Donald Trump's No Tax On Tips Crusade Could Backfire
Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources.
Ending federal income taxes on tips, one of President Donald Trump's signature campaign pledges in the 2024 election, could potentially backfire as Americans grow weary of tipping, experts have told Newsweek.
No tax on tips was something the president said he would enact "first thing" if he won the November election. The idea, launched in the service industry behemoth that is Las Vegas, quickly took hold with the electorate, so much so that his Democratic opponent Kamala Harris was quick to pledge the same relief for tipped workers should she win the White House race.
Fast forward 5 months into the second Trump administration, the pledge hasn't yet been enacted, but the idea is certainly beginning to take shape. As part of the One Big Beautiful Bill Act, Republicans have proposed a new tax deduction on tipped income up to $160,000 while keeping payroll taxes that are used to pay for Social Security and Medicare. Other legislative efforts have also been made. Texas Senator Ted Cruz, along with a bipartisan group of co-sponsors, introduced the No Tax on Tips Act to Congress in January, which would establish a new tax deduction of up to $25,000 for tips, subject to certain restrictions.
"Whether it passes free-standing or as part of the bigger bill, one way or another, 'No Tax on Tips' is going to become law and give real relief to hardworking Americans," Cruz said on the Senate floor. The bill passed the chamber in May with support from both parties.
Lawmakers are clearly keen on the idea, and the proposal is certainly popular with the American public, too. Polling conducted exclusively for Newsweek by Redfield & Wilton Strategies back in July 2024 showed that 67 percent of Americans do not believe tips given to service workers should be taxed.
But the proposal, if enacted, could have some unintended consequences, business experts have told Newsweek.
Tipping Culture Fatigue
Javier Palomarez, founder and CEO of the United States Hispanic Business Council, told Newsweek the policy could "reinforce tipping in the short term but erode it over time," pointing to a growing phenomenon of tipping fatigue—a weariness among consumers increasingly asked to tip in situations where it wasn't previously expected.
A BankRate survey conducted between April and May this year found that 41 percent of Americans believe tipping is "out of control" and that businesses should better compensate their employees instead of relying on gratuities to provide a wage. Thirty-eight percent reported being annoyed with pre-entered tip screens, which are usually used in automated checkouts, particularly in cafes or fast food restaurants.
Still, the generosity of many Americans could pull through, at least for a short while. "By framing tips as a tax-free bonus, the policy may temporarily boost the perceived generosity and importance of tipping, encouraging consumers to view it as a more impactful way to support service workers," Palomarez said.
Composite image created by Newsweek.
Composite image created by Newsweek.
Photo-illustration by Newsweek/Getty/Canva
But it's unlikely to be straightforward. "Cultural norms around tipping are sticky," he said. "By signaling that tipped workers deserve special tax treatment, the policy may further divide and complicate service industry compensation norms—bolstering tips in some sectors like restaurants while emphasizing reform calls in others like delivery services or app-based platforms. Over time, this could lead to service charges or higher base pay as consumers question tipping."
Speaking to Newsweek, Mark Luscombe, principal analyst for Wolters Kluwer's Tax and Accounting Division North America, warned that "the perception that tipped employees have a tax advantage may discourage tipping or at least the same amount of tipping by customers who are fully taxed on their incomes."
Pay Boost for Workers
While tipping fatigue is certainly on the rise, the pay boost for workers in the service industry is tangible. The Urban-Brookings Tax Policy Center has estimated that middle-income households could pocket an extra $1,800 per year under the plan.
Joseph Camberato, CEO at NationalBusinessCapital.com, emphasized that the policy is not necessarily designed to address tipping culture—for all its pros and cons—at large.
"We've all seen those 'tip' prompts at self-checkout machines for things you grabbed off a shelf yourself," Camberato told Newsweek. "This policy doesn't fix that, and honestly, it's not meant to. It's for the 1.8 million restaurant servers who rely on tips to pay their bills. For them, not getting taxed on that income is a big deal. This policy targets the right group and gives them a meaningful raise, basically overnight."
He added, "If anything, it's going to help the people who deserve tips the most like servers, bartenders, hospitality workers, walk away with more money. Remember, they usually get taxed 15 to 20 percent on tips. Take that off the table, and it's like giving them a 15 to 20 percent raise.
"If you're already a tipper, you're not suddenly going to stop because of this bill. But the person on the other side of the transaction is going to be walking away with more money, and that's the point."
