What Are the Odds of the Proposals To Eliminate Taxing Tips Happening

Both presidential candidates (I know you don't like to get political, so I won't even mention their names) have publicly supported eliminating taxes on tips. The hospitality unions are all for it too. What would you make the odds on it happening?

The tipping phenomenon is definitely controversial, as our numerous QoDs on the subject have proven time and time again. But we dare say that it has more to do with personal point of view than politics.

However, it has recently entered the political arena, as the question discreetly states, so to head off the inevitable degeneration of this QoD into partisan polarization, finger pointing, and name calling, we will delete such comments, with extreme prejudice, so don't waste your time writing them.

Besides, whether or not eliminating taxes on tips can or will actually happen, it seems to us, has less to do with electioneering than the nuts and bolts of the tax code and federal budget, which we dive into without further ado.

To begin with, the U.S. president cannot unilaterally change the tax code. The power to levy taxes and make changes to the tax code is vested in Congress, specifically the House of Representatives, as per Article I, Section 8, of the Constitution. True, the president plays a significant role in shaping tax policy and can influence Congress through proposals and public and private advocacy, but any changes to the tax code require legislative approval.

Of course, that begs the question, why hasn't Congress eliminated taxes on tips? It didn't take much research on the subject to arrive at several answers.

First and most obvious, it would be enormously expensive to governments in terms of tax collections and not just from the estimated four million workers in tip positions across the country, 2.5% of the workforce.

According to the Budget Lab at Yale, a non-partisan research group, tipped workers are generally young, average age 31, with a low median weekly pay of $538 in 2023 compared to right around $1,000 for non-tipped workers. Thus, a sizable percentage of tipped workers already pays little in federal income tax. The Budget Lab reported that in 2022, more than one out of three (37%) tipped workers, mostly wait people and beauticians, paid no federal income tax at all. If the issue is putting more money in the pockets of low-income workers, there are better ways.

So why would it be enormously expensive? Changing the tax code always, without fail, changes financial behaviors. In this case, eliminating taxes on tips would incentivize countless better-paid workers in every field to restructure their compensation packages. At the extreme, we can see plastic surgeons, corporate attorneys, and hedge-fund managers classifying seven-figure bonuses as tax-free tips. And even middle-class earners would be encouraged to take a similar tack. (The non-partisan Committee for a Responsible Federal Budget has estimated that eliminating tip income from federal income and payroll taxes would reduce tax collections by as much as $250 billion over the next 10 years, not including restructuring. And changes to the federal tax code affect state taxes as well.)

Sure, regulations could mitigate most of the "loopholes," but not all; it's virtually impossible to implement unassailable regulations to cover every situation, creating yet another burden for already overworked IRS auditors and Tax Court. And yes, it can be argued that the tax code will need to be overhauled again next year as the tax cuts passed in 2017 are set to expire. But in our admittedly limited opinion, we believe that Congress isn't eager to make the tax code even more complicated than it already is.

In summation, we believe that the odds of eliminating taxes on tips are "long." Of course, that rhymes with "wrong" and we very well may be. What do youse guys think?

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Bob Aug-24-2024

Hope they pull it off!

I try to leave a cash tip anytime I can, Hoping the Recipient can pocket the money. without the Establishment or the Tax Man getting their mitts on it!  I know... supposed to declare everything, but don't we all prefer an $1199.00 Jackpot as opposed to a $1250.00 one?  Just Sayin'

thebeachbum Aug-24-2024

May Go This Direction

As the bureaucrats grind out the law, we could see hand pays raised to $5,000 about the same time tips become tax free.  Ain't holding my breath.

Jack Gruber Aug-24-2024

What income is taxable?

Could open a pandora's box--why should one type of income be tax free and another not?  Plenty of tips are made in cash and are tax free now.  Plenty of cash businesses are under reporting income. Salaried people are being screwed as they have no way to hide income, and they will probably be asked to make up the shortfall on revenue.

Bennett Fleisher Aug-24-2024

Ben

Common Sense. Will for the most part allow lower income earners to keep more of their money. Abuses will have to be dealt with

John Hearn Aug-24-2024

Just Rhetoric

The oldest play in the book for every presidential candidate--promise something that only Congress can provide. I never thought about the behavioral change angle, which is spot on. 

QoDs like this are a big part of why I am an LVA member. Thank you for the effort you put into the research, and especially the writing. Style points galore every day.

grouch Aug-24-2024

cash tips maybe all ready taxed

i am not sure about this bit i think many years ago the irs said that most people  tip 15 to 20% of the bill so it is automatically taken out of there checks ie a $10 tip is added to there paycheck
and taxed on total salary even if they do not get a tip.  but am not sure about this though
thanks lva foe another good qod

Toni Armstrong Jr. Aug-24-2024

Looking down the road

I have friends who got part of their salaries as “under the table” money. (White collar workers, not tip-earning jobs.) Now that they are retired, their Social Security payments are far less than they would be if they’d just taken the paycheck.

