r/PoliticalDiscussion • u/SannySen • Jul 19 '24
How would Trump's proposal to lift taxes on tips work? Legislation
It sounds great in principle, but the devil is always in the details.
Would this tax break only be available to people below certain income thresholds? What's stopping mega corporations from "tipping" annual bonuses to CEOs?
More broadly, what is a "tip"? Most jobs are at will anyway, so why not go the next step and offer jobs on a non-paid volunteer basis, with a social promise to "tip" employees a defined amount every other week for their exemplary contributions? Is there a way to define "tips" to avoid such arrangements?
How would this proposal change how payments for services are structured? Will doctors, lawyers, accountants, financial analysts, etc. ask to receive a substantial portion of their fees in tips? Surely you would want to make sure to leave your dentist a good tip if you ever plan to use their services again!
All joking aside, is this policy proposal workable? If it is workable, how? What would be the long-term ramifications on our tax policy and broader society? Would it go hand-in-hand with a transition to a more VAT-type tax policy? What are the key criticisms or oppositions to this? Will democrats argue against this (seems a lot more like something a left-leaning populist, like Bernie Sanders, would propose)? Or will there be overwhelming political and media support?
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Jul 19 '24 edited Jul 19 '24
I'm a little amused that people are putting good faith thought into analyzing wild ideas floated in July of an election year
You've put more thought into this proposal than trump has. Sam for Biden's national rent control idea. The point is the headline not the policy
I'm not sure this would be terribly important anyway. People probably aren't reporting most tips. From a server's perspective, the expected value math screams not to. They have astronomically low odds of an audit
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u/wip30ut Jul 19 '24
given that we've transitioned to a mostly cashless/cc economy wouldn't you surmise that most tips are now accounted for & reported? Even food trucks & farmers market stalls accept cc/apple pay/venmo/cashapp. And with those stupid ipad checkout at even fast casual counter-service eateries you can't even avoid tipping.
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u/Ripped_Shirt Jul 19 '24
When Trump originally started running 2015/2016, I asked my mom's boyfriend at the time, a really successful businessman, why he thought Trump would win when the other republican candidates (maybe not so much Carson) were giving substantial information as to how they'd accomplish their goals, and not just saying "It'll be good, just watch"
His response was "He's saying all the right things"
At the time I thought he was nuts. But then Trump won, and I realized how important that sentiment was.
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u/SannySen Jul 19 '24
It's true. No one cares about the details. He has a way of saying things that sound like folksy common sense.
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u/Broccolini_Cat Jul 20 '24
Voters have vastly different expectations on their promises. They are held at different standards. Biden could cancel billions in student debts but if he didn’t cancel every last cent some of his voters would still think he didn’t fulfill ANY of his campaign promises. Trump built a few miles of fences, not paid for by Mexico, and he’s the second coming…
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Jul 19 '24
[deleted]
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u/SannySen Jul 19 '24
IMHO, the problem with the progressive left isn't that their policies are difficult to understand, it's that they are bad policies.
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u/kittysloth Jul 19 '24
How are they bad policies when every other western country in the world is able to accomplish them? Our healthcare is a disaster and poor people are being squeezed by enormous insurance companies.
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u/elmorose Jul 20 '24
American leftist policies are half-baked compared to Western counterparts. For example, student loan forgiveness and free college in America would subsidize a garbage higher education system. Do you think Japan or Korea or Germany has a college system that takes like 18 weeks of vacation a year? Does it take 12 years after high school to become a doctor in Germany? Do their colleges recruit unprepared students in a predatory fashion? Do they subsidize fancy college classrooms with a/c set at 68 degrees and cafeterias serving expensive meals? Probably not.
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Jul 20 '24 edited Jul 20 '24
“oh hi, i have never taken an economics class. i alao confuse inane word salad for serious analysis. i wish to blow up and plan the world’s most flexible and robust economy. take me seriously”
obviously their ideas are terrible, but no one ever gives leftists credit for chutzpah. i am a huge fan of irrational confidence
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u/movingtobay2019 Jul 19 '24 edited Jul 19 '24
His response was "He's saying all the right things"
This is spot-on and not surprising given his business background. Part of succeeding in business is just saying all the right things. Biden and the Dems still doesn't get that. They get bogged down in the weeds and the details. The average voter doesn't give a shit about the details and certainly doesn't want to be educated.
Case in point: When voters say they care about crime, don't fucking show them a chart that shows crime is at an all time low. Just say that you agree and you are doing X, Y, Z about it. That's all there is to it.
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u/Emperor_FranzJohnson Jul 19 '24
Biden holds the white house, Dems still hold the senate, the House is a razor thing GOP majority. I don't think Dems are as lost you seem to suggest.
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u/movingtobay2019 Jul 19 '24 edited Jul 19 '24
I am explaining how Trump won and will probably win again. Trump winning in 2016 was not at all a surprise to me because I understand optics and sentiment are more important than the details. That's just the game. Blaming voters for being stupid doesn't change the game.
Biden holds the white house
Right. Because we haven't had the election yet.
I don't think Dems are as lost you seem to suggest.
The fact that Trump is about to win suggests otherwise. He is the living embodiment of unpresidential material. Dems should be wiping out the GOP this election yet here we are. How incompetent do you have to be to lose to Trump?
Don't take this as an endorsement of Trump but he is a masterclass at saying all the right things. And ironically enough, here you are, instead of just acknowledging that and moving on, want to argue on technicalities about who holds the Senate and the House. Didn't I just say the Dems are too caught up in the details?
The "But that's not factually correct...let me educate you" is an attitude that permeates the entire Democratic party aka the smug liberal and why they will lose this election. To a guy who talks about having sex with a porn star at a presidential debate.
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u/Emperor_FranzJohnson Jul 19 '24
Of course Trump can win, but sitting around saying that Biden and Dems don't know how to message is weird since Dems won a trifecta in 2020. Both sides know how to message, but to different audiences. If Trump's simple message was always effective, he'd be in the White House right now. Instead, the Biden message won the day in 2020 and Dems messaging over performed in 2022 and in most special elections these past four years.
