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What a "no taxes on tips" policy could mean for U.S. tipping culture (www.axios.com)

submitted 2 months ago* (last edited 2 months ago) by [email protected] to c/[email protected]

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Why it matters: Typically, ideas like these are tough to turn into reality, but next year when the Trump tax cuts expire, Congress will likely pass some kind of new tax bill.

That creates an opportunity to put new policies in place, says Brendan Duke of the Center for American Progress Action Fund.

The intrigue: Where things start to get wild is outside the restaurant industry, as Americans try to figure out ways to classify more of their income as tips. Think bankers' bonuses or sales commissions — or even pay for a Substack writer or freelance podcaster.

The U.S. tax code already has different rules for different kinds of income — capital gains, for example, are taxed at a lower rate than payroll income.
When those kinds of divides happen, you create enormous incentives for people to game the system, says Howard Gleckman, a senior fellow at the Tax Policy Center.
Those kinds of shenanigans typically happen with higher earners — think of the carried interest tax loophole, for example.

For the record: An official from the Harris campaign said the policy would include "strict requirements to prevent hedge fund managers and lawyers from structuring their compensation in ways to try to take advantage of the policy."

Trump's campaign hasn't offered much in the way of detail.

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[–] [email protected] 74 points 2 months ago (2 children)

For the record: An official from the Harris campaign said the policy would include “strict requirements to prevent hedge fund managers and lawyers from structuring their compensation in ways to try to take advantage of the policy.”

I'm sure they want to do that, but it will fail and be abused just like independent contract work, civil forfeiture, and everything else that has an intended specific use case that gets changed over time to be abused by the powerful. This approach will make it so anyone can claim a monetary exchange was a tip and put the burden on the government to prove it wasn't, which is just ripe for abuse the moment it becomes law.

Tips as someone's base income is a cancer on society. Just make companies pay living wages instead.

[–] [email protected] 18 points 2 months ago

And those "strict requirements" would be written by lawyers and lobbyists for the hedge fund managers, so you know you can trust them.

[–] [email protected] 11 points 2 months ago* (last edited 2 months ago) (1 children)

I'm pretty sure the Harris suggestion requires you are specifically working as a waiter and a few other specific job descriptions.
So the possibility for abuse by "the powerful" does not seem possible to do legally.
People can always cheat illegally, which can work for years, but there's a risk to be found out.

Personally I'm against making tips tax free, because it seems to be a bad solution to a problem of low wages in service industries.
But on the other hand, if it's not politically possible with a better solution, I guess it's better than nothing.

[–] [email protected] 4 points 2 months ago* (last edited 2 months ago)

I'd like to see a multi-phase federal plan with the clearly stated ultimate goal to phase out tips. This plan should have clearly defined beginning, milestones, and end so that workers and businesses could plan around it and everyone would be on the same-ish page or at least know what's going on.

Stop taxing tips on specific jobs/industries combined with bringing up the minimum wage for all workers to standard (no $2.50/hr wage for tipped waiters, etc).
Start an educational program that talks about the history and effects of tipping culture and why this program is good to try to stop it
Start a government program that encourages reduced tipping, promoting specific percentages (e.g. 10% for restaurant table service) to consciously try to move the culture, this should go along with an increase in minimum wage that effectively makes up for the reduced tip. Repeat this step if needed to slowly step-down from tipping culture into one based on labor appropriately compensated by the employers.

This will help people know what to expect on both sides of transactions
This can reduce negative feelings associated with not giving a large tip because you know this is all part of a plan and the employer is expected be following the law and increasing compensation.
This will provide cover for business to increase their prices accordingly, and simultaneously the government can put out guidance about how much prices should be expected to rise and how your total bill won't really change much.

The end goals should be clearly stated, something like

A person working 40 hours/wk at minimum wage should be able to afford a basic, clean, up-to-standard 1-bedroom apartment, food, and transport, and basic medical care.

Hopefully, culturally, tipping changes to be seen as like " 'the old way', weird old people like paying service workers to feel superior".