Trump Has Somehow Stumbled Into a Very Likable Policy Idea
5 min read
A month ago, in the middle of a random rally in Las Vegas, as part of a policy-light campaign, Donald Trump nonchalantly dropped a surprising new idea.
“So this is the first time I’ve said this, and for those hotel workers and people that get tips, you’re going to be very happy, because when I get to office, we are going to not charge taxes on tips, people making tips,” Trump said. “We are not going to do it, and we’re going to do that right away, first thing in office, because it’s been a point of contention for years and years and years. And you do a great job of service. You take care of people, and I think it’s going to be something that really is deserved.”
The basic concept is exactly what it sounds like: Currently, income from tips is subject to federal income tax, but Trump wants Congress to pass a law exempting it. Last week, the idea was one of the few proposals to earn specific mention in the Republican National Committee’s very abbreviated 2024 platform. “No taxes on tips” has not inspired a great deal of elite attention, but maybe it should. Some 4 million people work for tips, and the idea could make a big difference in their lives. It is also a notable electoral ploy in Nevada, a key swing state that Republicans keep losing; a pithy slogan in a campaign otherwise lacking any; and the sort of signature Trump gambit that tends to fracture existing political coalitions.
“It’s classic Trump. Sometimes they’re crazy ideas and sometimes they’re really good ideas,” Stephen Moore, a senior visiting fellow at the conservative Heritage Foundation, a right-wing think tank, who has advised the former president on economic issues, told me. “I thought this was a masterstroke, personally.”
Trump has said he got the idea from a waitress he met in Las Vegas, which seems too perfect an origin story to be true, but when I searched for more plausible precursors, few presented themselves. Back in 2012, then–Republican presidential candidate Ron Paul floated the idea at a campaign rally in Nevada, but it didn’t seem to have caught on. (The Trump campaign didn’t respond to a request to discuss the proposal.)
No one else—no interest group, no Trump-favored economist, no anti-tax advocacy group—seems to have been pushing the idea before Trump’s Vegas rally. Grover Norquist, the longtime anti-tax campaigner, loves the idea but was taken by surprise: “I would have thought anybody with a good tax-cut idea has at some point come to my office, and I have not seen this before,” he told me. But other analysts view the proposal as a step backward for both workers and fiscal discipline. Howard Gleckman, a senior fellow at the nonpartisan Tax Policy Center, told me it was “hard to imagine any credible think tank on either the left or right would promote it. Can’t speak for the incredible ones.”
In other words, it’s a typically Trumpian move: completely detached from expert opinion on the left or right but with an intuitive appeal and political edge. Tipping is a peculiarly American tradition that has come in for intense criticism in recent years. The federal minimum wage is $7.25 an hour, but it’s just $2.13 an hour for tipped workers, assuming their tips bring them up to at least the minimum. Tipped workers are required to pay taxes on their tips, though experts question how accurately reported tips are, particularly those given in cash.
Customers tend to hate tipping, or at least to feel uncomfortable about it. Many progressive economists and institutions have pushed to raise or eliminate the lower minimum wage for tipped workers, or to eliminate tipping altogether. They point to discrepancies in tip amounts along racial lines and say that the practice hurts the lowest-paid workers.
But Trump would take things in the opposite direction, shoring up tipping’s role in the economy. In doing so, he could unite tipped workers in the service industry with wealthy small-business owners and small-government conservatives. For tipped workers, the prospect of not having to pay taxes is naturally alluring. For business owners, a world in which tips take on greater importance would reduce the pressure to increase minimum wages or eliminate a lower wage for tipped workers. Conveniently, this would also threaten to peel lower-paid workers, especially in a state like Nevada, away from Democrats, and it would undermine the efforts of labor unions and other groups that have campaigned for higher wages.
“This is both very good policy and very good politics,” Norquist told me. “I think it is a thing of beauty, because it does both.”
Norquist views the idea as a stimulant to individual workers—work more, or work better, and you make more without the government taking a cut—and encouragement for people to enter the labor force. “It raises the return on your time by making it not taxed,” he said. “And because it’s tips, it’s all completely under your control in terms of how you approach it. You know how to do something to get a better tip then, and it’s not, ‘I’ll stay an extra hour.’”
Other analysts are more skeptical. Almost four in 10 tipped workers didn’t make enough money to pay federal income tax in 2022, even before accounting for tax credits, according to Yale’s Budget Lab. The centrist Center for a Responsible Federal Budget calculated that the policy would nonetheless cost $150 to $250 billion in federal revenue over a decade. Michael Strain of the conservative American Enterprise Institute told me that a tax cut might be a good idea if it increased the rate of economic growth, encouraged investment in the economy, or advanced equity in a major way.
“I don’t think this proposal to exempt tips from income taxation really meets any of those tests,” he said. “Without an obvious or even without an articulated justification for why we would wish to do something like this, with the deficit where it is, I don’t know that we want to be losing that much money.”
Yet despite the fiscal shakiness, the political pull is strong. Trump has been encouraging his supporters to write “No taxes on tips” on their restaurant tabs. Within days of his first mention of the idea, his allies Ted Cruz and Matt Gaetz introduced bills in the House and Senate, respectively, to make it law. The National Restaurant Association, a major trade group, backed the idea. Such bills could make vulnerable Democrats squirm: Even if it seems questionable, who wants to be on the record voting against cutting taxes for waiters and cabbies? This makes “No taxes on tips” a little like the “Build the wall” of 2024: It might not actually be smart policy, but it sure sounds good on the trail.
