Scrapping tipping taxes is now a bipartisan issue. Good. 

Never let it be said that Democrats think that Donald Trump is always wrong. Vice President Kamala Harris recently endorsed an idea first put forward by Trump: eliminate taxation of tipping. The fact that the issue has become bipartisan is a hopeful sign that it might actually happen.  

Tips have long been taxed at the federal level. The brunt of paying that revenue has fallen on lower-income service industry workers since they tend to be the main recipients of tips. Getting rid of those taxes would therefore provide an immediate income boost to those low-income workers.  

The boost would come without raising labor costs for employers since tips already bypass them: the money usually flows directly from customers to workers. Unlike other methods of boosting worker pay, like minimum wage increases, this would also ease inflationary pressures. Since their labor costs aren’t going up, employers won’t have to raise prices on consumers to offset that. 

In short, this is a good idea. Trump first proposed scrapping tipping taxes back in June and is rather chagrined that Harris has jumped on board with the idea, accusing her of being a copycat. There’s nothing bad about being a copycat if what is copied is a good idea for legislation. Harris has also proposed pairing tax elimination with a hike in the minimum wage, so one step forward, one step back.  

The wildcard is whether Harris’s allies on the left, especially unions, will back her on this or talk her out of it. Tipping can be a surprisingly complicated and contentious political issue. Tipping is problematic for unions because they have little influence over the practice. Unions get their power through negotiating with management. They cannot negotiate over tips because those don’t involve management. So, they’ve generally tried to discourage the practice.

Unions have long alleged that managers encourage tipping because it allows them to pay their workers less. That may be true in some cases. Even so, why should it matter to the workers whether the money comes from the employer or directly from the customer so long as it ends up in their pocket? Eliminating taxes on tipping would in all likelihood further encourage the practice. Workers would certainly hustle more for tips.  

Tipping has become an issue in part because of the gradual transition to a cashless economy. Customers increasingly use credit cards and app-based payment systems instead, all of which is tracked electronically. Previously, workers had to self-report their tips and it was widely assumed they underreported. The IRS said that $20 billion in tips were reported in 2008. That amount nearly doubled to $38 billion in 2018.  

When Trump first proposed eliminating tipping taxes earlier this summer, some progressive groups tried to downplay the benefits. Saru Jayaraman, president of the advocacy group One Fair Wage, called it “pandering to workers,” because it “doesn’t actually solve the problem of economic instability and poverty.” 

The progressive Center for American Progress argued at it would “leave out the more than 95 percent of low- and moderate-wage workers who are not in tipped occupations. And in many cases, the tax cuts it would provide low- and moderate-wage tipped workers would be small or nonexistent.”  

Note that both arguments implicitly concede that tipped workers would benefit. They just try to move the goal posts by arguing that not all workers would benefit, a claim that neither Trump nor Harris made to start with. 

That progressive opposition may now be cracking. The Culinary Workers Union of Nevada had opposed eliminating tipping taxes when it was solely Trump’s idea, but “has since come out in support of the general idea,” the Wall Street Journal reported. 

The business community has a tricky relationship with tipping. It mainly impacts the service and hospitality industry. Those employers complain that tipping can make it harder to hire for positions that don’t interact with customers and therefore don’t receive tips. Many businesses back laws and regulations that allow tipping pools for the purpose of redistributing money among all workers, but they tend to leave it at that. The taxation of tipping doesn’t directly affect management. Fiddling any further with the laws and regulations has little benefit for them. 

A spokesman for the National Restaurant Association cautiously told Politico, “We appreciate that the idea of eliminating taxes on tips continues to keep restaurants and tipped servers in conversations happening on the Hill and around the election.”