Proposal to Exempt Tips from Federal Taxes Criticized

Both Donald Trump and Kamala Harris have proposed eliminating federal taxes on tips for service workers, aiming to attract voters in the hospitality sector. However, economists and tax experts criticize the plan as potentially harmful to low-wage workers, arguing that it disproportionately benefits a small portion of the workforce while failing to address broader issues of stagnant wages and income inequality. Notably, only about 2.5% of U.S. workers earn tips, and many tip earners do not currently pay income taxes, raising concerns that the proposal may reduce their contributions to Social Security and other vital programs. Critics also highlight that the initiative could create loopholes for high earners to reclassify income as tips, further complicating the tax system. Furthermore, the plan is deemed unfair to other low- to moderate-income workers who do not receive tips, with experts advocating for more comprehensive solutions such as raising the federal minimum wage.