U.S. Vice President Kamala Harris (L) and Former President Donald Trump
Reuters
Vice President Kamala Harris pledged to eliminate taxes on tips in the service and hospitality sectors if she wins the presidency, echoing the same proposal former President Donald Trump announced months earlier.
Both candidates promised tax-free tips at separate rallies in Las Vegas, making a direct appeal to voters in Nevada, a key battleground state where the hospitality industry employs roughly a quarter of the state’s workforce, according to June employment numbers.
“It is my promise to everyone here, when I am president, we will continue our fight for working families of America; including to raise the minimum wage, and eliminate taxes on tips for service and hospitality workers,” Harris said at her Las Vegas rally on Saturday, which drew a crowd of over 12,000, according to the campaign.
The proposal came a day after the Culinary Workers Union, a major labor group in Nevada, endorsed Harris. Ahead of her rally on Saturday, Harris said her campaign plans to unveil an official economic policy platform in the coming days.
Trump quickly took to social media to claim credit for the proposal, which he put forward in June at his own Las Vegas rally.
“[Harris] has no imagination, whatsoever, as shown by the fact that she played ‘COPYCAT’ with, NO TAXES ON TIPS!” Trump wrote in a Truth Social post on Saturday evening.
Banning taxes on tips would require new legislation and congressional approval, which a Harris campaign official later acknowledged.
The campaign official said Harris would work with congressional lawmakers to construct a tax-free tip policy that has an income limit and has requirements to prevent “hedge fund managers and lawyers from structuring their compensation in ways to try to take advantage of the policy.”
Those caveats respond to several criticisms that have already emerged about banning taxes on tips.
According to the nonpartisan Committee for a Responsible Federal Budget, eliminating taxes on service tips would leave a hole in federal revenue over the next decade of between $150 billion and $250 billion.
Beyond the hit to government revenue, some economists argue that a tax-free tip policy would not effectively achieve its goal of easing the tax load on low-income Americans.
“The policy goal is to lower tax burden for low-income workers,” Ernie Tedeschi, economics director at Yale University’s Budget Lab, told CNBC in June after Trump initially proposed the idea. “This is not a well-targeted, efficient way of doing that.”
He noted that only a small sliver of the low-income workforce are in tipped jobs and many of those workers skew younger or already pay no income tax because of their low earnings.
He also argued that the policy could create a hierarchy of low-income jobs where only some workers reap the benefits of tax-free income. And he said that tiered approach could compel employers to try to game the system like, for example, encouraging more tipping instead of raising wages.
“What would an economy where we incentivize tips so much look like?” Tedeschi said. “I have to imagine that smart tax lawyers and accountants thinking about this for just a little bit of time, would think up some really clever ways to take advantage.”