This article was authored by Andy Puzder for National Review on July 30, 2024
No tax on tips’ would benefit low-wage workers and the businesses that employ them. It’s also good politics.
Former president Donald Trump’s “no tax on tips” proposal figured prominently in his nomination-acceptance speech at the Republican National Convention, confirming that he’s serious about it. Critics from the Left and the Right claim it’s a political ploy that would benefit few workers and reduce tax revenue. Without question, tax policy should be designed to increase tax revenue, not to accomplish political goals. But some policies, such as this one, could achieve both.
Obviously, tipped employees would benefit if part of their income is untaxed — and that’s a good thing. According to the Budget Lab at Yale University, a nonpartisan policy-research center, roughly 4 million workers (2.5 percent of the labor force) hold jobs in tipped occupations. However, 5 percent of workers in the bottom 20 percent of wage earners — those making less than $17.66 per hour — hold jobs for which tipping is the rule. As a former restaurant-company CEO, I feel very confident predicting that this percentage would rise if Trump’s proposal became law, as would the benefits for low-wage workers. And those benefits would extend beyond a simple increase in those workers’ income.
Earning a paycheck can improve a person’s, and particularly a young worker’s, sense of self-worth. Earning tips enhances that experience because the rewards of the job are directly tied to individual performance and received in real time — tangible proof that a worker has excelled at his job. This builds confidence and strengthens the role of incentives in our economy. It also increases incomes far more effectively than, for example, government-imposed minimum-wage increases, which are unrelated to individual performance.
This helps explain why tipped workers overwhelmingly support keeping in place what is known as the “tip credit” — receiving a much reduced minimum wage ($2.13 an hour at the federal level) in anticipation of tips. In this respect, tipped workers are already treated differently than non-tipped wage-based employees — and they prefer it.
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