In the swirling chaos that is Washington, D.C., the notion of no taxes on tips continues to bob, like a buoy on the waves.
The idea has champions on both sides of the now widely divided aisle, but the purportedly bipartisan versions are not likely compatible.
On Thursday, Rep. Steven Horsford (D-Nev.) reintroduced the TIPS Act, a bill first introduced last year that not only seeks to eliminate the income tax on tips, but also would eliminate the sub-minimum wage altogether—the latter an effort that has been ongoing for several years.
Horsford and his Democratic co-sponsors chose Thursday to bring back the legislation because it was Feb. 13, or 2/13, a reference to the federal sub-minimum wage of $2.13 in use in about 15 states. In most states that allow use of a tip credit, the sub-minimum wage is higher.
And Horsford’s home state of Nevada is one of a handful that don’t allow a tip credit at all, so tipped workers there receive the full minimum wage, plus tips.
This year, the proposed legislation—which is championed by labor activists One Fair Wage and unions Local Culinary 226 and Amalgamated Transit Union—closes a “loophole” that could have allowed wealthy families to gift their fortunes too family members tax free by claiming it is a tip.
President Trump, of course, campaigned on the promise of eliminating taxes on tips. The idea is reportedly among his tax priorities outlined to House Republicans last week.
Sen. Ted Cruz (R-Texas) in January introduced the No Tax on Tips Act, which would also eliminate the income tax on tips—without altering the federal tipped wage.
At the time, Sean Kennedy, executive vice president of public affairs for the National Restaurant Association, called Cruz’s version “sensible legislation” that includes refinements and protections that make it fiscally responsible. The association estimates more than 2 million tipped servers and bartenders work in the industry nationally.
“Eliminating taxes on tips would put cash back in the pocket of a significant number of workers in the restaurant and foodservice industry and could help restaurant operators recruit industry workforce,” Kennedy said in a statement.
The issue has also been taken up at the state level, with bills introduced in about 20 states, according to the think tank the Economic Policy Institute, a vocal opponent.
EPI contends few workers would benefit from removing taxes on tips because lower-income workers would not likely meet income thresholds needed to qualify. And it would create new avenues for tax avoidance that could deplete state and federal budgets.
Last year, for example, the Committee for a Responsible Federal Budget said excluding tips from taxable income would cost the federal government about $250 billion in revenues.
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