Former President Donald Trump and Vice President Kamala Harris agree on one thing, at least: Both say they want to eliminate federal taxes on workers’ tips.
But experts say there’s a reason Congress hasn’t made such a change already. It would be complicated, not to mention enormously costly to the federal government, to enact. It would encourage many higher-paid workers to restructure their compensation to classify some of it as “tips” and thereby avoid taxes. And, in the end, it likely wouldn’t help millions of low-income workers.
“There’s no way that it wouldn’t be a mess,” said James Hines Jr., a professor of law and economics and the research director of the Office of Tax Policy Research at the University of Michigan’s Ross School of Business.
Both candidates unveiled their plans in Nevada, a state with one of the highest concentrations of tipped service workers in the country. Trump announced a proposal to exclude tips from federal taxes on June 9. Harris announced a similar proposal on Aug. 10.
Details have been sparse. Neither candidate's team has said whether it would exempt tips only from income taxes, only from payroll taxes or both. The payroll tax funds Social Security and Medicare.
Harris’ campaign has said she would work with Congress to draft a proposal that would include an income limit and other provisions to prevent abuses by wealthy individuals who might seek to structure their compensation to classify certain fees as tips.
Her campaign said these requirements, which it did not specify, would be intended “to prevent hedge fund managers and lawyers from structuring their compensation in ways to try to take advantage of the policy.” Trump's campaign has not said whether its proposal would include any such requirements.
Even so, Hines suggested that millions of workers — not just wealthy ones — would seek to change their compensation to include tips, and could even do so legally. For example, he said, a company might set up a separate entity that would reward its employees with tips instead of year-end bonuses.
“You will have taxpayers pushing their attorneys to try to characterize their wage and salary income as tips,” Hines said. “And some would be successful, inevitably, because it’s impossible to write foolproof rules that will cover every situation."
Republican supporters of Trump argue that Hines' concerns are overblown. Darin Miller, a spokesman for Sen. Ted Cruz of Texas, said the Internal Revenue Service has a precise definition for tips and contended that reclassifying wages would be considered fraud.
Miller noted that some Democrats have signed on to co-sponsor a bill Cruz introduced in June that would exempt tips from federal income taxes. A bill exempting tips from payroll and income taxes has also been introduced in the House.
Though supporters say the measures are designed to help low-wage workers, many experts say that making tips tax-free would provide only limited help to those workers.
The Budget Lab at Yale, a non-partisan policy research center, estimates that there were 4 million U.S. workers in tipped occupations in 2023. That amounted to about 2.5% of all employees, including restaurant servers and beauticians.
Tipped workers tend to be younger, with an average age of 31, and of lower income. The Budget Lab said the median weekly pay for tipped workers in 2023 was $538, compared with roughly $1,000 for non-tipped workers.
As a result, many tipped workers already bear a lower income-tax burden. In 2022, 37% of tipped workers had incomes low enough that they paid no federal income tax at all, The Budget Lab said.
“If the issue is you’re concerned about low-income taxpayers, there are a lot better ways to address that problem, like expanding the Earned Income Tax Credit or changing tax rates or changing deductions,” Hines said.
In her speech in Nevada, Harris also called for raising the federal minimum wage. (The platform on Trump’s campaign site doesn’t mention the minimum wage.)
Changing federal tax policy on tips would also be costly. The Committee for a Responsible Federal Budget, a non-partisan group, estimates that exempting all tip income from federal income and payroll taxes would reduce revenue by $150 billion to $250 billion between 2026 and 2035. And it said that amount could rise significantly if the policy changed behavior and more people declared tip income.
Whether Trump or Harris wins the presidential election, tax policy will be high on Congress’ agenda in 2025. That’s because Trump-era tax cuts, passed in 2017, are set to expire. But Hines said he thinks Congress will be in no hurry to add “vast amounts of complexity” to the tax code.
“A presidential candidate can say whatever they want, but it's the House and Senate that have to do it,” he said.
FILE - A waiter delivers food to patrons at a restaurant, Jan. 21, 2022, in Miami Beach, Fla. (AP Photo/Marta Lavandier, File)
FILE - A tip jar contains one dollar and five dollar bills, Sept. 6, 2017 in New York. (AP Photo/Mark Lennihan, File)
TEL AVIV, Israel (AP) — A rocket fired from Yemen hit an area of Tel Aviv overnight, leaving 16 people slightly injured by shattered glass, the Israeli military said Saturday, days after Israeli airstrikes hit Houthi rebels who have been launching missiles in solidarity with Palestinians.
A further 14 people sustained minor injuries as they rushed to shelters when air raid sirens sounded before the projectile hit just before 4 a.m. Saturday, the military said.
The Houthi rebels issued a statement on the Telegram messaging app saying they had aimed a hypersonic ballistic missile at a military target, which they did not identify.
The attack comes less than two days after a series of Israeli airstrikes on Yemen’s Houthi rebel-held capital, Sanaa, and port city of Hodeida killed at least nine people. The Israeli strikes were in response to a Houthi attack in which a long-range missile hit an Israeli school building. The Houthis also claimed a drone strike targeting an unspecified military target in central Israel on Thursday.
