Trump Says He Wants To Help Tipped Workers. As President, He Tried To Stiff Them.

by Admin
Trump Says He Wants To Help Tipped Workers. As President, He Tried To Stiff Them.

Donald Trump has been making a big promise to the nation’s service workers at his recent campaign rallies: If they send him back to the White House for another term, he’ll see to it that restaurant servers and other tipped workers no longer pay taxes on their gratuities.

No more taxes on tips,” the former president declared in Detroit on Saturday, reiterating a pledge he first made in Nevada earlier this month.

But there are at least two reasons not to take Trump’s pitch all that seriously. For starters, not even Republicans were ready to embrace the tip idea after Trump personally pitched it to them during meetings last week. The proposal would add cost and complexity to GOP tax plans for next year, when Congress will grapple with a host of expiring tax cuts for households and businesses. 

“I think that has more to do with the Electoral College in Nevada than any other policy that’s been vetted,” Rep. Richard Neal (Mass.), the top Democrat on the House tax committee, told HuffPost.

The other cause for skepticism: Trump’s own record as president. 

When he had the chance to help restaurant workers, Trump instead pursued a controversial policy to give employers more control over their workers’ tips. The proposal was designed to allow restaurants to “pool” their servers’ gratuities and redistribute them to non-tipped workers like dishwashers and cooks. But it was written in such a way that it appeared nothing could stop businesses from appropriating the tips for themselves.

My first reaction is that no one should pay any attention to this Trump proposal.Sharon Block, labor law professor, Harvard Law School

Trump officials buried an internal analysis that showed tipped workers could lose billions of dollars a year in wages under the plan. “This is going to take all the control of the tips that I make and hand it right over to the owners,” an Illinois server fumed to HuffPost at the time. Congressional Democrats felt it was necessary to insert a provision in a spending bill barring employers from pocketing the tips

But they failed to stop a separate Trump policy change for tipped workers. That rule made it easier for employers to pay tipped workers a sub-minimum wage of as little as $2.13 per hour for non-tipped work, like mopping a restaurant’s bathroom floors. A Labor Department analysis projected that servers would end up spending more of their time on low-wage duties. President Joe Biden reversed key portions of that rule after he assumed office.

Sharon Block, a labor law professor at Harvard Law School and a former Biden administration official, said there was nothing in Trump’s record to suggest a desire to improve the lot of service workers.

She noted in an email that Trump never tried to raise the federal minimum wage while he was president. The standard rate of $7.25 per hour hasn’t budged since 2009 due to GOP opposition.

Former President Donald Trump first floated the no-taxes-on-tips idea at a rally in Nevada.

Former President Donald Trump first floated the no-taxes-on-tips idea at a rally in Nevada. Scott Olson via Getty Images

“My first reaction is that no one should pay any attention to this Trump proposal,” Block said of the “don’t tax tips” concept. “If Donald Trump cared at all about service workers he would support raising the minimum wage, but instead he courts support from corporations who have lobbied to keep the minimum wage at $7.25 per hour for a shamefully long time.”

Several Republican members of Congress told HuffPost that a tax break for tips was the one specific policy Trump seemed most interested in when he met with lawmakers on Capitol Hill last week. 

Under current law, tips are treated the same as regular payroll wages for tax purposes. Employers reported that workers earned more than $38 billion in tips in 2018, according to the most recent IRS data, compared to more than $6 trillion in regular payroll wages. In addition, workers likely earned billions more in tips since gratuities are often paid in cash and not reported to the government. 

Rep. Jason Smith (R-Mo.), chairman of the House Ways and Means Committee, which oversees tax policy, praised Trump’s tip idea as a tax break for working people. 

“Whatever helps improve the lifestyle of working-class Americans that are struggling to just put food on their table and clothes on their backs,” Smith said.

However, Smith’s committee hasn’t included a tip tax cut in the various tax policies it’s considered in the past year, and other Republicans sounded skeptical of the proposal. 

“I think we want to make sure we wouldn’t have any unintended consequences as it relates to Social Security, [or] other payroll tax-oriented programs that we wouldn’t want to jeopardize,” Rep. Adrian Smith (R-Neb.), a senior Ways and Means member, told HuffPost.

I think that has more to do with the Electoral College in Nevada than any other policy that’s been vetted.Rep. Richard Neal (Mass.), top Democrat on the House tax committee

Social Security and Medicare rely on payroll taxes to pay benefits, so making tips tax-free would reduce revenue for those programs. Tipped workers can also end up with lower benefits when they retire, since monthly payments correlate to earnings tracked by the government, and tips are often off the books. 

“What happens when everybody goes to a tip payroll system? So we got to look at that,” said Rep. Kevin Hern (R-Okla.), chairman of the Republican Study Committee, an influential House Republican policy group. “I think the president’s team got it right. We need to work through Congress to see how we actually make that work.”

The Committee for a Responsible Federal Budget, a group that opposes budget deficits, estimated that the tip tax break would cost the federal government somewhere between $150 billion and $250 billion over the course of a decade, a sizable loss of revenue when Republicans are already hoping to extend a plethora of deficit-busting tax breaks next year.

Another potential problem for a tip tax cut is that it would create a major incentive for more businesses to ask customers to tip their workers ― including as a replacement for regular wages ― at a time when consumers are already frustrated by increasing demands for tips outside of restaurants.

It’s not clear if the taxation of tips will remain a focus for Trump as the campaign wears on. In his meetings with Republicans last week, the former president also suggested junking the entire tax code in favor of a system of tariffs on imported goods, which would be a radical change and essentially a massive tax hike on the working class.

Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center, said she had never heard of exempting tips from taxation.

“It’s just going to raise a lot of challenges that could be avoided,” Holtzblatt said.

It would be better to help tipped workers, Holtzblatt said, “by either increasing the minimum wage or getting rid of tips and putting servers on salaries like the rest of us.”

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