Trump's no-tax plan on tips: A Vegas-style gamble
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Former President Trump's call to eliminate taxes on workers' tips is the kind of Vegas gamble a casino would never allow: It has multiple potential payouts and it's being made, essentially, with house money.
Why it matters: Trump is signaling to working class voters — many of whom are frustrated by high inflation — that he wants them to keep more of the money they earn.
- But he's also betting that waitresses and bartenders will care more about a possible tax cut than other workers — who don't get paid in tips — might worry about picking up the eventual tab, which could run up to $250 billion over 10 years.
- That makes Trump's tip plan potentially more expensive than his promise to corporate America to lower its tax rate from 21% to 20%, which would cost some $130 billion over a decade.
Between the lines: The ex-president hasn't said how he'd make up the lost revenue by making tips tax free, but there are only two options.
- It would be paid for by tax increases on other — perhaps unsuspecting — groups, or it'd just add to the federal deficit, which Trump's tax cuts did during his first term.
Driving the news: Republicans senators have seized on Trump's proposal, which gives Republicans a chance to argue that Trump's overall vision for more tax cuts wouldn't just help the wealthy, as Democrats have said.
- Sen. Ted Cruz (R-Texas) yesterday introduced the "No Tax on Tips Act" to make Trump's idea — born out of a conversation the ex-president had with a Vegas waitress — into federal law.
- "When (Trump) is back in the White House, he will work with Congress to get it done," said Karoline Leavitt, a Trump campaign spokesperson.
- Nevada's GOP senate nominee, Sam Brown, claimed it was actually his idea, telling NBC News that Trump "scooped" him.
- In Nevada, an estimated one in five workers are in the leisure and hospitality industry, according to state data. In Vegas, it's closer to one in four.
What we're watching: Some Democrats appear more critical of Republicans' ability to pass the proposal than they are on its substance.
- Sen. Jackie Rosen's (D-Nev.) campaign called Brown's endorsement of Trump's proposal "empty talking points."
- Rosen's campaign spokesperson Johanna Warshaw noted that Rosen "supports cutting taxes for tipped workers and all hardworking Nevadans," according to a statement from the campaign.
Nevada's powerful Culinary Workers Union Local 226 also dismissed Trump's proposal, while acknowledging that workers are struggling.
- "Relief is definitely needed for tip earners," said Ted Pappageorge, the unions secretary-treasurer, according to the Nevada Current.
- "But Nevada workers are smart enough to know the difference between real solutions and wild campaign promises from a convicted felon."
Zoom out: Technically, tax reform isn't on the Nov. 5 ballot.
- But with large portions of Trump's 2017 Tax Cut and Jobs Act (TCJA) set to expire in 2025 — and control of the House and Senate expected to come down to a few seats — it might as well be.
- Extending all the TCJA's provisions would add more than $4 trillion to cumulative fiscal deficits over the next decade, according to the latest CBO estimate.
Zoom in: President Biden, for his part, is sticking with the same formula he ran on in 2020. No personal tax increase for families making less than $400,000 a year, and higher taxes for corporations and the wealthy.
- Democrats believe that if the election turns on which party has done more for the working class, they'll prevail.
- Biden has raised the minimum wage for federal workers, called to increase it for everyone else and wants to eliminate the so-called tipped minimum wage.
What we're watching: An estimate by the Committee for a Responsible Federal Budget put the price tag on eliminating taxes on tips at $150 billion to $250 billion over 10 years.
- But ask anyone who has ever worked in the service industry. Many-a-tip has been pocketed without paying Uncle Sam.
- That makes scoring Trump's tip proposal exceedingly difficult.
The bottom line: "It's a substantial tax break for a specific class of workers," said Doug Holtz-Eakin, the president of the conservative American Action Forum, and a former chief economist at the Congressional Budget Office.
- "The obvious incentive is to reclassify everything as a tip," he said. "If they were private equity managers, this would have everyone up in arms."
