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President Trump speaks at a rally at Circa Resort & Casino on Saturday. The event focused on Trump's first week in office, including his proposed policy to eliminate taxes on tips for service industry employees. Ian Maule/Getty Images/Getty Images North America hide caption
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Ian Maule/Getty Images/Getty Images North America
President Trump at a rally Saturday promised to fulfill his campaign pledge to eliminate taxes on tips.
"In the coming weeks, I'll be working with Congress to get a bill on my desk that cuts taxes for workers, families, small businesses, and very importantly, keeps my promise," said Trump. "We're gonna get it for you — no tax on tips."
The president, speaking at a casino in Las Vegas, said tax cuts are at the top of his legislative agenda for this new Congress.
"If you're a restaurant worker, a server, a valet, a bell hop, a bartender, one of my caddies," the president said, "your tips will be 100% yours."
Trump's comments came in a 40-minute speech over the weekend that sounded like a victory lap more than a policy plan. The president rattled off a list of changes he's made and proudly spoke about already taking "nearly 350 executive actions to reverse the horrible failures and betrayals" that he inherited. Trump had issued dozens of executive orders, actions and memoranda since his inauguration last Monday.
Trump first floated the idea of "no taxes on tips" in this same city last June during a campaign rally. "When I get to office we are not going to charge taxes on tips, on people making tips," Trump said at the time, promising that he would do this "right away, first thing in office."
The four-word slogan was plastered on billboards and the Democratic presidential candidate, Kamala Harris, introduced a similar version of the idea. It was so popular amongst a subset of voters that Trump credits it with helping him win the key state of Nevada in the presidential election.
A president can't unilaterally change the tax code. But large portions of Trump's sweeping 2017 tax law are set to expire at the end of 2025 and that would allow Congress an opportunity to amend existing tax policy.
Earlier this month, the two Democratic senators from Nevada joined forces with a group of Republicans to reintroduce legislation that would exempt tips from federal income taxes. "It's something that could bring more people into the restaurant workforce. We are an industry that is chronically understaffed," said Sean Kennedy with the National Restaurant Association, which has endorsed the bill.
But even if this "no taxes on tips" idea has some support from industry and some bipartisan political support, tax experts and economists don't love it.
"I think it is actually terrible policy," said Heidi Shierholz, president of the Economic Policy Institute, and a labor economist in the Obama administration. "If you really want to help tip workers, do it directly through raising the federal minimum wage and phasing out the tipped minimum wage."
She says she's concerned this policy might slow the momentum to overhaul the tip worker minimum wage.
The federal minimum wage for tipped workers is $2.13, though certain states have set a higher benchmark.
"There is no real economic merit to the idea," said Bill Gale, co-director of the Urban-Brookings Tax Policy and an economist in the George H.W. Bush administration. "It's not a good way to help low income workers because the vast majority of low-income workers don't get tips." That's a point Alex Muresianu, a senior analyst at the Tax Foundation, echoed.
"Why should a waiter who earns a big chunk of their income from tips get a very large tax cut and the cashier who earns, you know, little to nothing in tips, why should they not get a tax cut?" he said.
According to the Budget Lab at Yale University, a vast majority (over 90%) of hourly low-income workers are not tipped.
And so Muresianu, Gale, and Shierholz all argue that creating a carve-out solely for tip workers could open the system up to more abuse, where high-income earners reclassify their income as tips. Gale also said it would make the tax code "more complicated."
"And to do this at the same time, you know, they're trying to cut IRS funding is just yet another example of why it's a bad idea," he added.
Then there's also the issue of lost revenue. The Committee for a Responsible Federal Budget estimates that eliminating tips from federal income and payroll taxes could reduce revenues by $150 billion to $250 billion over 10 years.
Despite the experts' misgivings, the idea remains politically popular.
"I would say economists have never worked for $2.13 an hour, so I don't listen to a lot of what they're saying," Ted Pappageorge with Nevada's culinary union told NPR in response to the concerns experts have raised.
Pappageorge, said the union, which represents some 60,000 hospitality workers in the state, welcomes the idea of eliminating taxes on tips.
"It needs to happen," he said, adding in the same breath, that he also wants to see an increase in the minimum wage for tipped workers.
"The reality is both are helpful. And we are challenging President Trump and the Republicans and the Democrats to do both," saying he appreciates the idea of eliminating taxes on tips but he's also going to keep fighting for the other issue too.
"This idea of $2.13 an hour is just obscene," he said. "It really is."
And so he'll take the policy changes he can get for now. Because, he says, no taxes on tips helps lower the cost of living for working families who need immediate relief.
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