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
24 minutes ago
- Yahoo
Has no tax on tips passed? Here's where things stand
As a presidential candidate last year, Donald Trump called for no taxes on tips — an exemption from the federal income tax for all tipped income. So where does that promise stand now? There is a provision in the 'big, beautiful bill' passed by the House in May, which the Senate is now considering. The tax break is included in both the House and Senate versions of the bill, so it seems likely to make it into the final version sent to Trump's desk. Plus, the Senate already voted unanimously on a separate bill that would do the same thing. Here are answers to some common questions about the 'no tax on tips' proposal: Trump first proposed to end taxation on tipped income at a campaign rally on June 9, 2024, in Las Vegas, a direct appeal to the service workers in the swing state's tourism industry. 'So this is the first time I've said this, and for those hotel workers and people that get tips, you're going to be very happy, because when I get to office, we are going to not charge taxes on tips people [are] making,' Trump said. It was part of a broader set of proposals thrown out with little detail during the campaign, including a pledge to exempt overtime pay from income tax. It was one of Trump's more realistic promises, however, as the idea quickly gained bipartisan support, including from Kamala Harris' campaign and Democratic Sen. Jacky Rosen of Nevada plus Republicans such as Texas Sen. Ted Cruz. It was also one of a number of campaign pledges he promised would be fulfilled right away if he won a second term. The Big Beautiful Bill Act, which passed the House, includes an income tax exemption for tips. As with the proposed $1,000 baby bonus and the exemption for income tax on overtime pay in the bill, the tips tax break would expire at the end of 2028, days before Trump's term ends. That helps Republicans in Congress keep the apparent cost of the bill down while setting up another fight on the issue just as the next president takes office. Under the House proposal, workers making less than $160,000 per year would qualify for the exemption. Tips would still have to be reported to the IRS, and they would be subject to withholding — meaning money would be taken out of each paycheck but workers would get it back if they were owed tax refunds the next April. Social Security and Medicare taxes would still apply to tipped income. The exemption would not apply to automatic gratuities for large parties at a restaurant and other service charges. The Senate passed a standalone bill called the No Tax on Tips Act in a surprise vote in late May. Rosen brought up the bill as a "unanimous consent" request, an accelerated process typically reserved for more routine issues, such as renaming post offices. But no senator objected, and the bill was quickly passed. The bill would create an income tax exemption of up to $25,000 for workers in jobs that have traditionally received tips who make less than $160,000. The exact jobs covered by the exemption would be decided by the Trump administration within 90 days of the bill's signing. As with the House bill, the Senate version would expire just as Trump leaves office. If it expires, the total cost of the measure would be about $40 billion. The Committee for a Responsible Federal Budget estimated that if the measure is extended over 10 years, it would cost more than $100 billion. The White House Council of Economic Advisers — which works for Trump — estimated that the measure would increase the average take-home pay for tipped workers by $1,675 per year. The Tax Policy Center, however, noted that the amount would vary greatly depending on the job. Half of all wait staff make $32,000 or less a year, which means they already pay little or no federal income tax. But the measure would give a much bigger break to the highest-paid tipped workers who make $60,000 or more a year. "A 20 percent tip on a $200 meal is vastly different than one for the $9.95 special at Mom's Diner," the nonprofit said in an analysis. As with the exemption on overtime pay, there's a wide range of possible outcomes. It's possible that the measure would simply end up reducing the annual tax bill for the top tipped workers and have no other effects. Or it could lead customers to give more — or possibly even less — in tips to wait staff, hairdressers and others once they know the money isn't taxed. Some economists think the exemption would undercut ongoing political efforts to increase the minimum wage for tipped workers, which is currently $2.13 per hour at the federal level. This article was originally published on
Yahoo
24 minutes ago
- Yahoo
Rally for LGBTQ+ rights to convene at historic site in Washington
By Daniel Trotta WASHINGTON (Reuters) -LGBTQ+ people will gather on Sunday at the Lincoln Memorial in Washington, site of Martin Luther King's 1963 "I Have a Dream" speech, for a political rally aimed at preserving decades of progress while protesting setbacks under President Donald Trump. After the festive nature of a parade on Saturday through the streets of the capital, the political demonstration may be the main event of the weeks-long WorldPride celebration, which moves around the globe every two years. It occurs in Washington at a time of high tension over LGBTQ+ rights in the U.S. Speakers are certain to rail against Trump, who has issued executive orders limiting transgender rights, banned transgender people from serving in the armed forces and rescinded anti-discrimination policies for LGBTQ+ people. The White House has defended its dismantling of diversity, equity and inclusion programs, calling DEI a form of discrimination, and said its transgender policy protects women by keeping transgender women out of shared spaces. The Trump administration has also touted its appointment of a number of openly gay people to cabinet posts and judgeships as evidence that Trump aims to serve all Americans. Before the main rally, transgender supporters will hold their own march to protest Trump's rhetoric and myriad state laws around the country that ban transgender healthcare services for minors. Backers of those laws say they are attempting to protect minors from starting on a path they may later regret. The transgender rally will march from the offices of the Human Rights Campaign, the largest LGBTQ+ organization in the U.S., toward the Lincoln Memorial, which is considered hallowed ground in the U.S. civil rights movement as the site of the King speech and the March on Washington that preceded historic legislation such as the Civil Rights Act of 1964 and the Voting Rights Act of 1965.
Yahoo
24 minutes ago
- Yahoo
Trump and Musk can both hurt each other in their feud. Here's how.
