Trump Proposes Making Tips Tax-Free

[The Frankish Reich]

Discuss the economic distortions that such a change in policy would create.

Extra Credit: would illegal aliens be included?

[ChiGoose]

This is a good idea that I would support. 

[The Frankish Reich]

Just now, ChiGoose said:

This is a good idea that I would support. 

So what would stop, say, a lawyer (hah!) from taking his client's credit card for billable hours, then flipping the screen ask the client to add a 15, 20, 25 percent tip?

 

 

[Pokebball]

5 minutes ago, The Frankish Reich said:

So what would stop, say, a lawyer (hah!) from taking his client's credit card for billable hours, then flipping the screen ask the client to add a 15, 20, 25 percent tip?

 

 

Do lawyers normally get tipped? I seriously doubt they'd be included.

[ChiGoose]

5 minutes ago, The Frankish Reich said:

So what would stop, say, a lawyer (hah!) from taking his client's credit card for billable hours, then flipping the screen ask the client to add a 15, 20, 25 percent tip?

 

 

Haha, probably the fear that the client walks out the door and immediately searches for a new lawyer. 
 

In all seriousness, I’d be fine with limiting it to certain industries like hospitality and food and beverage service, etc. 

[The Frankish Reich]

Just now, Pokebball said:

Do lawyers normally get tipped? I seriously doubt they'd be included.

Well, Trump's comment didn't say what occupations it would be limited to. It was obviously aimed at "hospitality workers," generally defined, but how do you define that?

[BillStime]

Yet his Labor Department amended a rule to allow employers more ease in taking workers' tips. This alteration has led to an annual estimated loss of $700 million in wages for tipped workers.

 

New tipping rules will help restaurant owners and hurt workers, advocates say

 

And then there is this:

 

The Trump administration’s overtime rule leaves millions of workers behind

 

From 2017 to 2019, the Republicans held control over the Presidency, Congress, and the Supreme Court. Despite this, they did not make notable progress in areas such as border security, middle-class tax reductions, or infrastructure. They did, however, manage to pass a tax cut for millionaires and billionaires.

Specifically, Trump did not take decisive action to support America. After his loss to Joe Biden, he tried to overturn the government to maintain his power.

 

Like Trump said yesterday, he does not care about his supporters; he just wants their vote.

 

 

 

[Roundybout]

Pass. Income is income and should be taxed. 
 

Really, tipping should just go away in general and workers be paid a fair wage off the bat.

[BillStime]

Just now, Roundybout said:

Really, tipping should just go away in general and workers be paid a fair wage off the bat.

 

Agreed... but I still tip even in those countries where it's not custom.

 

[The Frankish Reich]

Let's think this through (something I doubt the Trump team, which no doubt includes economists, has done):

 

- The Forbes article ways about 45% of tip income isn't reported. So already only 55% of tips are taxed.

- Tipped workers generally received a lower rate of official pay (minimum wage as low as $2.13), provided their reported tip income allowed them to at least hit the minimum wage.

- Trump said this is on his "day one" list (you know, the day where he can be a dictator, but let's set that aside). Since the tax code is set by Congress, I assume he means some kind of executive action that doesn't make tip income excluded from taxation, but rather directs the IRS to take no action against unreported tip income. 

 

So that's all we know now. What will happen?

1. To the extent state law provides, restaurants may be expected to drop official paid wages as low as they can, and to encourage tipping as a substitute. Pay that $2.13 an hour and get $100 an hour tax-free in tips. Employer and employee are happy I guess.

2. Expect any business that is arguably included in the proposal to shift quickly to a tip-based service. Airport skycaps (contract workers) have always been tipped. Ticket counter reps (usually employees, sometimes contractors) will be shifted to a similar tip-based service with a very low official wage. Others who typically haven't been tipped (flight attendants?) would be pushed in the same direction. Housekeeping? Curiously, the main hotel workers union discourages people from tipping hotel maids since that would allow hotel management to drive down official wages. I suspect that would change in the same way - lower official wages, more pressure to tip.

3. Are service charges "tips?" Expect the hospitality industry lobby to say yes. So they can collect the "tips," pay very low official wages, and then distribute the tip money (tax-free) to employees, with no withholding. Obviously that would have to be part of the proposal. Expect these "service charges" to go up sharply.

