(qlmbusinessnews.com Tues. 10th Aug, 2024) London, UK —
“Tax-Free Tips: A Bipartisan Proposal from Trump and Harris in 2024”
In the intensely polarised landscape of the US presidential campaign, a surprising consensus has emerged: tips should not be taxed. Former President Donald Trump, the Republican nominee, was the first to introduce this proposal, unveiling it at a rally in June. Vice-President Kamala Harris, the Democratic contender, endorsed the idea this weekend, prompting the Trump campaign to dub her “Copy Cat Kamala.”
This policy proposal is designed to appeal to Americans working in service industries, including restaurant staff, bartenders, hairdressers, and taxi drivers, many of whom rely heavily on tips as a significant part of their income.
Why Does This Matter?
Both Trump and Harris chose Nevada—a key battleground state—to announce their support for the initiative. Nevada’s economy is heavily dependent on the service industry, with more than 20% of its workforce employed in restaurants and hotels, especially in its famous Las Vegas casinos.
Trump has claimed that his advocacy for this policy began after a conversation with a waitress who lamented the taxes deducted from her tips. The Republican Party, traditionally a proponent of lower taxes, has since adopted this proposal into their official platform, with several related bills currently circulating in Congress, backed by restaurant industry lobbyists.
Support for the idea has crossed party lines, with even President Joe Biden’s press secretary stating that he is in favour of the proposal, following Harris’s endorsement.
The issue of taxing tips has gained traction as electronic payments become more prevalent, making tip income easier to track and report. Historically, under-reporting of tips has been a common issue, but this shift to digital payments increases the likelihood of accurate reporting.
A Niche Issue with Broad Appeal?
Despite the attention this proposal has garnered, it affects a relatively small segment of the workforce. According to an analysis by Yale University’s Budget Lab, around 4 million workers—less than 3% of the total US workforce—regularly receive tips. Moreover, a significant portion of these workers, about 37%, earn so little that they are not currently required to pay federal income taxes.
Current Tax Regulations
Under existing laws, employees must report any tips over $20 per month to their employer, with the federal government taxing this income to fund programmes such as Social Security. States have their own tax regulations as well. In the 2018 fiscal year, Americans reported $38 billion in tip income, with an average of just over $6,000 per taxpayer. For some workers, particularly servers, tips can represent more than half of their hourly earnings, according to the National Employment Law Project.
What Could Change?
The financial implications of this proposal are still uncertain. Some bills in Congress suggest exempting tips from income tax alone, while others propose eliminating both income and payroll taxes on tips. The candidates have been vague on the specifics.
The Tax Foundation estimates that such changes could cost the government at least $107 billion over a decade, with some projections even higher. While the idea of tax-free tips might seem politically straightforward, some analysts argue that it could unfairly shift the tax burden to workers who do not receive tips and potentially encourage tipping in new professions, leading to unforeseen financial consequences.
Critics also suggest that this proposal could benefit employers more than workers by diverting attention from a more pressing issue: the fact that businesses are not required to pay the minimum wage to employees who receive tips.
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