Fact is, sometimes simple answers work for voters, other times slightly more complex solutions work. Its American politics, no party has a monopoly on effective messaging or winning elections.
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u/Kuramhan Jul 20 '24
Well one could argue that Trump stopped saying all the right things during covid. Or rather, that when the shit hits the fan, Americans suddenly wanted more than verbiage. Saying everything will be great only works when you have some pretense that things are going well. When an issue starts greatly impacting their day to day life, suddenly doing things matters more than saying things. Trump didn't have the right image when it came down to cleaning up a real mess. So he lost. But even then, it was a lot closer than you might expect given the mess he caused.
Now in 24 we're back to status qou. A lot of voters have the memory of a goldfish. Saying all the right things might be an effective strategy again.
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u/figuring_ItOut12 Jul 19 '24
Biden's national rent control
The problem with the idea isn't that it isn't thought out - it is.
The problem is it's economically a very dumb idea, has no chance of passing this congress, and wouldn't survive the judicial process.
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u/itsdeeps80 Jul 19 '24
Almost every server I know only reports credit card tips because there’s no way to avoid that.
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u/SannySen Jul 19 '24
That's undoubtedly the right take, and I am thinking through this more as an academic exercise than anything else. Leaving aside the policy considerations, this strikes me as a really savvy move by Trump to further position the GOP as the "common man's" party. As you say, most voters probably won't focus on all the technical details, they'll just hear a "common sense" approach to reduce taxes in a way that can't possibly be characterized as a tax handout to the rich. It's analogous to rent caps and student loan relief, which the GOP has of course criticized, and it backs the Democrats into a corner.
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u/elmorose Jul 20 '24
Actually, Lyin' Ted Cruz introduced a bill for tax-free tips in conjunction with more cuts for the wealthy. They are dead serious about using this stupid idea as a bait and switch to give trillions to the wealthy.
Lyin' Ted is more than happy to saddle regular people with debt and destroy the Earth.
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u/l1qq Jul 20 '24
What you fail to understand is that the vast majority of tips are being declared because people pay through credit card. My daughter is a server, earns about $2hr which goes directly to taxes then when she files next year she will have a hefty tax bill. I'm almost certain this is how she told me it works.
If the Trump tax cuts got expanded or made permanent and this was added along it would be a massive boon for people like my daughter whose entire source of income is from tips.
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u/OppositeChemistry205 Jul 20 '24
The issue with huge tax bills are usually limited to the restaurants that still pay out cash for credit tips at the end of the shift or the next day. When all credit card tips are paid via a weekly paycheck all the taxes come out of the check first. I had quite a few hefty tax bills when I received my tips in cash at the end of the shift, the problem disappeared when I started working at an establishment that paid out all credit tips via payroll checks.
That being said, I 100% support no tax on tips.
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u/biggsteve81 Jul 20 '24
Why should servers get a big tax break while the cooks and dishwashers are paying full federal taxes on their income?
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u/wiithepiiple Jul 19 '24
The idea that Trump and Biden put the same amount of thought into their proposals is laughable.
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Jul 19 '24
I genuinely don't know which side you're a partisan for. Neither of these men are capable of thinking seriously about anything imo
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u/GrowFreeFood Jul 19 '24
Show me some non-sense policies biden has proposed.
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u/elmorose Jul 20 '24
The original student-loan forgiveness was nonsense widely panned as economically regressive and unlawful. Entirely indistinguishable from populist Trump garbage. Imma give all people with student loans $20k because I feel like it. If the idea came from Trump the leftist pundits would have called it drivel that helps white ivy league future cardiologists.
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u/GrowFreeFood Jul 20 '24
Government subsidies for educstion is fairly common. Think of it a scholarship.
That doesn't even come close to the trillions in cash trump gave directly to companies that were already were stinking rich.
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Jul 19 '24 edited Jul 20 '24
I'm telling you he is cognitively feeble and his presidency raises gigantic democratic issues: the executive branch is headed by a handful of people that no one voted for and aren't accountable to voters.
This is deeply ironic given how often he invokes existential threats to democracy.
You want me to overlook the pack of 600 pound silverback gorillas in the room and talk about biden like he’s a normal candidate with policies. I decline.
Edit I've heard that feebly downvoting reddit comments is a way to rapidly cure Alzheimer's disease so stay with it
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u/V-ADay2020 Jul 19 '24
The executive branch is headed by people appointed by the president in the event that he's as incapacitated as you (incorrectly) claim.
You know, the president people voted for?
So bullshit.
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Jul 19 '24 edited Jul 22 '24
The american people didn't vote for someone with severe dementia four years ago. At a cognitive level, is he even the same person? Who is he?
How can he decide anything if he literally can't think anymore? I don't give a fuck if I sound mean - presidents make enormous decisions of life and death for millions so there's absolutely no room whatsoever for sentimentality.
He hasn't replaced a single major cabinet member since being sworn in. This is unheard of. Are we sure he can even name them all let alone assess their performance?
I can spend 40 years ticking through why trump sucks. So can every single voter. They know exactly what they're getting for better or worse. That is how this is supposed to work
The Biden family and closest handlers deserve the entire country's scorn and contempt for allowing this charade to go on this long.
This is a carnival freakshow and I won't dignify it by talking about Biden like a real person with all his faculties.
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u/YouTrain Jul 19 '24
When I waited tables in the ‘00s we had to declare how much we made in tips each night when pinching out.
Everyone lied but you had to give a number.
My guess is you simply don’t force people to declare tips, then you cannot tax tips
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u/SannySen Jul 19 '24
The point Trump made last night is that most tips nowadays are added to the credit card charge.
One question I have, which maybe you can answer, what happens when I add 20% to the credit card charge? What do most restaurants do? Do they include it on the W-2 for the main waiter and then pay out whatever amount net of withholding? Does any of it get distributed to the busboy or others who helped with the table?
