Tip tax fight renews wage debate in Chicago
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Fights over wages for tipped workers are bubbling up again as Congress weighs a measure to cut taxes on tips.
Why it matters: The legislation could shift the equation yet again for Chicago's tipped workers and further confuse diners about how much they should be tipping.
- (Warning: There will be math in this story.)
Catch up quick: For decades, the service industry has operated under a two-tiered system where tipped workers get paid a lower minimum wage than non-tipped workers.
- But Chicago voted in 2023 to gradually phase out the subminimum wage over five years with an annual 8% boost until it matches the regular minimum wage of $16.20.
- The second bump takes effect Tuesday, pushing the subminimum wage from $11.02 to $12.26.
- If a tipped worker's base wage combined with tips doesn't equal the regular minimum wage, employers must make up the difference in Illinois.
Yes, but: Not all employers follow the rules, and campaigns like One Fair Wage (OFW) note that a subminimum wage augmented by tips has roots in slavery.
The upshot: Some diners are tipping less in the wake of these wage increases.
- 28% of readers in an unscientific Axios Chicago poll said they lowered tips in the first year of the hikes.
- ADP research has also suggested that as wages increase, tips have become smaller.
The intrigue: If Congress ends taxes on tips, workers could wonder about the continued advantages of slightly higher wages but lower tips.
- At least one survey shows hourly workers support eliminating taxes on tips.
State of play: Responding to restaurant owners who say they're drowning in rising costs, Lakeview Ald. Bennett Lawson (44th) in May proposed putting a pause on the city's five-year wage increase, but the measure has been sidelined in the Rules Committee with little chance of passage.
Meanwhile, progressive D.C. Mayor Muriel Bower, with the support of her council, has already paused the city's graduated subminimum wage increases as the lawmakers wait to see how Congress will vote.
The latest: One Fair Wage recently held an event with Mayor Brandon Johnson celebrating the city's law, which kicked in on July 1, 2024, with a report touting impressive wage gains for Chicago servers.
- The cited gains, however, came almost entirely in the four years before the ordinance kicked in. The report presented only three months of data from after July 1, 2024.
What's next: Congress is expected to settle on new tip taxation rules over the next few days as part of the hotly debated budget bill.
- But even if tip taxes are eliminated, analysts tell Axios, low-income Americans are likely to come out as the biggest losers of the overall bill.