4. IRS takes in less revenue. The deficit increases, or taxes are raised and non-tipped workers bear a greater share of the tax burden, or spending is sharply cut. I know a lot of people like the spending cut thing. This was Reagan's theory - "starve the beast" - and we all know how that worked out. (Hint: poorly).

5. Service/hospitality work becomes more in demand. Imagine a waiter at a pricey Vegas steakhouse. $2.13 minimum wage, makes about $100 per table in untaxed tips. There's calculators out there to do the math, but here's the basic: if he's at a marginal tax rate of 24% and he makes $100,000, he takes home $76,000 a year. Shift almost everything to tax-free tip income, and he just got a $24,000 "raise."

6. Biden properly takes flack for forgiving student loans, pandering to his base of college grads by giving away money. Trump deserves flack for pandering to what he considers his new base (particularly in a battleground state) by giving away money.

12 minutes ago, Roundybout said:

Pass. Income is income and should be taxed. 
 

Really, tipping should just go away in general and workers be paid a fair wage off the bat.

That's the part I hate the most. It turns us into even more of a tip-based economy. When I was young I used to think that was a third worldly thing, keeping a roll of bills or a pocket of coins to hand out to people doing ordinary things.

Welcome to America 2025.

[ChiGoose]

54 minutes ago, The Frankish Reich said:

Let's think this through (something I doubt the Trump team, which no doubt includes economists, has done):

 

- The Forbes article ways about 45% of tip income isn't reported. So already only 55% of tips are taxed.

- Tipped workers generally received a lower rate of official pay (minimum wage as low as $2.13), provided their reported tip income allowed them to at least hit the minimum wage.

- Trump said this is on his "day one" list (you know, the day where he can be a dictator, but let's set that aside). Since the tax code is set by Congress, I assume he means some kind of executive action that doesn't make tip income excluded from taxation, but rather directs the IRS to take no action against unreported tip income. 

 

So that's all we know now. What will happen?

1. To the extent state law provides, restaurants may be expected to drop official paid wages as low as they can, and to encourage tipping as a substitute. Pay that $2.13 an hour and get $100 an hour tax-free in tips. Employer and employee are happy I guess.

2. Expect any business that is arguably included in the proposal to shift quickly to a tip-based service. Airport skycaps (contract workers) have always been tipped. Ticket counter reps (usually employees, sometimes contractors) will be shifted to a similar tip-based service with a very low official wage. Others who typically haven't been tipped (flight attendants?) would be pushed in the same direction. Housekeeping? Curiously, the main hotel workers union discourages people from tipping hotel maids since that would allow hotel management to drive down official wages. I suspect that would change in the same way - lower official wages, more pressure to tip.

3. Are service charges "tips?" Expect the hospitality industry lobby to say yes. So they can collect the "tips," pay very low official wages, and then distribute the tip money (tax-free) to employees, with no withholding. Obviously that would have to be part of the proposal. Expect these "service charges" to go up sharply.

4. IRS takes in less revenue. The deficit increases, or taxes are raised and non-tipped workers bear a greater share of the tax burden, or spending is sharply cut. I know a lot of people like the spending cut thing. This was Reagan's theory - "starve the beast" - and we all know how that worked out. (Hint: poorly).

5. Service/hospitality work becomes more in demand. Imagine a waiter at a pricey Vegas steakhouse. $2.13 minimum wage, makes about $100 per table in untaxed tips. There's calculators out there to do the math, but here's the basic: if he's at a marginal tax rate of 24% and he makes $100,000, he takes home $76,000 a year. Shift almost everything to tax-free tip income, and he just got a $24,000 "raise."

6. Biden properly takes flack for forgiving student loans, pandering to his base of college grads by giving away money. Trump deserves flack for pandering to what he considers his new base (particularly in a battleground state) by giving away money.

That's the part I hate the most. It turns us into even more of a tip-based economy. When I was young I used to think that was a third worldly thing, keeping a roll of bills or a pocket of coins to hand out to people doing ordinary things.

Welcome to America 2025.

 

I think this is all very fair criticism of the plan and why I’d prefer it to be done by Congress where you can clearly define what industries are included, raise the tipped minimum wage to offset some of the concerns, etc. 

 

I’d also be fine with getting rid of tipped jobs and just paying people good wages for their work.