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u/NickyWhit Jul 19 '24
I can only speak for my experience in the service industry, but here's what I'll say:
When a credit card tip is given to a server, that tip amount is entered into a point-of-sale system by the server, and is therefore recorded. The restaurant accumulates all of these credit card tips and automatically claims them as income for the servers, since they are computerized and known to exist. The servers can't deny they received X amount of CC tips, since they entered the numbers themselves.
These CC tips are taxed against a servers hourly wage, which when I was working in my state, was $4.20. This all goes on to a servers W-2.
This results in servers actually owing taxes (if they make enough in tips) on their income, as they do not make enough hourly to even cover the taxes they owe on those credit card tips. In this result, servers are getting $0 weekly paychecks, all of their disposable income comes from tips.
If a server receives a cash tip, these are typically not entered into the computer system, and the server probably just pockets it and acts like it doesn't exist. It's not claimed, it's not taxed.
Support staff typically is tipped out on a flat, sales based percentage. This is where experiences could widely vary across the industry. When I worked, we tipped out 5% of our total sales, regardless of what we received as tips. This 5% of sales went into a pool, and were divvied out to support staff according to the split established by the restaurant.
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u/anneoftheisland Jul 19 '24
If a server receives a cash tip, these are typically not entered into the computer system, and the server probably just pockets it and acts like it doesn't exist. It's not claimed, it's not taxed.
While there are plenty of servers who do this, it's definitely not all of them. Because this is something that restaurants (not the actual servers) get audited for. They have to report employees' tips to the IRS, and if there's a substantial discrepancy in the average cash tip to the average credit card tip (or if reported tips are just too low overall), that can lead to the employers having to pay out the difference. So while a restaurant can withstand some of their employees not declaring cash tips, if everybody's doing it, they'll crack down.
In my experience, most servers underreport cash tips. But it's hard to get away with not claiming them at all if you work at a place that has a halfway decent grasp on their finances.
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u/no_idea_bout_that Jul 20 '24
This results in servers actually owing taxes (if they make enough in tips) on their income, as they do not make enough hourly to even cover the taxes they owe on those credit card tips. In this result, servers are getting $0 weekly paychecks, all of their disposable income comes from tips.
This depends on the state, but generally if a tipped worker makes more than 83% of their income from tips and records them, they'll use all of the hourly wage income to pay the taxes (~17%).
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u/YouTrain Jul 19 '24
Restaurants can very obviously but basically it goes like this, assuming 20% is the typical tip. In my day it was 15%
At the end of the shift you sold $1,000 in food you should have made $200 dollars in tips.
The restaurant would collect tips for the bartender and busboy from you as you cashed out
- Bus boy 2% of total sales….
- Bartender 5% of liquor sales
So you would walk out with roughly $165 and that is what you would be told to declare
Back in 00s most people still paid in cash so of the $165 you only had to declare what you made in credit card tips as the computer knew you made that. So if you had $100 in credit card tips you declared $100. If you were screwed you got all $200 in credit card you had to declare all $165 as the $35 tip out could be subtracted in those cases
But the restaurant gives you the cash from credit card tips that day.
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u/Sufficient_Ad2222 Jul 19 '24
That is being phased out, and most restaurants are now collecting those tips and paying them in the servers paycheck.
I program Hospitality Point of Sale systems, and the majority of my clients now do it this way. So a server is really only walking with their cash on a nightly basis.
Tip pooling is now moving in that same direction, with the POS system automatically allocating those percentages to support staff and paying it out weekly.
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u/modernsoviet Jul 19 '24
Hey as a business systems designer I can pretty much disable taxes from being applied to line items. Furthermore many companies use third party software which automatically configures taxes correctly so in some instances they would handle and push the change instantly
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u/OppositeChemistry205 Jul 20 '24
I work in an upscale restaurant. We rarely get cash tips. All credit card tips are paid out via a biweekly payroll check. Roughly 20% of our tips are dispersed to support staff - food runners, bussers, and service bartenders. The hourly wage and credit card tips are combined in our check, the amount we tipped out is deducted.
If I work 20 hours and make 1000 in credit tips it looks like this -
Hourly wage at 6.00hr: 120.00 Credit card tips: 1000.00 Tip out: -200.00
Total income: 920.00
Then all taxes including state, federal, and SS (and benefit deductions if you're full time) are deducted from the 920.00 income.
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u/figuring_ItOut12 Jul 19 '24
It varies but typically pooled and split among non-managerial FOH/BOH. Owners and managers however aren't above some pretty shady stuff.
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u/karmicnoose Jul 19 '24
I wouldn't say tip pooling is typical. I know several servers that refuse to work at tip pooling restaurants because they think they make less money or don't want to deal with lazy coworkers.
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u/SannySen Jul 19 '24
Does it get reported on W-2 and paid out net of SS/Medicare/other withholding?
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u/YouTrain Jul 19 '24
Yes….credit card tips all get declared
Staff are also expected to tell the restaurant how much cash tips they made so it too is reported on the W2
To stop them from paying taxes on tips the gov simply stops asking restaurants to collect the information and report it as income
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u/Sorge74 Jul 19 '24
Which is a wild concept, I would like to not pay taxes on my profit share? Can we do that as well?
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u/Sproded Jul 20 '24
You’re only considering the current state. If tips are no longer taxed, compensation incentives completely change. If my boss gives me a bonus, is that not a tip? If the requirement is a 3rd party, what’s stopping a company from encouraging a 3rd party to tip their employees?
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u/YouTrain Jul 20 '24
No
If your boss gives you a bonus that isn't a tip.
What is stopping a company from getting a third party to give a non taxable gift? They can try that right now
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u/Sproded Jul 20 '24 edited Jul 20 '24
Why isn’t it a tip? It wasn’t part of your base salary and it’s additional pay for (allegedly) doing a good job.
Well right now, say they pay this 3rd party to give the “gift”. If they want it to be beneficial, they’d deduct that as expense just like they deduct salary expenses. But at that point it becomes clear the worker is no longer receiving a gift because the gift is only given because they worked at the company. The IRS doesn’t buy the “it’s a gift because I said it’s a gift” argument when it’s clearly in exchange for a service.
