New York (AP) – President Donald Trump’s “There are no taxes as a hint” has become the rallying cry for his 2024 campaign, and it’s now on the verge of becoming a reality.
Republicans are working on a comprehensive tax reduction package in the House, aiming for a vote within days. In an unexpected turn, the Senate unanimously approved the concept this week.
The proposal enjoys substantial backing from lawmakers and business leaders across the political spectrum, who argue it will benefit the working class. However, many critics contend that it does little for those who need help the most and places a significant financial burden on the government.
Let’s delve into the proposal and examine its potential effects.
What are the “no tax on tips” provisions?
The proposal includes a new tax credit to exempt federal income tax on tips for individuals earning less than $160,000 in 2025.
Only tips reported to employers and included in W-2 year-end summaries for workers are eligible. Payroll taxes for Social Security and Medicare will still be collected.
If implemented, this proposed deduction will expire after four years. Congressional budget analysts anticipate that these provisions will increase the deficit by $40 billion by 2028. Moreover, advocacy groups, including the Responsible Federal Budget Committee, predict that making TIP exemptions permanent could cost $120 billion over the next decade.
What did Trump say during the campaign about eliminating federal taxes on tips?
During a campaign stop in Las Vegas, Trump made a vow aimed at working-class voters grappling with rising costs, especially in a service-driven economy.
His supporters eagerly spread the message, inscribing slogans on restaurant receipts and discussing it with barbers while getting their hair cut.
Trump initially provided limited details but later reiterated a similar pledge to eliminate other income taxes, including those on overtime wages and Social Security payments. These proposals are also part of the GOP budget bill, which includes tax credits for car loan interest.
“There is no tax on tips.” I endorsed this later — albeit with constraints — through the influential Culinary Coalition associated with Nevada’s Democratic Sen. Kamala Harris, representing hospitality workers on the Las Vegas Strip.
How will this affect workers?
Experts state that while some middle-income workers may gain from tax credits, this approach risks worsening inequality.
“If the objective is to support the lowest-paid service workers, this isn’t the ideal method,” warned Michael Lynn, a service marketing professor at Cornell University focusing on tips and consumer behavior.
Approximately one-third of tipped workers earn too little to file income taxes. As a result, tax credits would primarily benefit higher-income tipped workers, Lynn added.
“Workers who desperately need support are overlooked, while the benefits largely favor the higher earners,” Lynn emphasized.
According to Yale’s Budget Lab, the average age of advanced workers is 31, ten years younger than untipped workers, and those in tipped positions typically earn lower wages.
The Brookings Tax Policy Center estimates that among those earning enough to owe taxes, the average cut is around $1,800.
The situation is also complicated to analyze.
What do employers say?
The National Restaurant Association is among the industry groups fervently backing the “no tax on tips” provision. In a statement Wednesday, a spokesperson referenced previous comments from the Associated Press regarding the law’s introduction in January.
“Eliminating taxes on tips could help restaurant operators return money to many workers in the restaurant and food service industry, aiding efforts to bolster the workforce,” stated Sean Kennedy, the association’s vice president of public affairs, referring to this as “smart legislation.”
In Nevada, the Culinary Workers Union has expressed gratitude towards the state’s Democratic Senators, Catherine Cortez Masto and Jackie Rosen, urging them to collaborate with Republicans to advance this legislation for the benefit of working families. The union represents approximately 60,000 casino and hotel employees, including bartenders, food servers, and cocktail servers who rely on tips.
However, other worker advocacy groups have criticized the law.
One Fair Wage, an organization representing nearly 300,000 service workers and employers across over 1,000 restaurants, argues that though the measure might provide “slow relief to some,” it is part of a broader tax package that “benefits the wealthiest while neglecting the majority.”
“Despite bipartisan support… this bill diverts attention from the real issues,” asserted One Fair Wage President Sal Javier, stressing the urgent need to raise the minimum wage again. Nonprofits are also calling for an end to tip credits, which allow lower base wages for many workers in various states.
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Cooper reported from Phoenix. Associated writer Rio Yamat contributed to this report from Las Vegas.
Source: apnews.com