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Experts say no tax on tips will not benefit workers

Both candidates have been vague on the "how" of the proposal, but is it even realistic?
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It's rare, especially in today's political climate, to see an issue that Republicans and Democrats are united on. Whoever wins in 2025, tax policy will be high on Congress' agenda next year as the Trump era tax cuts expire. But for taxes on tips, this may be an issue that keeps the politicians on one side and the experts on the other.

Both candidates have been vague on the "how" of the proposal to stop taxing tips, but is it realistic?

To find out, Scripps News asked tax expert Steven Rosenthal, who said, "When I hear the political parties agreeing, I put my hand on my wallet because the only agreements that we seem to have these days are fiscal giveaways. We tax policy professionals are always uncomfortable during campaigns — what we call the silly season. It's one of those proposals that sounds good and may resonate politically, but it scores very badly on our tax policy scorecard."

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Rosenthal explains that when it comes to tax policy, this idea is a tax loser — on equity, efficiency and revenue.

"Well, here it's a pretty large raiser. The best estimates seem to be around a couple of $100 billion over the 10-year congressional budget window, and that's a large number, and that's a static number that does not even account for all the losses that would occur as more and more workers relabel their compensation tips, and tax-exempt from wages," he said, adding that the cuts will add to the deficit, while helping only a small fraction of workers.

According to the Budget Lab, a nonpartisan policy research center, there were 4 million U.S. workers in tipped occupations last year, or about 2.5% of all employees. More than one-third of those had income low enough to already not pay federal income tax.

SCRIPPS NEWS' SERENA MARSHALL: Would a better solution be to increase taxes on corporations, to pay those folks sustainable wages, livable wages?

STEVEN ROSENTHAL: I think that much of the service force does not earn enough income to pay income taxes. So if you're trying to think about a proposal that tries to benefit the lower- and middle-class workers more than the higher-income workers — you really wouldn't look to exemptions for tips. You'd look to increasing the minimum wage.

The federal minimum wage remains at $7.25 an hour, which was last updated in 2009. When adjusted for inflation, that's a rate of 29% less per hour than their counterparts made 50 years ago.

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