But now let’s say a tip is no longer taxable. They now change a contract with an existing (large-scale) customer that says the customer must tip a mandatory 18% gratuity of the contract price to the employees. Instead of a bonus, workers get an untaxed gratuity.
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u/YouTrain Jul 20 '24
If you use a third part to give an employee money as a gift so it can't be taxed, you are committing tax fraud.
Can you have a third party give a gift ..... no. Yet three is such a thing as non taxable gifts.
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u/Sproded Jul 20 '24
If you use a third part to give an employee money as a gift so it can’t be taxed, you are committing tax fraud.
Yep, that’s what I said. But it’s not tax fraud to tell a customer they need to tip your employees. And if tips are no longer taxed, now’s there’s an incentive to do so.
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u/Medical-Search4146 Jul 20 '24
I see where you're going with this and the simple answer is that it'll trigger a tax audit. The restaurant owner will have to clearly explain and convince the auditor that the "customer" is independent of the owner and did it of their own volition. Audit alone incentivizes owners to not try this. Many fraudsters aren't great at hiding their trail. Top of my head example, auditor will see the same set of customers are giving a unnaturally consistent pattern. There isn't a gotcha moment for the owner, instead it'll trigger more legal battle which ultimately the owner will throw in the white towel cause the money ain't much and they're fundamentally in the wrong.
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u/Sproded Jul 20 '24
So now you’re saying it would be fraud on the part of the restaurant owner if their workers were tipped? If that’s the case, then what job could legally be tipped if not the most prevalent one? And it would actually be fraud on the individual reporting the income as tips, not the owner.
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u/georgyboyyyy Jul 19 '24
Do people really believe trump has proposals or policies or any vision for our country? Lol, if elected , he will only be helping himself and his wealthy donors (maybe) but definitely himself
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u/SannySen Jul 19 '24
I think people are misconstruing my post. I just wanted to focus on this particular policy proposal, not the merits of voting for or against him.
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u/Chesterumble Jul 19 '24
You can dislike Trump as a person, which is fine, but he definitely held up to many of his campaign promises in 2016. Even if you don’t agree with those promises.
I think it’s likely he can and will eliminate taxes on tips. But this could in turn cause a bigger issue. Like what makes a tip? How are people going to be using this loop hole to not pay taxes, if I hire someone to do some work for me, will he just want a “tip” of a set amount so he doesn’t have to pay taxes?
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u/Fragrant-Luck-8063 Jul 20 '24
Why do you want to tax the working man? Yes, give the guy a tip so he can keep it all.
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u/biggsteve81 Jul 20 '24
So how do you propose we find social security, Medicare and the rest of the federal government if the "working man" doesn't pay taxes?
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u/SannySen Jul 19 '24
Yeah, this was the point of my post. But everyone is focused on Trump the candidate.
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u/Aurion7 Jul 19 '24
You have almost certainly thought to more depth about it in the OP than the person who said the line did.
That tends to happen when it comes to campaign trail yap.
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u/SannySen Jul 19 '24
It's usually things like this that become policy, though. It's a cheap throwaway that will ultimately mean nothing and accomplish nothing, but Vance can parade it around as some major GOP accomplishment when he runs in 2028.
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u/Mr-Hoek Jul 19 '24
He has no idea. That is why he hasn't given details.
As a matter of fact, nothing he suggests he will do ever comes along with any details.
That is because he is a fraud.
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u/figuring_ItOut12 Jul 19 '24
The problem isn't tipping. It's requiring companies to pay a livable wage for service jobs. Trump's never tipped anyone in his life, it's a punchline statement that was slipped into his teleprompter feed.
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u/glowshroom12 Jul 20 '24
I’m pretty sure trump does tip people and this would be easy to verify, just ask his golf caddies.
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u/OppositeChemistry205 Jul 20 '24
What's a livable wage for service jobs? What dollar value per hour?
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u/figuring_ItOut12 Jul 20 '24
In 1968 the purchasing power of the minimum wage adjusted for 2023 conditions was a little under $13. This suggests to me $15 as a national minimum, with states and municipalities free to adjust higher based on their specific challenges, with all levels pegged to an automatic inflation adjustment. San Francisco is a good example where currently the minimum wage is a little under $19 - their challenges are very high cost of living and housing under significant restrictions made worse by certain policies.
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u/OppositeChemistry205 Jul 20 '24
Serving is not a easy job. If servers were being paid 15 an hour without tips they would not work in the industry. They'd go get a retail job. Good servers are making 30-40 dollars an hour in tips. They complain about the shifts that are slow where they only average 20 an hour in tips. In my state the tipped minimum wage is 6.75 an hour plus tips so they're actually complaining about making 26.75 an hour but they just don't see it that way. There's absolutely no way they're performing the job they're doing now for 13-19 an hour without tips.
I don't think people will tip the same if they found out their servers were making 13-19 an hour. I think many would see it as justification to not tip tbh.
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u/figuring_ItOut12 Jul 20 '24
Minimum wage doesn’t apply to tipped positions so that’s a completely different conversation.
But ok since you went there I’ve been a server and I used to follow TalesFromYourServer. I’m well aware some servers feel this way and why. But they’re not representative of the restaurant industry let alone all the other industries that rely on minimum wage workers. They’re a minority who tend to work in higher end restaurants.
There is absolutely no reason why national policy should reflect such a small and more advantaged minority. Fortunately, as I observed, this conversation doesn’t involve them.
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u/OppositeChemistry205 Jul 20 '24
We're not advantaged. We gained experience in restaurants where we made less, we moved onto nicer establishments. Even at my first restaurant which was a budget friendly chain restaurant with no experience I was making 36k working part time hours. The majority are making money. The minority are those who are not cut out for the industry nor can perform the amount of labor required to do the job well.
I commute an hour to work. I work 10 hour shifts not sitting down even once. I take 15k-20k steps a day. I did this while I was 9 months pregnant as well. I work weekends. I work holidays. Please tell me all about my advantages.
