Trump's no tax on tips proposal wouldn't benefit tipped workers
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Two-thirds of restaurant workers who work for tips earn so little that they don't pay federal income taxes, per a new report parsing data from the Census Bureau's American Community Survey.
Why it matters: Last month, former President Trump proposed eliminating taxes on tips — part of his more explicit appeal to the working class — but it's hard to see how that would benefit workers. It might even hurt them in the long run.
State of play: Trump didn't specify what taxes he meant to cut. Tipped workers pay payroll taxes for Social Security and Medicare and federal income tax.
- One bill, introduced by Sen. Ted Cruz (R-Texas) after Trump unveiled his tip plan, would just eliminate income taxes on tips.
- Another from House Republicans eliminates income and employment taxes.
Follow the money: The median hourly wage for waiters and waitresses is $15.36 per hour, per 2023 data from the Labor Department. That includes tips.
- Few of these workers are paid for a full 40 hours per week.
- That's according to Alex Morash, director of research at One Fair Wage, an advocacy group for tipped workers that put together the report in conjunction with the Food Labor Research Center at UC Berkeley. As a result, their annual income tends to be very low.
- Looking at self-reported income for all kinds of tipped restaurant workers, including servers, bartenders, barbacks and bussing staff, Morash's group found that nearly half earn less than $13,850 — the threshold you have to meet to pay income taxes.
- Roughly two-thirds live in households that don't make the income-tax threshold.
Zoom in: Eliminating the income tax on tips would help higher-earning tipped workers.
- There just aren't that many of them: 95% of tipped workers earn less than $53,000 a year, per the report's analysis.
The big picture "Many of these workers make so little that they will not come close to paying federal income tax under current law and thus would not benefit at all from Trump's proposal," writes Howard Gleckman, a senior fellow at the Tax Policy Center, in a post about Trump's proposal.
- Eliminating the payroll tax for tipped workers could give them a little paycheck boost, Gleckman writes.
- But down the road that means less money set aside for Social Security benefits — "no tax payments, no benefits," Gleckman writes.
Zoom out: The federal minimum wage for tipped workers has been stuck at $2.13 an hour since 1991.
- Advocates for low-wage earners have been fighting to get rid of this subminimum wage — with some success at the state level, where a handful of states and Washington, D.C., have eliminated it.
- Trump's proposal could "take the steam out of" those efforts, warns Gleckman.
The bottom line: To help restaurant workers, raising or abolishing the subminimum wage might be more effective than cutting taxes most of them don't pay.