The Israeli military says the Iran-backed Houthis have launched more than 200 missiles and drones during the Israel-Hamas war in Gaza. The Houthis have also been attacking shipping in the Red Sea and Gulf of Aden and say they won’t stop until there is a ceasefire in Gaza.
The Israeli strikes Thursday caused “considerable damage” to the Houthi-controlled Red Sea ports “that will lead to the immediate and significant reduction in port capacity,” U.N. spokesman Stephane Dujarric said. The port at Hodeida has been key for food shipments into Yemen in its decade-long civil war.
U.N. Secretary-General Antonio Guterres said both sides’ attacks risk further escalation in the region and undermine U.N. mediation efforts.
In the Gaza Strip on Saturday, mourners held the funerals of 19 people — 12 of them children — killed in Israeli strikes on Friday and overnight.
One of the strikes hit a residential building in the built-up Nuseirat refugee camp in central Gaza, killing at least seven Palestinians, including five children and one woman, and injuring 16 others, health officials said.
In Gaza City, another strike on a house overnight killed 12 people, including seven children and two women, according to Al-Ahli Hospital where the bodies were taken.
Mourners gathered at the hospital in Gaza City Saturday morning. Women comforted each other as they wept over the bodies before they were carried away. One man, stony-faced, cradled a tiny shroud-wrapped body in his arms as he carried it along the funeral procession.
In Al-Aqsa Hospital of Deir al Balah, white body bags containing those killed in Nuseirat were taken from the morgue and loaded onto the back of an open truck to be taken for burial.
Overall, Gaza's Health Ministry said Saturday that 21 people had been killed and 61 were wounded over the past 24 hours.
Israel faces heavy international criticism over the unprecedented levels of civilian casualties in Gaza and questions about whether it has done enough to prevent them.
Israel says it only strikes militants, and blames the Hamas militant group for civilian deaths because its fighters operate in residential areas.
More than 45,200 people have been killed and more than 107,500 wounded in the Gaza Strip since October 2023, when a Hamas attack in Israel killed about 1,200 people and triggered the devastating 14-month war in Gaza. Local health officials do not distinguish between civilians and combatants, but have said more than half of the fatalities are women and children.
The Israeli military organization dealing with humanitarian affairs for Gaza said Saturday it had led a “tactical coordinated operation” delivering thousands of food packages, flour and water to the Beit Hanoun area in the north of the Gaza Strip.
The organization, known by its acronym COGAT, said trucks from the U.N. World Food Program transported 2,000 food packages, 1,680 sacks of flour and thousands of liters of water to distribution centers in the area on Friday.
Aid groups have said previously that military operations and armed gangs have hindered their ability to distribute aid to civilians in need.
Gaza's Health Ministry issued an urgent appeal Saturday for medical and food supplies to be delivered to Kamal Adwan Hospital in Beit Lahia, near Beit Hanoun in northern Gaza, while the hospital director described dire conditions.
The ministry said in a statement that there was continuous gunfire and Israeli shelling near the hospital. “Shells have struck the third floor and the hospital’s entrances, creating a state of panic,” the ministry said.
Hospital Director Dr. Husam Abu Safiyeh said the facility was “facing severe shortages."
“Despite promises, we have not received the necessary supplies to maintain electricity, water, and oxygen systems," Abu Safiyeh said. "Our requests for essential medical supplies and staff have largely gone unmet.”
He said the World Health Organization had delivered 70 units of blood, but that the hospital requires at least 200 units to meet urgent needs. He said 72 wounded people were being treated at the hospital.
The shortages extend beyond medical necessities. “Food is very scarce, and we cannot provide meals for the wounded. We are urgently calling on anyone who can provide supplies to help us,” he said. “The staff is working around the clock, yet we cannot even provide meals for them.”
Shurafa reported from Deir al Balah, Gaza Strip. Associated Press writers Elena Becatoros in Majdal Shams, Golan Heights, contributed to this report.
Follow AP’s war coverage at https://apnews.com/hub/israel-hamas-war
Bodies of victims of an Israeli airstrike at the Nuseirat refugee camp are prepared for the funeral prayer outside the Al-Aqsa Martyrs hospital in Deir al-Balah, Gaza Strip, Saturday, Dec. 21, 2024. (AP Photo/Abdel Kareem Hana)
Men pray over the bodies of victims of an Israeli airstrike at the Nuseirat refugee camp during a funeral prayer outside the Al-Aqsa Martyrs hospital in Deir al-Balah, Gaza Strip, Saturday Dec. 21, 2024. (AP Photo/Abdel Kareem Hana)
Bodies of victims of an Israeli airstrike at the Nuseirat arrive at the Al-Aqsa Martyrs hospital before their funeral in Deir al-Balah, Gaza Strip, Saturday, Dec. 21, 2024. (AP Photo/Abdel Kareem Hana)
An Israeli soldier observes the site where the missile launched from Yemen landed Jaffa district, in Tel Aviv, Israel, Saturday, Dec. 21, 2024. (AP Photo/Tomer Appelbaum)
