Economists Warn of Risks in Ending Taxes on Tips

The discussion around eliminating taxes on tips has gained traction, particularly with support from former President Trump and Vice President Harris. Economists, however, express concerns about the implications of such a policy. While the idea seems beneficial for workers, it is noted that a significant portion of low-wage earners already pay little to no federal income tax, suggesting that the proposed tax exemption may not provide substantial financial relief for them. Ernie Tedeschi from The Budget Lab at Yale University highlights that the majority of tipped jobs may attract more workers if tips become tax-free. This could lead to a shift in the labor market dynamics, where more individuals seek employment in tipped positions. However, there is skepticism about whether consumers will continue to tip at the same rates, which could ultimately affect the income of tipped workers. The Harris campaign has indicated a willingness to implement income limits and strict requirements to mitigate potential negative outcomes from the no-tip tax policy. Yet, there are concerns about how this would affect restaurant owners and their ability to attract and retain staff. In conclusion, while the proposal aims to support workers, the potential benefits for employers and the overall impact on consumer behavior and tipped workers' earnings remain uncertain, prompting a need for careful consideration of the policy's broader implications.