Brent Peterson Aug-24-2024

Income Tax

Eliminate the income tax altogether and that solves the loophole problem. There would have to be a national sales tax or some other revenue source to compensate, so that brings about its own issues. However, why punish people for making money? Countries need people to work and save money, so it seems to me the elimination of the income tax takes a step in the right direction.

Thomas Dikens Aug-24-2024

Venetian Poker

The disappointing aspect of the Venetian poker room for me has always been the fact that they seem to have great difficulty in accommodating my request for a vision seat. I am legally blind and so I see a lot better in the center seats for five or six. In general, the tournament directors don't seem to be very accommodating. Maybe they just don't want my business. Overall, the tournament directors just seem to have a negative attitude there. In general the best poker rooms for seat accommodation are the Aria, the Winn and Southpoint. Resorts world is very good in general but occasionally has a tournament Director who seems inexperienced and on a bit of a power trip. But, they have a great structure and most of the time the tournament directors are pretty good. The Venetian tournament directors needs some sensitivity training. No one chooses to need a vision seat, a hearing seat close to the dealer or wheelchair access, it's just something we need in order to play properly.

Randall Ward Aug-24-2024

tips

One of the present issues is the way most are paid, a small salary like $2.50 or so, plus tips.  They are expected to collect 8% tips, but this is another one of those needs to be updated. When meals were $20 8% was $1.60, most people tipped a $1 or 10% and the server easily made minimum wage. Now people are expecting 20% and the meal easily $200, or $16.  I've got grandkids serving now and they're collecting several hundred a night in reported tips plus a couple hundred more in cash.
It reminds me of the 70s when we were all graduating as med techs but kept working at the grocery store because it was union.

sunny78 Aug-24-2024

4 points

1.) One of the candidates STOLE the idea from the other who came up with it months earlier. Don't count on the stealer of the idea to follow through with it as it was not an original idea of theirs, imho just to steal thunder. 

2.) - So why would it be enormously expensive?- -would incentivize countless better-paid workers in every field to restructure their compensation packages.-

That's silly. The tax code could be updated to a tightly defined job title group with no loop holes in what you describe.

3.) The idea doesn't have to be an expensive endeavor. Unless someone has been under a rock and hasn't noticed the pissing away of money on everything and anything, this would be a non-debt raising idea as here's the elephant in the room: We have a SPENDING issue, NOT a lack of revenue issue. Simple math, live within one's means.

4.) -The non-partisan Committee for a Responsible Federal Budget-

lol, sure, 'non-partisan', just like everything and anything else today, right? Please.

Kevin Lewis Aug-24-2024

Never gonna happen

Tips are income. So are wages. Both are taxable whether the earner makes a pittance or lives large. There's nothing special or unique about tip income. If a person's total income is small, they're eligible for the Earned Income Credit and can file for a refund of taxes withheld.

As noted, the President can't, despite recent, um, insinuations, issue a royal decree exempting tips or any other kind of income from taxation. That's not his job. For this to happen, Congress would have to concur. And if they did so, they'd have to either increase other income taxes or let the deficit inflate (as was done in 2018). Neither would be politically or fiscally palatable.

Kenneth Mytinger Aug-24-2024

Maybe over simplifyings here, but

In the casino bars, at least.  When it's convenient, I've always summoned whomever is taking care of me, and have reached over to "handshake" the person with a large bill.

From what I've heard, sureveilance - other than over the table games - is rather cursory.  So not much chance of any dustups over recording or sharing, etc.  If the person feels obliged to share it, fine.

sunny78 Aug-24-2024

admin agenda

-As noted, the President can't, despite recent, um, insinuations, issue a royal decree exempting tips or any other kind of income from taxation. That's not his job. For this to happen, Congress would have to concur. And if they did so, they'd have to either increase other income taxes or let the deficit inflate (as was done in 2018). Neither would be politically or fiscally palatable.-

Of course, beyond obvious congress must approve this as they control the purse. The president sets the direction, to *potentially* make it happen. It lays down the agenda of an admin. Anyone with basic knowledge of how gov works knows this. Same with no taxes on social security. And tax cuts or tax increases. *Direction*, not a guarantee. Though with 1 party, odds say tax cuts are far less likely to happen.

But to state that somehow they will and must find offset cuts or new revenue? That's laughable, where have you been? The current $35+ trillion in debt and growing fast proves that ain't reality.

Gene Brown Aug-25-2024

Politics Aside?!!!

Politics aside with this topic, everyone in these United States of America would be better off if we didn’t have to deal with Politics! Period!

Question of the Day - 24 August 2024

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