Latest news with #tippingculture
Telegraph
3 days ago
- Business
- Telegraph
Trump is about to send tipping culture into overdrive
'When I get to office we are not going to charge taxes on tips, on people making tips,' Donald Trump promised on the campaign trail. 'If you're a restaurant worker, a server, a valet, a bell hop, a bartender, one of my caddies –your tips will be 100pc yours.' The billionaire president has stayed true to his promise. The bulk of the tax cuts outlined in Trump's 'big, beautiful' tax and spending bill, currently before the Senate, reward the wealthy. But one populist clause within the legislation is a plan to scrap federal tax on tips – one of Trump's key campaign pledges. The tax break is popular with US service workers – everyone from hairdressers to restaurant staff – but may not be so popular with customers. American tipping culture is already in overdrive, and people hate it. A policy that was once the sole domain of the restaurant and hospitality sector has rapidly proliferated since the pandemic. Takeaway coffee orders now prompt demands for a few bucks extra and even stopping by a news-stand for a paper or some gum can lead people to pay an extra 20pc on their bills. Many Americans have noticed this creep and don't like it. As one Reddit user put it online: 'What the f--- am I tipping for? Is it not bad enough that I just paid over $5 (£3.7) for a small bottle of water?' Trump's tax break is likely to push a wave of new jobs to adopt restaurant-style tipping policies and will incentivise businesses to restructure their employees' pay, so that they receive a larger proportion of their income from tips. Maurice Obstfeld, former chief economist at the International Monetary Fund, says: 'Number one, this is going to induce new employers to classify more compensation as tips.' It may already be happening. Chris Bakke, a San Francisco entrepreneur and investor, wrote on X recently: The message, which may have been a joke, was in response to news that the US Senate had passed the No Tax on Tips act – a bipartisan bill proposing a tax deduction of up to $25,000 for cash tips. It is separate to the president's proposals, showing the broad support for the policy across the political spectrum. My barber just offered me a $1 haircut if I tipped him $50. — Chris Bakke (@ChrisJBakke) May 20, 2025 $15bn bill Both Republicans and Democrats present the policy as a boost for blue-collar workers. However, economists warn that people could end up with lower baseline pay as a result of the changes, putting more pressure on customers to top up earnings. That means even more social pressure and financial pain at the checkout. The plans laid out in Trump's tax and spending bill offer the same level of tax break as the No Tax on Tips act. Under the current law, staff are required to report tips to their employer if they total $20 or more in a single month. Businesses then include the tips in salary calculations – withholding federal income tax, social security tax and Medicare taxes. The new exemption will only apply to tips paid in cash, not by card. Workers must earn less than $160,000 per year to qualify and be working in occupations that 'customarily' receive tips. The US Treasury will publish a list of these occupations when the bill is passed into law. The total cost to the public purse will be around $15bn per year. The impact on American consumers and tourists visiting the US will also be huge. Abir Mandal, senior policy analyst at the Tax Foundation, says tax exemptions on tips will create 'perverse incentives' for employers. It will encourage businesses to make employees source more of their wages from tips, with a lower proportion from their salaries. Expectations for tips could also become far more widespread, and bigger. Chris Edwards, a tax expert at the Cato Institute, a libertarian think tank, says: 'I think different job types will shift their types of compensation. You can think of all kinds of professions where it could become more normal.' Luggage handlers at airports are an obvious potential example, says Mandal. 'They are given a salary. You can give them like $1 or $2 for carrying a bag, but in general they are paid a wage. If this thing takes off, perhaps their income could be reconfigured so that they would make a lower wage but expect a larger tip per bag.' Covid tipping point Tipping has always been the norm in US restaurants, but something changed during the pandemic. More people had food deliveries and wanted to show their appreciation for drivers, widening the tipping net. At the same time, wage growth accelerated sharply as the economy reopened but restaurant bosses and other small business owners struggled to match it. As a result, demands for tips grew. 'The expectation of tipping has grown quite dramatically,' says Stephen Barth, an attorney and hospitality law professor at the University of Houston. 'It was already growing and then during Covid it expanded exponentially.' The share of bakeries asking for tips has soared from 36pc to 49pc in the five years to July 2024, for example, according to analysis of payroll data by Gusto. Among coffee shops, the proportion has jumped from 56pc to 72pc. 'For a lot of small businesses, they run on very tight margins, which means that owners couldn't always raise wages. Tips let them pay more to their employees without hitting their budgets,' says Nich Tremper, senior economist at Gusto. The growth of electronic payment terminals, such as Square, has also made it easier to request tips. Whereas with cash it was up to a customer's discretion, now they are confronted with a menu of tip options and have to actively opt out. Even some card machines now have this as the default option. Tips are even now entering shops. The share of retail businesses using tips as part of their employees' pay nearly doubled in the five years to July 2024, rising from 3.86pc to 6.6pc. One in six health stores, 16.2pc, now pay their staff partly in tips. If Trump's bill passes, tipping will become even more important to staff wages, but potentially also more irritating to give. 'Only cash tips will be untaxed if this legislation passes. There may be added pressure on consumers to pay tips in cash. It'll make things awkward. And people already hate tips in America,' says Mandal. The change to federal tax policy is likely to trigger a wave of similar policies at a state level, he adds. States typically try to conform their own taxable income in line with federal policy. That may sound good for workers. But Barth says it amounts to just a 'subsidy for employers'. The tax break will reduce pressure on employers to raise wages and companies could actually cut workers' base pay as a result, demanding they make up the difference through tips. It hits at the heart of what many customers dislike about the recent transformation in tips. What was once a way of showing appreciation for good services has transformed into an expectation with no real link to the quality of experience. If you don't tip, it's not a sign that you're unhappy with the service – it's a signal you're a bad person. Obstfeld is scathing: 'This was a campaign promise that was made to essentially pander to voters and the economic rationale for it is basically nil.' The public may soon share his anger as demands for tips mount up.