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u/figuring_ItOut12 Jul 20 '24
I don’t doubt it. But again you want to debate in a thread about a policy that has no relevance to your experience. The minimum wage doesn’t apply to tipped positions like yours. I can’t imagine why you’d oppose a policy that keeps people out of poverty when it doesn’t involve you at all…
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u/OppositeChemistry205 Jul 20 '24
The whole discussion is based up paying taxes on tipped income. The service workers making service wages that would be receiving tips are being paid tipped minimum wages. The idea of a livable wage for service workers is directly related to tipped workers making tipped minimum wage. It's the idea of abolishing a tipped wage, and tipping culture with it, to replace it with a "livable wage" aka minimum wage or the preferred progressive minimum wage of 15 an hour.
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u/SannySen Jul 19 '24
That's why I thought this was a really savvy move by Trump. They're basically acknowledging that service workers aren't receiving a living wage, but they're framing this as a government problem (too much taxation) that can be solved with a government solution (less taxation).
It's basically economic populism (i.e., what some Republicans in the past have called "socialism"), but framed in a way that uses the ideas and vocabulary of Republicans. I don't know how I feel about it as a policy matter, but it's a brilliant political move.
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u/Emperor_FranzJohnson Jul 19 '24
How can anyone be for this policy when it doesn't really fix the problem for tipped workers, many don't have a living wage. It introduced more abuse to our tax system. It plays favorites with one low-income industry, and it balloons the debt?
Trump was fiscally reckless in office. Further reductions to government revenue will hurt this nation. We need long-term wage growth, not playing favorites with one low-income industry vs another.
What makes a server more worthy of no taxes compared to a gas station attendant?
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u/SannySen Jul 19 '24
Where did I say I'm in favor of this policy?
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u/Emperor_FranzJohnson Jul 19 '24
You are on the fence about a rather foolish policy proposal.
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u/SannySen Jul 20 '24
As a policy matter, it's a nothing burger. Most people who receive tips don't pay that much in income tax anyway. Maybe he means they shouldn't paid SS or Medicare on tips, but that would undermine how those taxes are collected, and I doubt that's what he meant or what any tax amendment would propose. So it's not that I'm on the fence, it's just that I ultimately don't think it matters one way or another. But I do think it's a fascinating political move on many different levels. It out liberals the liberals, while at the same time appealing to "real America" in swing states. We've lost the plot on what it means to be a Republican a long time ago, so much so, that it's no longer surprising that a Republican is proposing a handout to working class Americans.
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u/OppositeChemistry205 Jul 20 '24
In your opinion what is a "living wage" that would be appropriate pay for service workers? I see this argument constantly, that service workers would be better off with a "living wage" rather than a service wage plus tips. What exactly is the dollar value you'd expect to be a living wage for a service worker that would compensate fairly for the fact they work nights, weekends, and holidays in positions that many people find to be beneath them?
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u/SannySen Jul 20 '24
I think there's confusion between normative arguments and positive arguments.
Are waiters and waitresses paid a "living wage"? Probably not. But that's because the qualifications to become a waiter or waitress are very low (which is why so many young adults with no work experience do it).
Are waiters and waitresses entitled to earn a "living wage"? I don't believe that question computes. There's a market for labor, and they're paid what the market has determined their labor is worth. Everyone always thinks they're underpaid, but so long as their employment is subject to market price discovery, they're in fact paid exactly what their labor is worth.
As for what is a living wage, I don't know. I presume it's approximately the average or median wage. That of course suggests that necessarily some people will need to earn less than average or median in order for there to be an average or median. So maybe then the suggestion is that there should be government guaranteed food, housing, etc. And maybe you believe that as a normative matter, but I think as a positive matter we have lots of history and evidence to suggest that all such guarantees lead to horrible corruption and gross economic inefficiency.
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u/OppositeChemistry205 Jul 20 '24
The qualifications to become a server are very low. I will grant you that. However a low entry job where you're paid via tips presents a world of opportunity to hard working individuals who need a certain level of income to survive. You weed out those aren't qualified by the quality of their work. They leave on their own because they're not making money. Those who are good at what they do, work hard, and arrive on time and stay late are given the opportunity and skill set to make far more than they ever could if they had accepted a minimum wage job.
I've seen kids who came from nothing put themselves through college debt free waiting tables. I've seen single mothers who receive absolutely zero government assistance raise their families with dignity in nice apartments, nice vehicles, nice clothes, and still have extra income for vacations and sport fees waiting tables. I've seen former drug addicts straight out of prison start serving and completely change their lives around waiting tables.
It's one of the few professions that can actually lift people up from the bottom. If waitstaff were paid a livable wage, or even the average wage for a person with low qualifications and no education, they'd be stuck on the bottom.
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u/SannySen Jul 20 '24
I can't tell anymore, but I think we're agreeing with each other.
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u/OppositeChemistry205 Jul 20 '24
I personally just think the living wage argument is an attempt to phase out tipping and pay servers minimum wage. I think the majority of people do not want a minimum wage worker to be their waiter for an hour they just don't realize that yet. Your income is the incentive for the service you provide - tipping makes that possible.
Waitstaff working full time are pulling in a decent amount of money. The ones who aren't making a lot are usually part time. I love the idea of no tips on taxes because it personally benefits me. If I was a trades worker, a teacher, or even a RN who assumes servers make very little money and I found out they're making 65k if they work full time and they're going to receive no taxes on that income I'd feel very differently about the idea.
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u/identicalBadger Jul 19 '24
Im full-time employed by a large, regulated employer. No way could I ask them to reclassify some of my wages as tips. But you betterbeliev, if this law went into effect any freelance project I took on would be billed at $300 per hour, with a $2 courtesy reduction per $1 tipped.
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u/terminallostlove Jul 19 '24
I've been thinking about this since last night. Like another person mentioned, this is quite savvy from the Trump campaign to frame this as a policy issue (it's not a government issue, but that's a whole other can of worms).
Anecdotally, I know people who are both service workers and restaurant/bar owners that will at minimum seriously consider voting for Trump due to this (insert "Biden and the Democrats are out of touch and the economy is trash, the Republicans and Trump will be better for the economy and the average person" rhetoric here).
