No tax on tips? Experts warn against bringing U.S. proposal to Canada

CBC

2 days ago

The idea of "no tax on tips" has found a way to appeal across party lines in the U.S. The policy is winding its ways through the halls of American government — but economists warn, it's not an idea worth pursuing here in Canada.
"It would be just as silly of an idea in Canada as it would be in the United States," Alex Muresianu, a senior policy analyst at Washington, D.C.-based Tax Foundation said.
The No Tax on Tips Act passed the U.S. senate in a unanimous bipartisan vote last month. Similar provisions are being worked into the One Big Beautiful Bill currently before congress.
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"It's catchy. I think 'no tax on tips' just rolls off the tongue very easily. And I think that is probably a big part of why it's caught on," Muresianu said.
While the idea was backed by both Donald Trump and Kamala Harris in the recent U.S. presidential election, it didn't come up in Canada's recent federal election — something that surprised UBC economics professor Kevin Milligan.
"I think that's a good thing," Milligan said.
"I think that the focus on making sure that workers feel that they get a good deal from the government by looking carefully at the taxes that working families pay, I think those are good things."
The No Tax on Tips Act exempts those making less than $160,000 a year from paying tax on tips, and capped the deduction at $25,000. There are similar provisions in the budget bill that is now before congress, though it does not include the cap.
When asked how much he pays in taxes on his tips, Windsor server Dawson Ryan says it's "too much."
He says tips are "almost the entire job," for him to make a living on top of minimum wage. Taking away the burden of taxes on tips would go a long way, he says, in helping him get by.
"I feel like honestly it would get more people into the industry as well," he said.
Maiden Lane assistant manager Olivia Holt says that, of course, the change would be welcome — but sees both sides of the issue and understands why some might call it a bad idea.
But Holt says she does want to see the process of accounting for tips during tax season simplified.
"It's already such a headache and figuring out what forms you have to fill out," Holt said.
'Treating a buck as a buck'
"What problem is it solving?" asked Christine Neal, chair of the economics department at Wilfrid Laurier University.
"Certainly from an economics perspective, no one has explained it well. Maybe from a politics perspective, but I'm not even sure of that to be honest."
She says while it might be true that a lot of people who earn tips are themselves low income, it doesn't mean they're paying a lot in taxes already.
"It ends up being these higher income people that might be benefiting the most," she said.
Kevin Milligan at UBC says the tax system shouldn't be distinguishing between different types of income.
"We'd like to think of treating a buck as a buck," he said. "Not caring too much whether it's tip income or other kinds of income. So that's why just helping out those with tip income is most likely something that's not the best way to go."
Neall agrees when it comes to not giving different treatments to different types of income.
She says it helps keep overall taxes lower than they otherwise would be and stops "loopholes that people can use for tax evasion or tax avoidance purposes."
'A good thing' says Canadian Taxpayers Federation
Kris Sims is the Alberta director of the Canadian Taxpayers Federation, a group that would like to see taxes come down across the board.
She says an initiative like this would be a nice thing to think about for Canada, and a starting point.
"At the end of the day, a tax cut is a tax cut. If we can get it for people even if it's for a certain class of people who just get tips, that's a good thing.
Sims says she can understand why politicians in Canada might have avoided the idea during the federal election because of perceptions people have about Donald Trump and his push for the plan — but it shouldn't stop anyone from bringing the idea forward now.