New York.- Former President Donald Trump and Vice President Kamala Harris agree on at least one thing: They both say they want to eliminate federal taxes on tips earned by workers.
But experts say there’s a reason Congress hasn’t made that change: It could be complicated, not to mention the enormous cost to the federal government to enact such a law.
It could encourage many well-paid workers to restructure their compensation to classify some of their “tips” and avoid paying taxes.
And in the end, it probably wouldn’t help millions of low-income workers.
“There’s no way that wouldn’t have been disastrous,” said James Hines Jr., a professor of law and economics and research director of the Office of Tax Policy Research at the University of Michigan’s Ross School of Business.
Both candidates unveiled their plans in Nevada, a state that has one of the highest concentrations of tipped workers in the country.
Trump announced a proposal to exempt tips from federal income tax on June 9, and Harris announced a similar proposal on August 10.
Details have been scant. Neither candidate’s team has said whether that would exempt tips from income taxes, payroll taxes or both.
Payroll taxes fund Social Security and Medicare.
Harris’ campaign has said it would work with Congress to craft a proposal that includes an income cap and other provisions to prevent abuses by wealthy individuals who might use their compensation structure to classify certain fees as tips.
The Trump campaign has not said whether the proposal would include any of those requirements.
Changing federal tax policy on tips could also be costly, with the nonpartisan Committee for a Responsible Federal Budget estimating that such a tax break could reduce revenue by $150 billion to $250 billion between 2026 and 2035.
Whether Harris or Trump wins the presidential election, tax policy will still be a top issue on the Congressional agenda in 2025.
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