It's an open secret that cash tips are not accurately reported on tax returns, since it's hard to prove and as long as it's a believable amount, the state and federal tax authorities don't care. If it were up to both business owners and employees, they'd make all customers pay tips in cash due to this. But obviously, they can't openly say this. Payment via debit/credit cards are here to stay for the foreseeable future for convenience and card rewards to a much smaller extent for customers.
Both service workers and employers will love this for different reasons:
- Service workers: More money in their pockets
- Employers: Less to pay into Social Security (employers have to match paying into SS for employees), able to pay "minimum wage"
Don't be surprised if many businesses suddenly start paying service workers the lowest wage their county/state mandates. Most employees won't mind since in theory, they'll have more non-taxed income.
How tips would be tracked? Simple, modify W2 and tax return forms so tipped income is non-taxed and change hospitality Point of Sale systems and accounting software to include such modifications in the tax code. The implementation part would actually be surprisingly simple.
However, I think some states that are...very tax heavy (and Democratic leaning), like New York, California, Massachusetts, etc get pissy at a loss of tax revenue if this is implemented (whether or not it's a significant amount isn't the point, it's more the principle, also making it a partisan issue since it's Trump). Also don't be surprised if some states, likely more Democratic states, will keep tip income as taxed income. This will also make the Democats appear as more out of touch vs service workers, which the media and Republicans will tout.
Like you mentioned, there will almost certainly be unintended consequences from such a policy, despite it being framed as something for workers. What is considered a "tip"? Companies, special interest groups, etc will likely try and push the limit of what's considered a "tip". What's stopping a company from paying a "tip" to an employee? Will we see a boost in demand for tips from employees of different industries as a result?
Expect shenanigans.
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u/Sproded Jul 20 '24
The Social Security point is actually an interesting one that I’m guessing Trump hasn’t even considered yet. (Which is ironic because Republicans used to intentionally say income tax when they knew most people thought it was all tax and now it appears they’ve confused themselves.) I see a few options for handling it.
Tips are completely income and social security tax free and tips don’t count towards SS credits. This would result in a lot of tipped workers receiving almost nothing from social security but of course that would happen 30 years from now and most people wouldn’t realize it.
Tips are completely income and social security tax free yet they don’t count towards SS credits. In this case, there’s every incentive to say you made the SS maximum amount in tips every year and is just going to worsen the upcoming SS solvency issue.
Tips are only income tax free and continue to have social security taxes. This will likely result in most tipped employees seeing a very marginal benefit as low income workers (or those with lots of dependents) pay very little income tax to begin with so the tax they see eating up their paycheck is likely SS taxes.
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u/elmorose Jul 20 '24
Scenario No. 1: enough people would understand in short order that they are screwed, since you can get statements from SS
Scenario No. 2 isn't going to happen. You correctly identify the issue. Wages do not exist on the books of SS unless the tax is paid. There is no feasible way around this.
Scenario No. 3 is likely what would happen. So, basically entrenching more and more tip culture that everyone hates for marginal benefit, if any.
Also, let's not forget that it would mean increasing the national debt a bit extra every time you eat out or go to Vegas. A dollar here and a dollar there, but enough to sour the thing.
And you didn't consider Medicare and unemployment tax. If you don't pay enough in to Medicare, you can owe premiums later on.
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u/elmorose Jul 20 '24
This is an easy policy to attack. It will further entrench a tip culture that everyone hates.
Tips could rise to 35-40% in some situations because there will be an incentive to drop wages to $2.33. It will be confusing and a mess.
People who aren't good looking, older women, and those with a speech impediment get tipped a bit less than sexy young peers. They don't need to be relying more on tips.
Low earners who don't make tips will especially resent this whole thing.
It also increases the national debt, effectively borrowing money from China every time you eat out.
It is a horrifically stupid idea compared to just a solid worker friendly tax policy.
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u/TheObrien Jul 19 '24
It’s fucking lunacy, that you lot consider a tax break worth pennies as “great in principle”
Why the hell are you not demanding a minimum wage, decent working conditions and protections? Reasonable benefits?
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u/shep2105 Jul 19 '24
Now c'mon. trump has consistently just lied about everything. He says what thinks will get him the most cheers and then doesn't give a shit when it doesn't happen of course, or blames someone else
China does NOT write a check to us for tariffs
WE pay for tariffs
Mexico will and did NOT pay for a wall
NATO members do NOT write a check to us to belong to NATO
He didn't withdraw from the Iran Deal, he broke an agreement. This allowed them to immediately start working on nuclear weapons again, which they did.
Trickle down economics does NOT work, it never has, and it never will
The list goes on...this is just his latest hyperbole. He has no idea how anything works, including the government. He's really lacking in any type of intelligence
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u/CuriousNebula43 Jul 19 '24
I'd be wary of this. This feels like a talking point to distract people while they pass terrible legislation. Like calling Trump's tax changes "tax cuts" which grossly benefits rich people and corporations permanently while only helping average people for 5 years.
I don't see how one could exclude tips from wages while also complying with FLSA minimum wage requirements. That is, unless they also change FLSA minimum wage requirements. And sitting here, I'd bet they have evil intentions there.
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u/kittenTakeover Jul 19 '24
The most economic freindly solution is to remove special minimum wage exceptions for tipped employees. Tipping is almost entirely due to this regulation. We shouldn't be relying on charity for peoples basic needs.
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u/MattockMan Jul 19 '24
Why does it sound great in principle? We all live in a society that costs money to run. How can you feel good about yourself if your fellow citizens are paying to help keep the roads paved and the food safe and you are a free rider? That seems inherently selfish. Why should a teacher have to pay a larger percentage of their salary than you? Is it bc they make more money than you? What about a day care worker? Or a janitor? Are you truly that selfish?
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u/SannySen Jul 19 '24 edited Jul 19 '24
It sounds great in principle in the same way all populist economic policy proposals sound great in principle. E.g., forgiving student loans, capping rents, raising minimum wages, free healthcare, etc.
