Proposal came during rally in Las Vegas, where vice president is battling Republican nominee for support from service workers
by Siobhan Hughest, The Wall Street Journal, August 11, 2024
WASHINGTON—Vice President Kamala Harris on Saturday called for ending taxes on tips, attempting to seize on a policy idea advanced by Republican presidential nominee Donald Trump.
Harris’s announcement, during a rally in Las Vegas, comes as she prepares to roll out parts of her broader platform this week. Harris’s campaign has experienced a surge in popularity in recent weeks, and her tax proposal seeks to further blunt Trump’s populist economic appeal.
“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 said. The idea could prove popular in the swing state of Nevada, which is populated by casino and other service-industry workers who rely on tips.
Trump in June at his own rally in Las Vegas floated a plan to eliminate taxes on tips, an idea he later said that he came up with after having a conversation with a waitress in Las Vegas. Trump narrowly lost Nevada in 2016 and 2020, and the state is competitive again this year, ranking as one of six tossup states in the presidential contest, according to the Cook Political Report, an independent elections arbiter. The state is also a Senate battleground. Sen. Jacky Rosen (D., Nev.) has already backed eliminating taxes on tips and is one of this year’s most embattled Democratic incumbents.
Trump accused Harris of copying his plan for political advantage. “This was a TRUMP idea—She has no ideas, she can only steal from me,” he wrote on Truth Social, his social-media platform. His campaign began testing out a new moniker, calling her “Copy Cat Kamala,” and complained that her stance contradicts a Biden administration proposal unveiled last year to establish a voluntary tip-reporting program.
The Culinary Workers Union in the state had initially panned Trump’s proposal to eliminate taxes on tips, but has since come out in support of the general idea.
On Sunday, a Harris campaign official said that, as president, Harris would push for eliminating taxes on tips alongside an increase in the minimum wage, which was last increased under a 2007 law. The official said that Harris would work to impose an income limit and strict requirements to prevent hedge-fund managers and lawyers from structuring their compensation to take advantage of the policy.
On Saturday, Harris told reporters that she would this week unveil her policy platform, which she said would be focused on the economy and “what we need to do to bring down costs and also strengthen the economy.”
Tips are currently taxable income—a box on the W-2 form says “wages, tips and other compensation”—but the Internal Revenue Service has long struggled to get employers and workers to report that income accurately. The IRS maintains that reporting tipped income correctly isn’t difficult, and involves keeping a daily tip record, reporting tips to the employer and then reporting that income on the tax return.
The amount of tips reported to the IRS has risen steadily in recent years and exceeded $38 billion in 2018, according to IRS data.
Changes in the way tips are taxed would require approval from Congress, which is already dealing with an undercurrent of tensions related to the country’s $35 trillion in debt. Eliminating taxes on tips could take away federal income-tax revenue along with taxes that are applied to finance Social Security and Medicare.
Even an income-tax break would benefit service workers who make enough to pay income taxes, while a full exemption from income and payroll taxes would aid more people but leave gaps in the finances of Social Security and Medicare.
The proposal could create a two-tiered labor market where tipped workers would gain a significant advantage over other low-wage employees because they would face lower tax rates. And it could encourage even more tipping—a practice that has proliferated because of automated prompts at checkouts—by creating incentives for both employers and employees to structure compensation so that it maximizes tax-free tips and minimizes taxable wages.
The conservative-leaning Tax Foundation estimates that eliminating just income taxes on tips would cost around $107 billion over 10 years at a minimum. It has said that it expected such a plan could result in more service industries adopting the restaurant-industry approach, which would make the policy “dramatically more expensive.”
There is likely to be a large debate in Washington in 2025 over the tax code, as big sections of the 2017 tax-cut law are scheduled to expire. The next president will have the opportunity to shape these changes during negotiations with Congress.