say is that this change, all else being equal, would incentivize people to give tips, which under this proposal are not taxed, as opposed to regular wage income.”
There is also the possibility of “abuse,” he added.
“If Donald Trump is president again next year, and even if he is not, it is quite possible that this proposal will come to the table but will pique the interest of policymakers in Congress,” Lautz added.
Janet Holtzblatt, a senior fellow at the left-leaning Tax Policy Center at the Urban Institute and the Brookings Institution, called Trump’s proposal to eliminate the tax on tips “unusual.”
“Because tips are a substitute for the wages the rest of us get, and if you don’t tax tips, you’re essentially not taxing the tip recipients either. [on] their wages, which gives them a tax benefit on their income. Those of us who don’t work in tipped industries wouldn’t get that tax benefit,” Holtzblatt said.
minimum wage
In several municipalities, wage laws allow employers to pay service workers hourly wages that are well below the legal minimum wage.
Holtzblatt said the “solution” is for municipalities to boost the minimum wage for service workers, for several reasons.
“Tips are not always a predictable form of income,” she said. “And there are big differences. The tip that the waiter gets in a high-end restaurant is very different from the tip that the customer gets in a restaurant.”
President Joe Biden’s campaign responded to Trump’s “wild campaign promises” by saying that Biden supports raising the minimum wage and eliminating the minimum wage for tipped workers. This is “a much bigger deal” than Trump’s proposal, a campaign spokesperson wrote in an email to States Newsroom on Monday.
Ted Pappageorge, secretary-treasurer of Culinary Workers Union Local 226, which has 60,000 members in Las Vegas and Reno, Nevada, said the organization has been fighting for decades “for the rights of tipped workers and against unfair taxation.”
“Tip earners definitely need help,” Pappageorge said in a statement over the weekend. “But Nevada workers are smart enough to distinguish between real solutions and wild campaign promises from a convicted felon.”
