Taxation vexation

If you’re a tip-earning casino worker reading this, you’re being conned. Not by LVA but by the political establishment, which is playing jiggery-pokery with your tip income. There’s quite a fever afoot in Nevada presently to rewrite the tax code to (partially) exclude taxes on tipped income. But even if it happens (a big “if,” for reasons we’ll explore), it’s a pig in a poke, a sham designed to keep your overall wages low. And both major political parties are at fault.

The trouble started when former (and future?) president Donald Trump (R) rolled it out as a policy proposal at a Las Vegas rally last month: Eliminate payroll taxes on tipped income. Unlike most Trumpian notions, this one quickly gained bipartisan traction, with Sens. Jacky Rosen (D) and Catherine Cortez Masto (D) quickly climbing aboard, where they found Sen. Ted Cruz (R), who was way ahead of Trump on the issue. Last week, Vice President Kamala Harris (D) crashed the party, endorsing the Trump tax cut. But …

The devil is in the details. Since the mainstream media has little truck with complexity or nuance, and political campaigns have no room for them at all, we’ll do our best. The first fly in the ointment is that tipped income would be exempted only from payroll (i.e., withholding) taxes. Ergo, workers would see more money up front. But it wouldn’t be exempted from income taxes, meaning a bigger bite on the back end. Imagine the ire of salaried workers if tipped workers suddenly became a privileged class, substantially exempted from income tax. Also, it would blow a $38 billion (at minimum) hole in the federal budget. That dog won’t hunt.

Also, un-levied paychecks give Big Gaming all the excuse it needs to say, “You’re getting more money upfront. Why should we pay you more by hour?” And they won’t. Pay, that is. Given the prospect of a payroll-tax holiday that effectively stagnates or depresses base wages, the likes of Bill Hornbuckle (liberal) and Phil Ruffin (conservative) are all too wont to find common ground in support of the Trump/Harris proposal.

Don’t take it from us. Ask Andrew Woods, director of the Center for Business and Economic Research at the University of Nevada-Las Vegas. “I don’t know if, long term, the majority of people would even see the benefit,” he mused. “They might see initially in terms of what they take home, but at the end of the year, when it all evens out, they might not see any gain.” Woods also told the local newspaper that, as they put it, “Customers may react negatively to increased emphasis on tips at a time of high inflation and discussions of the extent of tipping culture.” We hadn’t thought of that.

At least one politician saw through the bipartisan double-talk. Rep. Steven Horsford (D) stood the whole issue neatly on its head when he asked, Why not—in addition or instead—raise the subminimum wage on which tipped workers must subsist? We’d call it a subhuman wage, as it’s pitifully inadequate, even insulting in today’s America and has been for a long time. It serves to fatten Big Gaming’s profits by keeping the working class down and dependent, an arrangement with which both Democrats and Republicans have long been implicated. Like him or loathe him, President Joe Biden (D) has the right idea in this case by raising the minimum wage and eliminating the subminimum wage simultaneously, theoretically increasing the public’s spending power (and taxable income, it must be added).

Why, Horsford essentially asked, should tipped workers scrape by on $2.13/hour plus tips when the rest of the populace is ensured at least $7.25/hour? It’s a question for which we have no heard a good answer. We suspect the establishment (minus Horsford) doesn’t want to have that discussion. What Trump floated and Harris adopted is neatly skewered by Paris-Las Vegas bell captain Leain Vashon as “a slogan someone can use to get votes in Nevada.” Added the Center for American Progress, “exempting tips from income taxes does nothing for tipped workers whose earnings are so low that they are already exempt from income taxes.” Which is quite a few people.

Speaking of standing things on their head, Cruz’s bill would exempt tips from income taxes but not payroll taxes, keeping take-home pay low while creating a privileged class of taxpayer on the back end. Since tipped workers represent a tiny percentile of the overall workforce, the cumulative effect may be more cosmetic than substantive. However, tipped workers skew heavily (33%) toward Generation Z, so they may be receptive to Cruz’s pitch. (He’s also up for reelection.) 37% of tipped workers don’t even pay tax, by the way.

The Culinary Union did a flip-flop on the debate, first opposing Trump’s iteration, then slithering around to a sort-of-pro position. Culinary boss Ted Pappageorge told the Nevada Current that cutting (payroll) taxes on tips “would ultimately aid people in their ability to make ends meet and pay bills.” So would higher minimum wages, a nuance to which Pappageorge was deaf, although some of his membership was not. Regardless of its parentage, the tip tax cut is a monstrous afterbirth of electoral politics. It’s a catchy soundbite that’s so flawed and ill-considered that it’s almost certain to become law, hang the consequences.

Before leaving the Culinary, we should point out for the record that it endorsed Vice President Harris to be POTUS last week. It was a development that was both totally unsurprising and, from a Culinary standpoint, thoroughly logical. Harris courted the local early and often in 2020. If she didn’t go to the extent that a campaigning Biden did and picket Palms Casino Resort, she racked up markers—and garnered still more with frequent visits as veep. For the Culinary to have gone with the other guy this year would have been a real man-bites-dog story, though.