An explosive breakdown in the relationship between President Donald Trump and his biggest political donor turned part-time employee, Tesla CEO Elon Musk, has been foreshadowed since their alliance first took shape. When Trump brought Musk along for the ride as he moved back into the White House, the looming question was always how long the two could possibly stay in sync. After all, neither the most powerful person in the world nor the richest person on Earth is known for keeping his ego in check. The main thrust of the Trump-Musk feud boils down to who can assert dominance over the other. In the intense back-and-forth that had everyone glued to their screens Thursday, we saw bullies used to getting their way desperately trying to find leverage over each other. But unlike the flame wars of old, where internet trolls would hurl insults at each other across message board forums, Trump and Musk can do serious damage to each other in the real world — and to the rest of us in the process. Musk first gained access to Trump through his vast fortune; he donated almost $300 million during last year's election and hasn't been afraid to throw his money around in races this year. Though he said in May he would be 'spending a lot less' on funding political races, he has also been quick to threaten pumping money into the midterms should lawmakers back the massive budget bill currently working its way through the Senate. And Musk has made clear that he expects a return on his investments, having already snidely claimed on his X platform that Trump would have lost and Democrats would have taken Congress without his backing. Trump is reportedly more focused on the midterms than he was during his first term, worried that a new Democratic majority would lead to more investigations and/or a third impeachment. While he's already sitting on $600 million to help hold on to a GOP majority, Musk's money could throw a spanner in the works, especially if he follows through on his public musing about bankrolling a third party to 'represent the 80% of Americans in the middle.' Though Trump has his own social media platform, Truth Social, X remains a much louder microphone to amplify Musk's messaging to the right, including his supposed 'bombshell' about Trump's presence in the Jeffrey Epstein files. (Musk provided no evidence for the claim and Trump has previously denied any involvement with Epstein's criminal behavior.) Trump, in turn, has threatened Musk's lucrative government contracts, which would include billions of dollars funneled toward his SpaceX company, as well as the subsidies that Tesla receives for its electric car production. Musk responded by warning about cutting off access to SpaceX launches, which would potentially cripple NASA and the Defense Department's ability to deploy satellites. But that would prove a double-edged sword for Musk, given how large a revenue stream those contracts have become. By Thursday evening, Musk had already backed down from his saber-rattling about restricting access to the Dragon space capsule, but he could change his mind again. That he made the threat in the first place has raised major alarm bells among national security officials. The Washington Post reported Saturday that NASA and the Pentagon have begun "urging [Musk's competitors] to more quickly develop alternative rockets and spacecraft" to lessen his chokehold on the industry. Notably, Trump isn't alone in his fight against Musk, though as ever those wading into the brawl have their own motives. Former White House strategist Steve Bannon took the opportunity to launch a broadside against Musk. 'People including myself are recommending to the president that he pull every contract associated with Elon Musk,' Bannon told NBC News on Thursday night. Bannon requested that 'major investigations start immediately' into, among other things, Musk's 'immigration status, his security clearance and his history of drug abuse.' There are already several federal investigations of Musk's companies that have been underway for years, which critics had previously worried might be stonewalled due to his influence with Trump. While the extremely public breakup makes for high drama and more than a little schadenfreude, the pettiness masks a deeper issue. The battle Musk and Trump are waging is predicated on both wielding a horrifying amount of unchecked power. In a healthy system of government, their ability to inflict pain on each other wouldn't exist, or at least such an ability would be severely blunted. Musk being able to funnel nearly unlimited amounts of spending into dark money super PACs is an oligarchical nightmare. Trump using the power of the presidency to overturn contracts and launch investigations at a whim is blatant authoritarianism in action. In theory, there are still checks to rein each of them in before things escalate much further. Musk's shareholders have been unhappy with his rocky time in government, and the war of words with Trump sent Tesla's stock price tumbling once more. Trump needs to get his 'One Big Beautiful Bill Act' passed into law and — next year — ensure Congress doesn't fall into Democrats' hands. Trump and Musk have incentives, then, to stay in each other's good graces despite their wounded pride. Trump made clear to NBC News in an interview Saturday that he has no real interest in patching things up with Musk, warning that there will be "very serious consequences" if his one-time ally funds Democratic campaigns. Even if the two eventually reach a détente, it's unlikely to be a lasting peace, not so long as one feels his authority is challenged by the other. The zero-sum view of the world that Trump and Musk share, one where social Darwinism and superior genetics shape humanity, doesn't allow for long-term cooperative relationships. Instead, at best they will return to a purely transactional situationship, but one where the knives will gleefully come back out the second a new opening is given. Most importantly, there is no protagonist when it comes to the inciting incident in this duel, as a total victory won't benefit the American people writ large. Trump wants Congress to pass his bill to grant him more funding for deportations and to preserve his chances of staying in power. Musk wants a more painful bill that will slash the social safety net for millions. No matter what the outcome is as they battle for supremacy over each other, we're the ones who risk being trampled. This article was originally published on
