At a recent rally in Las Vegas, former President Donald Trump unveiled a promising initiative aimed at providing relief for low-wage workers. Trump’s proposal to eliminate taxes on tips aims to increase the income of some of America’s most economically vulnerable people.
This proposal would require congressional approval to alter the tax code. If Trump returns to office, this could become a reality due to the impending expiration of the 2017 Trump Tax Cuts and Jobs Act. Trump contrasted himself with President Joe Biden by adding, “Crooked Joe Biden has taken the totally opposite approach, trying to tax more and more of their tips, even hiring 88,000 IRS agents to collect!”
Currently, any tips to service workers that add up to more than $20 in any month are subject to federal income taxes. Electronic tips, like those made as credit card payments, are automatically reported to employers, and employees are also expected to total the amount of their cash tips and report them on individual income tax returns. However, tips are often misreported. The IRS estimates it receives 99% of what is due on regular wages but only 55% of what is owed on tips. No matter what proposals are put forward, it is clear the tax system for tips is broken. Not only are we highly taxing some of the lowest earners in the country, but we are also not doing it with an effective system.
Dean Baker, senior economist at the Center for Economic and Policy Research, suggested working-class voters should not be fooled by Trump’s comments. “I realize that Trump doesn’t believe in thinking, but exempting tips from taxes will just encourage more employers to expect workers to get more of their pay in tips,” Baker said on X. “This is horrible for workers since they need a regular paycheck. They shouldn’t have to depend on customers feeling generous. But I’m sure this is too complicated for Donald Trump.”
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This statement is not only inaccurate but misleading. The condescension on behalf of Baker is ridiculous because it minimizes the complexity that Trump is understanding. Historically, yes, there is a two-tiered minimum wage system. Only seven states pay a single minimum wage regardless of tips, while more than two dozen others have raised the subminimum pay for tip earners above the federal $2.13-an-hour floor. The data illustrate a need for these workers to have access to as much of their wage as possible, not that employers would expect workers to get more of their pay in tips. More states are continuing to raise the tipped minimum wage floor in contrast to Baker’s point. This proposal is a good thing, contrary to Baker’s disregard for the data.
It is time for our government to recognize and move on from the sunk costs placed into this system. We are not doing a good job, so we are wasting money while harming our citizens. This is a point Baker neglects throughout his argument. Congress has a duty to fix a broken system to ensure the efficiency of the government is improved and to help the public.