The Independent
20-05-2025
- Business
- The Independent
Should I bring cash when I visit the US? Businesses hit tourists with 10% surcharge for credit cards
As tourists in the United States contend with high prices and an extreme tipping culture, another unexpected cost in the billing area has emerged: hefty credit card surcharges. During a five-day trip through Long Island, business after business imposed significant fees for paying with plastic. Others insisted on payment in cash – in the very nation that invented credit cards 75 years ago. Visitors to the US in the coming summer will need to take reserves of dollars in cash or accept a typical price hike of 3 or 4 per cent on meals, accommodation and other tourist services. The main driver of the surcharges appears to be the percentage deducted from the business's revenue by the financial institution. Credit card issuers in the US vie to attract new members with increasingly generous incentives. These rewards are funded by the cut they take from transactions. In the UK and EU, the 'interchange fee' that card firms may charge is capped at 0.3 per cent. But in the US, the only limit to commission is what the market will bear. In New York State at least, it appears a tipping point has been reached. Sometimes the arrangement is described as a 'cash discount incentive'. A bicycle rental firm in Montauk displays a notice by the till reading: 'This business has a cash discount incentive of 3.5 per cent. All goods and services are priced for cash payment. Purchases made with a credit card will receive a small non-cash adjustment, which will be displayed on your receipt.' Along the street, a busy and successful diner now insists on payment in cash. Further east in Oyster Bay, another diner has doubled the complexity of its menu by listing cash and credit card prices, with the latter showing a 3 per cent surcharge. A local garden centre applies a 3.5 per cent fee, shown on stickers with dual pricing. In these examples traders are upfront about the fee. But nearby motel simply adds a 2.99 per cent credit card surcharge to the quoted rate without warning the customer. While debit cards are supposed to be charge-free, it appears that some businesses surcharge any plastic. With sales tax and a minimum 18 per cent tip added to the cost of a meal out, a credit card surcharge of 4 per cent can push the extras above 30 per cent – to the point where the price quoted on menus in dollars will represent the final cost to the traveller in pounds sterling. Closer to New York City, the surcharge habit has been picked up by convenience stores – which typically add 10 per cent to the price of items, sometimes with a minimum credit card fee of a dollar or two. Large organisations such as the Long Island Rail Road, leading tourist attractions and big brands including Nathan's Famous hot dogs absorb credit card charges. However, British visitors who simply rely on their usual plastic payment card are likely to be hit by a foreign transaction fee of up to 2.99 per cent. Cards including Halifax Clarity and those issued by First Direct do not make such a charge. But withdrawing cash dollars from an ATM is likely to trigger a flat fee of $3.50 (£2.80). Rob Burgess, founder of the frequent-flyer website Head for Points, said he is resigned to paying extra for plastic. 'Personally, I would swallow the card fees,' he said. 'I don't want to be faffing around with fees for cash withdrawals, the potential costs of changing back unused money and the general grief that comes with paying in cash – not least because you quickly end up with a pocket bulging with coins because, when you add the sales tax, everything you buy comes to an odd total. 'I also find that I tend to overtip if paying cash because you never like to ask for change. If you're paying on a card you can add whatever percentage you want. If that means the bill is $43.34 then that's fine. If you were paying cash you'd probably put down $45 and leave it.' Tipping levels are steadily increasing, with some restaurants providing calculations of the gratuity based on 20, 25 or 30 per cent of the bill.
