Biden’s Surprising Move on Service Workers’ Tips Taxes

When Political Foes Agree

Just when you thought politics couldn’t get any stranger, here comes Biden endorsing Trump’s proposal. Yes, you read that right. For once, we have a glimmer of bipartisanship in Washington, D.C., thanks to Vice President Kamala Harris operationalizing this vision. Why should you keep reading? Because this could impact millions of American workers and offers a rare moment of unity—bizarre as it may be.

The Meat of the Policy

The fundamentals of the proposal by both Trump and Harris are clear: eliminate federal income taxes on tips for service and hospitality workers. On paper, this seems like a great win for the lower-paid sector of our economy. After all, why should Uncle Sam dip into a waiter’s pocket for providing stellar service?

Could be Smoke and Mirrors

However, let’s not put our rose-colored glasses on just yet. According to Erica York, senior economist and research director at the Tax Foundation, “This is good politics, but bad policy.” Many tipped workers earning too little to pay federal income taxes won’t benefit. In 2022, 37% of tipped workers earned too little to even owe federal income taxes. Consequently, this policy may not be the godsend it seems.

Legislation and Execution: Easier Said Than Done

Detailed plans are not yet released, and Congressional approval is still pending. Moreover, Harris’s approach aims to include raising the minimum wage and setting income limits to prevent abuse. Critics argue this could complicate and potentially negate the beneficial aspects.

“It is my promise to everyone here, when I am president, we will continue our fight for working families of America, including to raise the minimum wage and eliminate taxes on tips for service and hospitality workers,” Harris proclaimed.

A Bipartisan Affair

Interestingly, the proposal has garnered bipartisan support, notably from Nevada Senators Jacky Rosen and Catherine Cortez Masto. Within the House, several bills propose different versions of tip tax exclusions—some even eliminate both federal income and payroll taxes or cap the tip income amount excluded from taxes. This legislative potpourri underscores the complexity of getting substantial reform through Capitol Hill.

The Bigger Picture

Approximately 4 million people worked in tipped occupations in 2023, representing 2.5% of all employment. Of these, many are younger, lower-paid workers, with a typical weekly wage of $538 in 2023. Furthermore, the federal minimum wage for tipped workers is a paltry $2.13 an hour, but they must make at least $7.25 per hour with tips. Many states have already enacted higher minimum wages, some even eliminating lower minimum wages for tipped workers.

Potential Effects on Federal Budget

There are concerns about the fiscal impacts. Removing federal taxes on tips could exacerbate the federal budget deficit by an estimated $107 billion to $250 billion over a decade. This staggering figure raises essential questions about the long-term sustainability of such policy changes.

The Final Takeaway

In the wild west of politics, sometimes even the most unusual alliances can bring about potentially beneficial reforms. Whether this tax break will blossom into meaningful relief for service workers or wither on the vine, consumed by legislative haggling, remains to be seen. What’s crystal clear is that both sides will claim victory—and fill their campaign speeches—with this unlikely policy agreement.

“Absolutely, look this is something that the president supports,” said Karine Jean-Pierre, Biden’s press secretary, leaving us all to wonder if pigs really can fly.