This Garthtoons comic illustrates the folly of "no taxes on tips"
Republicans are getting desperate. The threat of "socialism" and "communism" as well as the Willie Horton-like ads they are playing, don't seem to be working as well as they thought they would. So why not just buy votes? Trump is literally doing this now, handing out cash (not much of it) to prospective voters. But that gets messy and expensive - and probably is illegal as well.
So why not just make empty promises for pie-in-the-sky ideas that will never happen? Costs nothing and changes the whole narrative. Plus, it garners votes from people in service industries - right?
Well, maybe. As the above cartoon notes, if tips are untaxed (at the Federal level, at least) it would motivate many people to restructure their incomes as "tips." You want a new roof? It's $100 for the whole thing, but there is a mandatory gratuity of $20,000 of course.
In a way, this is like the Kansas experiment with exempting Subchapter-S corporations from taxation. Subchapter-S corporations are not taxed, but the income "passes through" to the shareholders/owners who then would ordinarily pay income tax on that money. Kansas decided to exempt even that tax and guess what happened? Yup - there was a land-rush by everyone in the State to incorporate as a Subchapter-S corporation. Tax revenue plummeted and the State nearly went bankrupt.
Crazy tax ideas never work out well. Sure, everyone would like to not have to pay taxes. They also would like not to pay utilities or car insurance. Everyone wants a free pony and free ponies don't exist. When someone offers you a free pony, odds are, they are trying to screw you out of your very last cent. In the case of Kansas, it caused financial hardship for the rest of the State and will cost taxpayers for years to dig themselves out of the hole Republicans dug. Of course, the GOP will blame Democrats for the problem - that is the way these things work.
Ditto for "no tax on tips." Even if Trump gets elected, you can bet that tax breaks for billionaires will be at the top of his list. "No tax on tips" will get stalled conveniently in committee and Democrats will be blamed for not enacting this silly idea.
Silly? Yes. Because not only is it unworkable, it is unfair. The server at McDonald's gets no tips whatsoever, but is taxed on their wage income. The server at Applebee's gets tip income and doesn't have to pay taxes. The server at Chez Louis fancy restaurant, makes $50 to $100 a table (or far, far more) and pays little or no tax - while taking home a pile. He pays less tax than the first two, combined. Once again, a tax cut advertised as helping "the little guy" ends up helping him not at all, while the wealthier people reap the main benefit.
And make no mistake about it, waiters at high-end restaurants can really rake it in! Hey, it is only fair, as a coke habit is expensive and not deductible as a business expense (Trump is looking into that, though!).
It also makes no sense to single out one group of workers for tax exemption (tipped service workers) while ignoring others. It is as unfair as eliminating taxes on people who can structure their business as a Subchapter-S corporation. Why give tax breaks to arbitrary groups of people? It makes no sense at all.
Well, unless you run a restaurant. Because tipped service workers are often paid a sub-minimum wage as they are expected to earn tip income. And you can bet that restaurant owners will petition to lower that sub-minimum wage even further, using the argument that since tips are tax-exempt, well, servers are effectively making more! I could envision a scenario where service workers are paid no wage and forced to survive only on tips. But hey, it's tax-free!
When you get right down to it, the proposal is nothing more than a gimmick - to make working people think that Trump is on their side, and not on that of the Billionaire investment-class. But make no mistake about it, it is just a gimmick, an empty promise, that Trump, nor any other Republican, has any intent of fulfilling.
Starving the treasury of tax money doesn't result in small government, but rather just higher deficits - which in turn, fuels inflation, taxing us all, but taxing mostly the working class. The inflation of 2021-22 was due mostly to the deficit spending and the resulting dramatic increase in the national debt that we saw during the Trump era. Sadly, unlike Trump, the Federal government cannot simply avoid paying its debts or try to "cram down" its lenders.
There is also the question of Social Security and Medicare taxes - the so-called "payroll taxes" that Republicans (and even some Democrats, thank you very much, Obama!) like to cut occasionally to get our votes. Problem is, by cutting these taxes, it under-funds these programs, which are set to go negative in a few short years. And the longer we wait to fix that problem, the more painful it gets.
So, if we cut the "payroll tax" on tips, we add to the problem. And in addition to under-funding Social Security (which to the GOP is a feature, not a bug - they want to smother that program until it is dead!) it may mean that some tipped workers receive less in retirement as a result, as the amount you get in benefits is based in part on your earnings over your lifetime. Unless you have 40 Quarters of income, you will receive nothing at all.
Old people dying in the streets like old Calcutta. What's not to like? I mean, yea, lets turn America into a third world country so Billionaires can go for space walks. That's only fair - they earned it! And they paid their fair share of taxes, too!
The sarcasm light is lit.
