Politicians are rushing to endorse the idea that the federal government should stop taxing tips. For the tens of thousands of Las Vegas workers who depend on tips to make a living, it might sound like a win.
But is it fair to those in other industries? Will it genuinely benefit tipped workers in the long term? In the short term, is it good policy or is it just a political move to gain votes?
And perhaps the bigger question: Should service businesses raise wages so workers don’t have to rely on tips at all?
WHAT IS NO TAX ON TIPS?
Initially proposed by former President Donald Trump at a Las Vegas rally earlier this year, no tax on tips has been proposed in both the House and Senate.
The measures have received bipartisan support nationally and locally– from Nevada Governor Joe Lombardo to Nevada’s U.S. senators, Catherine Cortez Masto and Jacky Rosen.
Both bills aim to exempt federal taxes on tipped income, but differ on payroll taxes. The Senate’s version still taxes a portion of tipped income for Social Security and Medicare, while the House version does not.
While the goal is to reduce taxes on tipped income and to increase take-home pay, tax law Professor Francine Lipman at UNLV’s William S. Boyd School of Law said neither measure would do much if passed.
“The tragic facts are that about half of all hospitality and service provider workers don't make enough to actually pay federal taxes,” Lipman said.
Lipman also said the measures don’t address the real problem, which is wages.
“The heart of the issue is they're not receiving a living wage.”
Additionally, Lipman thinks the bills have no chance of passing in Congress because the House and Senate are too evenly split between Democrats and Republicans.
WHAT DOES THE CULINARY UNION THINK?
The Culinary Union Local 226 is the largest union in Nevada, representing 60,000 workers, many of whom are tipped.
The union initially dismissed no tax on tips as a wild campaign promise from the Trump administration, but it now endorses the measure.
Secretary-Treasurer Ted Pappageorge thinks it’s not the only solution, but it’s a good first step.
“Tips should be treated differently than wages, and this is about working class families. Billionaires and big corporations don’t pay their taxes and tipped workers are getting hammered by the IRS, it’s ridiculous and there’s an opportunity to do something about it.”
U.S. Rep. Steven Horsford, D-NV, announced his version of no taxes on tips earlier this week.
His bill would aim to abolish federal taxes on tips, create provisions to prevent big employers from exploiting no taxes on tips themselves, and ban subminimum wages for tipped workers in states that apply.
Horsford plans to introduce the bill to Congress later this month.
Guests: Francine Lipman, tax law and accounting professor, UNLV’s William S. Boyd School of Law; Ted Pappageorge, secretary treasurer, Culinary Union Local 226
