No Tax on Tips: Trump’s Risky $250 Billion Plan Under Fire

Donald Trump is pushing through with his plan to eliminate federal taxes for service workers’ tips – but not everyone is impressed. 

What About the Rest?

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It might be a clear appeal for the younger working class’s votes, but former President Donald Trump has encountered critics stating that his plan offers little relief to workers and could result in bigger taxes for everyone else. 

Smart Location

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It is also no coincidence that Trump announced his “tip tax” plan at a campaign rally in Nevada, which sees the highest number of food service- and accommodation workers in the US.  

Vote for Trump

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Following the Nevada rally, Trump stated, on his 78th birthday, “We need to spread the word so that every time you leave a tip for the next five months, you put on the receipt, ‘vote for Trump because there’s no tax on tips’”. 

Payroll Tax Included?

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Currently, the Senate bill only includes an income tax exemption. Trump has not detailed whether his plan is to exempt tips exclusively from federal income tax or also from payroll tax, which is used for funding Medicare and Social Security. 

What Does the IRS Say?

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According to the Internal Revenue Service (IRS), cash and non-cash tips are considered income and, thus, subject to federal income tax. And as per the Federal Committee for a Responsible Federal Budget, the tips from restaurant- and hospitality workers are subject to both income- and payroll taxes. 

Is a Tip Always Taxed?

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Tips below $20 a month are not taxed. And many cash tips are paid under the table. 

Support From Senators

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Recently, Republic Senators Ted Cruz (from Texas) and Rick Scott (from Florida) introduced a bill that exempts service workers’ tips from federal income tax. This includes tips from cash, credit cards, and checks. 

What if It Goes Through?

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Should it be approved by the House and Senate and signed into law, Trump’s “No Tax on Tips” Act would mean taxpayers are allowed to claim a 100% deduction for tipped wages. 

A Multi-Billion Dollar Loss?

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As per the Committee for a Responsible Federal Budget, if tips are not taxed then the US could face a $150 billion – $250 billion loss in federal revenue over the next decade from the exemption.

A Previous Promise From Trump

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Trump promised top business leaders that he would continue cutting the corporate tax rate from 21% to 20%. This comes after he sliced it from 35% to 21% in 2017, which forms part of a package due to expire in 2025. 

But Not All Are Happy

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21-year-old Elyanna Calle, manager and bartender at Austin-based Beer Plant, claims: “The call to end taxes on tips is just a misguided way of trying to fix a problem of uplifting the lower class”.

Workers Are Underpaid

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Calle, who is also an organizer for Restaurant Workers United, a grassroots labor group, added: “Oftentimes the focus will go on to tip culture, when the real issue is that employers aren’t paying [enough] for labor”.

Higher Wages vs. Tax Relief

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Various workers and labor groups have stated that they’d rather increase base wages than tax relief on tips. 

Living Is Expensive

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Saru Jayaraman, president of the labor advocacy group One Fair Wage and director of the Food Labor Research Center at the University of California, Berkeley, said: “Trump and the Republicans are noting the polling that shows that the absolute top issue for our population — and frankly most populations this cycle — is the rising cost of living and jobs with living wages”.

This Is Not Right…

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In addition, Jayaraman also claimed that “getting rid of taxes on tips gives a once-a-year, nice little bonus to workers, but frankly not much. What they need is something every day of the year, when they’re struggling to pay rent”. According to her, “It’s not just the wrong solution, but a fake solution”.

Increased Minimum Wages?

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It’s estimated that at least 25 US states have already raised or are planning to raise their minimum wage this year. Big cities like Chicago and New York are authorizing a full minimum wage for tip workers.  

Tips to Close the Gap?

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Interestingly, many places work with both a minimum- and a lower “sub-minimum” wage for tip earners, where tips are required to fill up the gap between the two. 

What About Texas?

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In Texas, for example, the hourly sub-minimum is $2.13. And when the gratuities don’t add up to the federal hourly $7.25, it’s up to the employers to pay the balance. 

Some Vote “Hell Yeah”

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When presented with the idea of ending taxes on tips, 37-year-old Heather Clark, who bartends on weekends for $10 an hour in Fort Wayne, Indiana, proclaimed “hell yeah”. 

A Much Better Payday

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Clark, who noted that many patrons have shifted away from cash during the last 10 years, added: “I would come home with way better checks. On average, biweekly, I’ll work two to three shifts and my take-home check will be $200 to $300 when it should be like $600”. 

But Is It Enough to Back Trump?

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However, Clark also stated that this new tax cut won’t be enough to give her vote to Trump, adding: “There’s just so much other stuff that overshadows that he’s never earned my vote”.

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The post No Tax on Tips: Trump’s Risky $250 Billion Plan Under Fire first appeared on  EcoHugo.

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For transparency, this content was partly developed with AI assistance and carefully curated by an experienced editor to be informative and ensure accuracy.

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