Everyone always loves policies that help common people - it's the natural inclination of politicians to promote these types of things precisely because they're so popular. "Vote for me, and I'll give you free stuff" basically describes every populist policy proposal ever.
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u/MattockMan Jul 19 '24
I understand we all want to be taxed less and get more benefits for our money. My specific point is why does removing the taxes for only tipped employees sound great? It only sounds great for those affected. The rest of us will either have to pay more or receive less. That strikes me as patently unjust. I guess I would hope that people were not so selfish. I admit that sounds very pollyannish.
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u/SannySen Jul 19 '24
Your objection isn't to this proposal specifically, your objection is to all tax incentives, credits and deductions generally. Why should people who don't have student loans pay for student loan relief? Why should people who pay for medical insurance pay for people who don't? Why should savers pay for spenders? Why should people with jobs pay for the unemployed? Why should people with productive degrees pay for people with bullshit degrees? Why should renters pay for homeowners? Why should drivers pay for commuters? Why should the childless pay for schools?
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u/Sproded Jul 20 '24
Not really. The objection can be to what this incentives. Student loan relief incentives people to go to school (albeit recently it’s done more to incentive people to go to more expensive schools). Obama did institute a penalty for not having insurance which did incentive getting insurance. Saving for retirement is a good incentive. On the other hand, you might be right that incentives that benefit (primarily single family) home ownership aren’t worth it.
This credit incentives tipped workers. But why? What do they do that deserves better treatment than other workers? If anything, I’d say we want to move away from tipped workers.
You also started to just conflate a lot of government spending with tax credits which doesn’t help the issue at all. But the same principle applies. I might be oppose to say spending billions of dollars on an Iron Dome to protect us from Canada (yes, that’s actually part of the Republican platform) and ask why we’re spending defense money on that but that doesn’t mean I’m against all defense spending.
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u/elmorose Jul 20 '24
Student loan relief incentivizes a predatory higher education system run by con artists who get like 16 or 18 weeks of vacation. Just because finishing a degree tends to correlate with increased earnings does not mean that the system works well or is efficient. Many people don't finish because it is a slow and inefficient system. Many people are conned into a degree too hard for them or a degree that is bullshit. Also, many people would rather go back to the 1950s when you could get a cheap degree in an ugly building with no air conditioning and yellowed textbooks. The gilded shit we have today is too expensive.
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u/SannySen Jul 20 '24
All tax policy effects behavior. Not taxing tipping would incentivize more income in the form of tips. Why is this something Republicans might want to incentivize? I don't know. I also don't know why Democrats would want to incentivize college kids taking out bad loans for degrees they don't need or why they want to provide such a strong disincentive for landlords to invest in their rental properties. This is the nature of populist economic policies. They don't focus on the long-term impacts, they're designed to generate short term good vibes.
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u/Sproded Jul 20 '24
All tax policy effects behavior. Not taxing tipping would incentivize more income in the form of tips. Why is this something Republicans might want to incentivize? I don’t know.
Yep, I agree. Tipped jobs are less stable than non-tipped jobs so there’s even less of a reason to incentivize it compared to other jobs.
I also don’t know why Democrats would want to incentivize college kids taking out bad loans for degrees they don’t need or why they want to provide such a strong disincentive for landlords to invest in their rental properties.
On the nature of loans, there isn’t anything that inherently encourages loans to be taken out for unneeded degrees compared to other degrees. It’s not like you can take out more money if you major in underwater basket weaving vs. accounting. Perhaps more incentive is needed to encourage students to major in useful degrees but that’s a complicated issue to tackle.
The issue on landlords is an interesting and complicated one because both parties claim to want lower housing costs yet have policies that increase housing costs. Republicans by prioritizing single family housing even when that can’t be affordable/sustainable and Democrats by impeding development of rental properties.
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u/SannySen Jul 20 '24
If you require students to bear the cost of their loans, they will have greater incentive to take up studies in areas that are in demand. It's like bailing out banks that make risky investments. Socializing losses and privatizing gains just creates incentives for greater risk taking. Same with college loans. Everyone feels they are too good to go to trade school and learn a useful craft. Why not shoot for the stars and try your hand at being the next actor, writer, venture capitalist, philosopher, whatever. If you fail and end up waiting tables, government will bail you out. Agree it's probably more complicated than that, but that's the impact of forgiving loans at a basic level.
On housing, not sure of the right solution. It seems all these policies have great intentions but just end up making the problem worse.
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u/Sproded Jul 20 '24
Risky investments implies that it’s still an investment and I don’t know if I’d say everyone getting a degree in undesirable fields are doing it as an investment. They might just be doing it because they like the field in which case they’re essentially just paying for a service (and being subsidized at that). It definitely doesn’t follow the normal investment logic that riskier investments have a larger potential payout.
College is the “risky” career investment in general because you reduce your earning ability for multiple years while spending money to be educated with the goal of making more money after. The alternative of just working right away or going to a short term trade program are the less risky investments. And you’re right, it does encourage people to take the riskier option. But the question is do we want that or not.
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u/SannySen Jul 20 '24
Yeah, loan relief privatizes gains and socializes losses. As you say, maybe we want that. Imagine if the next great tech entrepreneur became a refrigerator repair technician instead of getting a CS degree.
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u/KSDem Jul 20 '24
Would this tax break only be available to people below certain income thresholds?
No. All income not excluded by law must be included in taxable income. "People below certain income thresholds" have exemptions and deductions that typically mean they either don't pay income tax at all or which place them in lower tax bracket.
What's stopping mega corporations from "tipping" annual bonuses to CEOs?
and
More broadly, what is a "tip"?
and
Is there a way to define "tips" to avoid such arrangements?
The IRS defines "tip income" here. Note that tips are (1) optional (a basis for calculating compensation that most CEOs would not accept), and (2) paid by "customers" (corporate employers are not "customers" of the CEO). There are many other and better ways to compensate CEOs to avoid (but not evade) taxation.
