The video discusses the proposals by former President Donald Trump and Vice President Kamala Harris to eliminate taxes on tips for service and hospitality workers, a policy that has garnered attention due to its potential implications on the economy, the federal budget, and the labor market. Economists and policy experts argue that such a tax cut could create imbalances among low-wage workers, benefit employers more than employees, increase the federal budget deficit, and potentially exacerbate the tipping culture in the United States. Despite these concerns, the idea is gaining momentum in Congress, highlighting its appeal as a campaign promise rather than a thoroughly vetted economic policy.
- Both Donald Trump and Kamala Harris are campaigning on the idea of cutting taxes on tips, aiming to benefit service and hospitality workers.
- Economists argue the policy violates basic principles of economic theory and tax policy, potentially helping employers more than workers, increasing the federal budget deficit, and accelerating tipping culture.
- Tips are currently treated as income, subject to federal income, state, and payroll taxes. The Harris campaign’s policy would exempt tips from income tax, while details of the Trump campaign’s plan have yet to be released.
- The policy would only benefit about 3% of the U.S. workforce, or roughly 4 million people, and not all of them would benefit due to more than a third of tipped workers earning below the federal income tax threshold.
- The proposal may create unfair imbalances among low-wage workers, favoring those who receive tips over those who do not, without a clear rationale for the distinction.
- Employers might gain the most from this policy as it could reduce the pressure to raise wages, pushing more responsibility for paying workers onto customers through tips.
- Concerns are also raised that the tax break could incentivize other industries to adopt a tipped model, further embedding tipping culture in the economy.
- Some economists worry that higher-income professionals might find ways to structure their compensation to take advantage of this tax break, although the Harris campaign mentions income limits to prevent such abuses.
- Senator Ted Cruz has introduced legislation exempting tips from federal income tax, with no income cutoff, suggesting the proposal could be included in a larger tax bill in the future.
- Despite criticism from experts, the bipartisan appeal of the no tax on tips policy might push it forward in legislative discussions.
The Wall Street Journal is an American business and economic-focused international daily newspaper based in New York City. The Journal is published six days a week by Dow Jones & Company, a division of News Corp.
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Original video here.
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