[Pokebball]

1 hour ago, The Frankish Reich said:

Well, Trump's comment didn't say what occupations it would be limited to. It was obviously aimed at "hospitality workers," generally defined, but how do you define that?

It did say those that normally get tipped

[leh-nerd skin-erd]

3 hours ago, The Frankish Reich said:

So what would stop, say, a lawyer (hah!) from taking his client's credit card for billable hours, then flipping the screen ask the client to add a 15, 20, 25 percent tip?

Wouldn't cranking up a tip on the grossly inflated billable hours be a bridge too far?  

 

 

[thenorthremembers]

4 hours ago, Roundybout said:

Pass. Income is income and should be taxed. 
 

Really, tipping should just go away in general and workers be paid a fair wage off the bat.

Subway employees make 17.50 an hour and still have a tip jar.  Not everyone looking for tips make unfair wages.  

[leh-nerd skin-erd]

21 minutes ago, thenorthremembers said:

Subway employees make 17.50 an hour and still have a tip jar.  Not everyone looking for tips make unfair wages.  

 

4 hours ago, Roundybout said:

Pass. Income is income and should be taxed. 
 

Really, tipping should just go away in general and workers be paid a fair wage off the bat.

It always seems that people who are successful in industries where tipping is the standard (restaurants, bars etc) seem to prefer the lower wage, higher potential earnings standard.  In fact, they seem to thrive in it.  Others with less skill in that regard, not so much.  

[ChiGoose]

Now that I think of it, I wonder if Trump received some good polling in Nevada which drove him to say this. 
 

Nevada is heavy in the service and hospitality industries. If the state is close (which it appears to be), this could push it Trump’s way. 

[Joe Ferguson forever]

It's a good idea.  details can be worked out.  But let's see if actually does it given billsy's post re the windfall to service worker employers.  I'm sure he has donors in that group.  It' probably important to Native Americans given their casino towns.

[phypon]

4 hours ago, Roundybout said:

Pass. Income is income and should be taxed. 
 

Really, tipping should just go away in general and workers be paid a fair wage off the bat.

Well, Hell just froze over.  I agree with this.  Tipping has become guilt incentivized over the last few years as well.   I've noticed that since covid, tip jars are in places that they normally weren't.  People picking up take out food that pay with a card of some sort have a receipt with a tip line on it and you get to fill it out next to said tip jar. 

 

I'm not a hundo percent on this one, so someone please double check me here (tips welcome), but I've heard that the US is one of the few countries that actually participate in the practice of tipping.  If I pay for a service, why the hell should I have to pay you extra because your employer is not paying you what you are worth.  It's the biggest con going.

 

As far as paying taxes on tips goes for certain industries such as waitresses/waiters and others in say the hospitality industry (I'm sure all of the adult entertainers will be happy), I'm on the fence with them being exempt. I'm kind of tired of certain groups here or there getting exemptions that don't apply to the rest of us. I think we've been led to believe for many years now that people working in the hospitality industry that work on tips don't make much money and are "poor".  That's total BS.  They do just fine.  We've been led to believe from movies and such that every waitress works in some run down diner and lives in a cardboard box.  It's simply not true.  It's a respectable industry and the business owner should pay their help, not me.

 

I understand Trump's position on this one, but I think it's coming from an antiquated lens.  Part of me says, "more power to them for not having to pay taxes on their tips"...but that means that I'm going to have to take up the slack.  I'm not really down with that.  As of right now, I'm 50/50 on this one.  I'd rather see no more tipping like most other countries.

[L Ron Burgundy]

5 hours ago, Roundybout said:

Pass. Income is income and should be taxed. 
 

Really, tipping should just go away in general and workers be paid a fair wage off the bat.

Yeah I'm fine with letting them not pay taxes but this is better. 

 

We're the only country that does this.  And I HATE when I'm asked to tip outside the normal situations.  I end up tipping and wondering if I'm the sucker.

[phypon]

13 minutes ago, L Ron Burgundy said:

Yeah I'm fine with letting them not pay taxes but this is better. 

 

We're the only country that does this.  And I HATE when I'm asked to tip outside the normal situations.  I end up tipping and wondering if I'm the sucker.

I agree.  I think it's a pretty shady shady tactic and only helps the business owner.  It's just stupid and make no logical sense.  The price of an item should be the price of an item, plain and simple.