Donald Trump and Kamala Harris agree: No tax on tips! Does this rare concurrence between the two political adversaries mean they have landed on a smart policy?
Don’t be ridiculous. It means they both know how to pander, in this case to restaurant wait-staff and other front-line service workers who rely on tips for a large portion of their income. Las Vegas is brimming with such workers and is by far the largest city in Nevada, a key swing state in the Nov. 5 presidential election.
It was an easy position to take, in large part because it has very little chance of ever becoming law. It’s a great applause line. And it’s lousy policy.
Why should Dollar A be subject to taxation but not Dollar B? Income is income in any fair and simple system of taxation.
Of course, U.S. and state tax laws are neither simple nor universally fair, and are always in flux as lawmakers try to appeal to their various constituencies. Tips are lodged in a mid-20th century mindset as a kind of off-the-books cash transaction directly between an appreciative customer who leaves some coins or bills on the table, and a low-wage worker who went the extra mile (or extra coffee refill).
Theoretically, good service results in good tips and mediocre service gets you 10% to 15%, or maybe nothing. And theoretically it is none of the boss’ business. Or the tax collector’s.
But let’s be real. That’s not really what tips are. Tips are a way of dividing up the bill so that it appears lower than it actually is, while allowing the business to underpay the worker. Some businesses ask customers to tip cashiers because — why not? A famous extended dialogue in the 1992 film Reservoir Dogs questions why we tip a server at a sit-down restaurant but not a fast-food worker, who may well work harder and be paid far less.
There are plenty of other questions about tipping theory. Do you tip the hotel worker you never see, but who cleaned your room? Some do, some don’t. Do you tip the hairdresser who is an employee but not the one who is self-employed? Who knows? Will the employee actually get the tip if you pay with a credit card? Will the business split the tips among all the staff? Will the business owner swipe a portion, because, who will know?
Taxing wages but not tips simply extends the fiction that tips are an extra token of appreciation instead of what they really are — an essential part of compensation. If hourly workers are paid too little, the smarter policy is to raise their pay, not invent an off-the-books transaction with a special tax-free category.
