WASHINGTON (AP) — Former President Donald Trump's The recent proposal to exempt suggestions from federal taxes has received a positive response from some Republican lawmakers, but significant questions remain concerning the impact of the measure and its actual effect.
What is for certain is that a change in the best way suggestions are taxed would affect tens of millions of individuals. The U.S. Bureau of Labor Statistics estimates that there are 2.24 million waiters and waitresses nationwide for whom suggestions make up a big percentage of their income.
A have a look at Trump’s proposals and the potential political and economic implications:
TRUMP'S ELECTION YEAR PITCH IN NEVADA
Trump announced his plan for tax-free suggestions at a June 9 rally in Nevada, a key swing state with six electoral votes within the race for the White House. President Joe Biden won the state in 2020, however the Trump team hopes to bring the state into play this fall.
Nevada has the best concentration of tipped employees, with about 25.8 waiters and waitresses per 1,000 jobs, followed by Hawaii and Florida.
“The hotel workers and people who get tips are going to be happy because when I get into office, we're not going to tax tips,” Trump said on the rally. “… We're going to do that right away, right at the beginning of my term.”
The Culinary Union, which represents 60,000 employees in Las Vegas and Reno and supports Biden, dismissed Trump's plan as a ploy.
“Tip earners definitely need help, but Nevada workers are smart enough to distinguish between real solutions and wild campaign promises from a convicted felon,” Ted Pappageorge, secretary-treasurer of the Culinary Union, said in an announcement.
Lael Brainard, director of the White House National Economic Council, declined to comment on the concept floated by Trump because, as a federal worker, she is just not allowed to debate campaign politics.
“What I can say is that President Biden has fought for real solutions that actually meet workers' legitimate need for fair wages, and in a much more effective way, in our view,” she said, adding that tipped employees in Nevada would receive a $6,000 income increase from the next minimum wage and the elimination of the tipped minimum wage.
HOW WOULD THE TAX EXEMPTION WORK?
Trump has not specified whether he desires to exempt suggestions only from income tax or also from payroll tax. Payroll taxes fund Medicare and Social Security.
For employees, a blanket exemption would mean higher net income. And for the federal government, it could mean higher budget deficits.
The Committee for a Responsible Federal Budget, a bipartisan fiscal watchdog group, has estimated that exempting suggestions from income and payroll taxes would cut back federal revenues by $150 billion to $250 billion over the subsequent decade.
The committee said that exempting suggestions from taxation would encourage employers and employees to reclassify wages as suggestions when possible. The more often this happens, the more budget deficits would grow. A ten% increase in suggestions would increase the committee's forecast of lost federal revenue over the subsequent decade to $165 billion to $275 billion.
Congress will little doubt consider Trump's tipping proposal because it considers which parts of the Tax Cuts and Jobs Act of 2017, including the lower individual tax rates, needs to be allowed to run out after next yr. Lawmakers are already preparing for that task, though Trump's proposal is something many hadn't considered until recently.
Florida Republican Rep. Vern Buchanan, a rating member of the House Budget Committee, said lawmakers need to think about the entire cost of the tipping proposal and the way it could be funded.
“I want to be sensitive because they work hard, you can't find enough waiters and a big part of their income is obviously tips,” Buchanan said. “All these programs sound good. Everyone would like to pay less taxes, but we have to pay the bills.”
“I know he's trying to make sure that people on that income get as much relief as possible. Maybe we could do the same thing by making his tax cuts more permanent and targeting them more at low-income people,” said Republican Rep. Kevin Hern of Oklahoma, who also sits on the House Tax Policy Committee.
Compromises on non-taxation of suggestions
Like many tax proposals, Trump's push to exempt suggestions could have unintended consequences.
Howard Gleckman, senior fellow on the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, argues that Trump's proposal could actually backfire for a lot of tipped employees.
For example, some customers might reply to tax-free suggestions by reducing their suggestions. Second, it could sap the momentum of efforts in some states to steadily raise the minimum wage for tipped employees in order that their base pay is the same as the minimum wage for other employees.
“The lure of tax-free income could deter many workers from switching from tips to wages,” Gleckman wrote in a blog post.
Gleckman also questioned why a service employee shouldn’t pay taxes on suggestions while a warehouse employee earns the identical amount. He noted that while Trump has promised to right away repeal the tip tax, only Congress can repeal federal taxes, and “for the sake of efficiency, fairness and sound tax administration, we hope he doesn't do that.”
LOOKING AHEAD
Democrats largely dismiss Trump's proposal as a mere ploy to win votes.
Senator Debbie Stabenow, a rating member of the Senate Finance Committee, mentioned that she worked as a waitress in college and called it “really hard work.” She supports raising the minimum wage for tipped employees to bring it according to the minimum wage for other employees.
“In my opinion, Trump's proposal is not serious and I don't think it goes far enough to accommodate low-income earners,” Stabenow said.
Senator Ron Wyden, chairman of the Senate Finance Committee, said Trump would “discard many ideas in the course of his work,” but his record as president shows that he has placed an emphasis on tax breaks for the rich and corporations.
“All these things he throws away every day, I won't believe it until I see it,” Wyden said.
But Trump's enthusiasm for the concept appears to be growing. The tax pledge has since develop into a staple of Trump's rallies and meetings, and last week he raised his proposal at a gathering with Republican lawmakers and business leaders in Washington.
“I think this is actually a very smart idea. The men and women who rely on tips for their income work their asses off,” said Senator Ron Johnson (R-Wisconsin). “This is a very good, targeted tax reform.”
Some lawmakers and allies have begun tweeting photos of their restaurant bills with handwritten messages promoting Trump's guarantees. Republican Rep. Derrick Van Orden of Wisconsin wrote “Vote Trump!” and “No tax on tips!” on his bill from a Milwaukee restaurant.
Musician Kid Rock, a distinguished Trump supporter, shared a photograph on X.
“A vote for Trump is a vote against the tip tax!!,” he wrote on his receipt. According to the photo, he tipped $400 on a $1,143 bill at an expensive steakhouse.
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