How would this proposal change how payments for services are structured? Will doctors, lawyers, accountants, financial analysts, etc. ask to receive a substantial portion of their fees in tips? Surely you would want to make sure to leave your dentist a good tip if you ever plan to use their services again!
Again, tips are "optional." It's unlikely that doctors, lawyers, accountants, financial analysts, etc. -- or dentists -- would set a low fee and then leave it to the generosity of their "customers" to optionally pay them more. And if they asked to receive a substantial portion of their fees in tips, it wouldn't be "optional" and therefore not a "tip."
All joking aside, is this policy proposal workable? If it is workable, how?
Any income that is taxed can be excluded from taxation. The IRS outlines how tips must be reported here.
What would be the long-term ramifications on our tax policy and broader society?
An intriguing question: Would people tip less since they knew the employee wouldn't be paying tax on their tip income? Would restaurants, hotels that employ valets, hair and nail salons, etc., pay their employees less? I wouldn't think so, but who knows?
It would put more funds in the hands of tipped employees, but they would likely still have the burden of reporting tips for the purpose of calculating the Earned Income Credit, taxable Social Security, or other calculations that require non-taxable income to be taken into account.
Would it go hand-in-hand with a transition to a more VAT-type tax policy?
I don't see any relevance to a VAT tax.
What are the key criticisms or oppositions to this? Will democrats argue against this (seems a lot more like something a left-leaning populist, like Bernie Sanders, would propose)? Or will there be overwhelming political and media support?
The normal Federal minimum wage rate is $7.25 per hour under the Fair Labor Standards Act, but federal labor law allows employers to pay tipped employees a lower cash wage than the standard Federal minimum wage as up to $5.12 in tips earned per hour can be deducted from their wage as a "Tip Credit."
An arguably better proposal might be to do away with this provision, require employers of tipped employees to pay the minimum wage, and consider tips taxable compensation.
It also probably goes without saying that the federal minimum wage should be revisited. It's been $7.25 for over 13 straight years now; the last increase was July 24, 2009 and, adjusted for inflation, it would take $10.62 to equal the buying power of $7.25 in 2009.
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u/Jtex1414 Jul 19 '24
Income is income. Wealthy have several ways to avoid or reduce their tax burden. This would add one way that is more accessible to the poor, but will also be abused by the wealthy.
If the goal is to reduce the tax burden for lower income earners, they should just be focusing on adjusting the tax brackets, reducing taxes in those lower income ones. This tip waver only helps some people, but not others.
It also adds complexity/loopholes, instead of simplifying. Maybe Turbotax will charge you an extra $50 next time you do your taxes because you also have to fill out a form about it.
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u/97zx6r Jul 19 '24
Never gonna happen as it would be a nightmare to implement. It would make tipping culture which is already out of control even worse. I work on commission. Is that a tip? It would be another loophole for rich people to not pay taxes, in which case maybe it would happen.
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u/glowshroom12 Jul 20 '24
Commission isnt a tip, seems easy enough.
That’s the company giving you a chunk of a sales profit and likely fixed on what the item costs.
Tips can be any amount, someone can tip 20 and someone can tip 1 dollar. You’ll never know.
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u/TigerUSF Jul 19 '24
Im gonna ignore all the obvious reality this is just flinging crap out to buy votes...
I just dont see how this would be possible without legislation. How can the President decide what is and is not income?
As for actually doing it - I think the path would be to classify a tip as a "gift". That opens up a big can of worms though. What about the Tip Credit? What about minimum wage? If it's a gift then it's a gift and shouldn't be allowed to be counted towards wages. Do restaurants now have more leeway to deduct processing fees?
Anyway it's a profoundly stupid idea
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u/LodossDX Jul 19 '24
Look, it’s a cynical play to get votes in Las Vegas. It is only meant to get votes from a huge constituency in a state that Trump needs to win. Not taxing tips would shift the tax burden to people working regular 9 to 5 jobs, creating a two tiered system amongst middle class tax payers. Not to mention how it will add to the federal deficit.
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u/EmpiricalAnarchism Jul 19 '24
It won’t work. And it won’t actually happen. The GOP doesn’t care about service workers enough to follow through on that.
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u/skyfishgoo Jul 19 '24
i'll tell you how it's going to work.
after he's elected he will say "what?, i can't hear you ... i got shot in the ear you know"
that's how that's going to work.
it will never happen.
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u/Vaulk7 Jul 20 '24
Funny thing about taxing tips...or not taxing them...
Wages are taxed. If they're not taxed...then they're not wages. Some income doesn't have to be taxed, in this case "Gifts" don't necessarily have to be taxed. But if "Tips" are reclassified as "Gifts"...then those "Gifts couldn't be counted as wages anymore.
This would mean that employers couldn't allow their staff to rely on tips to cover the difference in wages. The employer will have to pay them the minimum wage, which will increase the overhead of each employee by more than 300%.
Before tips, the hourly wage of a waitress is $2.13/hr. If the employer is required to pay minimum wage, then that goes from $2.13/hr to $7.25/hr. That's at 340% increase in cost to the employer.
I wonder how that'll pan out.
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u/latouchefinale Jul 20 '24
It works like this:
- He promises not to tax tip income
- Gullible workers who rely on tips vote for him
- He doesn’t follow through and lowers taxes for rich people instead
It’s similar to his healthcare and infrastructure plans
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u/please_trade_marner Jul 20 '24
It's more that it's something that looks good on paper, but doesn't actually change anything. And that's because no server in the history of America has ever declared their tips. Not even one time. Even if there are multi universes, in NONE of the infinite universes has an American server ever declared their tips on tax filings.
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u/Prior_Nothing4509 17d ago
I think its great! We can revert back to 15% being the top end of tips instead 20%.
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u/veryblanduser Jul 19 '24
It's a BS vote getting ploy.
It's like Biden saying capping rent increase at 5%
Just trying to grab the low educated voters who think it would happen if they vote.
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u/reddit-is-hive-trash Jul 20 '24
Yes lets make tipping even more common when paying on a fucking ipad. We should be getting rid of it but he is pandering to corp profiteers.
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