“No tax on tips”

by Aaron Gustafson

While it’s a great slogan, I have yet to be convinced that “no tax on tips” is a good idea.

First, I don’t like that it undermines worker solidarity. It pits tipped workers against wage workers and I don’t think that is healthy for our society. It’s certainly not good for workers overall.

If you look back in history, creating division between workers was how company owners and others in elite society undermined the power or the people to consolidate their own power and enrich themselves. They convinced white workers that they had more in common with people who shared their skin color than folks who were working the same jobs, earning the same pay, eating the same food, and living in the same places as them. Racism as a tool to keep workers from getting too powerful.

Secondly, if tipped workers aren’t paying taxes, they’re also not contributing to the social safety net on those earnings. No Social Security and no Medicare. That is a problem for the continued stability of these systems (which, frankly, the ideological right has been trying to destroy since they were created). It’s also a problem for individual workers since your social security benefits depend on how much you’ve paid in while working.

It’s also worth noting that companies pay equally into the social safety net programs based on their employees’ earnings. If less of their employees’ earnings are being taxed, there’s a good chance there will be fewer funds coming from their employers as well.

All that said, if I were to have to pick between Trump’s proposal and Harris’s, I’d pick Harris’s without hesitation.

Trump’s plan (and the No Tax on Tips Act and Tax Free Tips Act of 2024 floated by his Republican colleagues) has no cap on income for what qualifies as a tipped worker. That means hedge fund managers who make billions of dollars a year could re-categorize a huge chunk of their income as tips and not pay any taxes on it. Wage workers who earn bonuses could reclassify their bonuses as tips and not pay taxes on them. Not only is that not fair, it also continues to undermine Medicare and Social Security, as I mentioned.

Personally, I’d rather see us increase the federal minimum wage, which hasn’t happened for decades, leading to incredible inequality. I’d also love to see the elimination of a two-tiered wage system where tipped workers can be paid a tiny hourly wage and forced to get by on the kindness of strangers.^[1]

Seattle, where I live, has increased the minimum wage for all workers to over $20/hour. This is the latest of several increases, which have not led to the downfall of our economy, as some predicted. In fact, it’s improved the local economy by putting more money in the pockets of low-wage workers. Those same people typically spend a larger percentage of their income on food, clothing, and other essentials, putting more money into the economy, lifting all boats (including those of the wealthy).

A wealthy person only buys one loaf of bread at a time, just like the rest of us. And there are fewer of them. Give them more money, and they just sit on it. To put it bluntly, they are wealth hoarders.

Give the same amount to someone on the lower end of the income scale, and they will spend it on groceries, rent or a mortgage, entertainment, and so much more. And there are a ton more people on that lower end of the income scale, so the impact is incredible.

So let’s shift the talk about not taxing tips to a push for a liveable minimum wage!