The Memo: Trump’s ‘tax-free tips’ proposal grabs headlines even as experts raise eyebrows

Former President Trump is making a new effort to boost his support from working-class voters: He’s proposing to make tips exempt from taxes.

The gambit has captured plenty of attention, to Democrats’ dismay and despite being viewed with skepticism by many financial experts.

Tellingly, the idea seems to have been first pushed by the former president at a rally in Nevada earlier this month. The Silver State, with its huge concentration of service industry workers, is a key battleground in November’s election.

Trump is very competitive there, even though the last Republican to carry Nevada at the presidential level was then-President George W. Bush in 2004. An Emerson College/The Hill poll Thursday put Trump 3 points ahead of President Biden.

Trump told his Nevada rally that “hotel workers” and “people that get tips” are “going to be very happy, because when I get to office, we are going to not charge taxes on tips.”

He added, “We’re going to do that right away, first thing in office, because it’s been a point of contention for years and years and years, and you do a great job of service.”

Even if Trump is elected in November, he could not make taxation policy alone. That’s a matter for Congress. But some allies on Capitol Hill, notably GOP Reps. Thomas Massie (Ky.) and Matt Gaetz (Fla.), are already pushing legislation that would give effect to Trump’s idea.

The proposal is underscoring how the GOP has changed under Trump’s leadership.

Fiscal conservatives are plainly skeptical of the idea, fearing it would further deepen the deficit and might have other unintended consequences.

But plenty of prominent voices within the GOP have hailed the concept. A desire to show fealty to Trump in an election year is part of that picture, but the enthusiasm seems to also be driven by a belief that the proposal could help undercut Democratic attacks on Republicans as the party of the rich.

Sen. Cynthia Lummis (R-Wyo.) told National Review it was a “fabulous” idea and “one of those things where good policy and good politics merged.”

Sen. Ted Cruz (R-Texas) told NBC News the concept was “terrific” in part because “there are a lot of people who are starting to climb the economic ladder who rely on tips.”

Cruz added that the proposal belied “the caricature … that Republicans were the party of the rich and Democrats are the party of the poor and the working class.”

Some kind of political realignment on the basis of class and education has been underway for several years, as strategists across the partisan divide have acknowledged. 

Left-of-center strategist and data analyst David Shor has argued for some time that education has become one of the major dividing lines in American politics, with college-educated voters being increasingly likely to support Democrats and those who have never attended college being correspondingly likely to vote Republican.

The shift is not necessarily caused by Trump alone, but he has clearly amplified it and benefited from it. An analysis from the Brookings Institution published in April showed Trump winning more white working-class support than any Republican presidential nominee in the past 40 years, including former President Reagan.

On the other hand, there are serious questions as to how the Trump tipping proposal would work in practice.

The Committee for a Responsible Federal Budget, a group that is hawkish about deficits, has projected that Trump’s idea would cost at least $150 billion over 10 years. The group’s president, Maya MacGuineas, told CBS News that it was one of a number of proposals, from both presidential candidates, that would make the nation’s fiscal situation “worse rather than better.”

Rep. Vern Buchanan (R-Fla.) told NBC News that “everybody likes to pay less taxes but we got to pay the bills.”

Others have raised issues of basic fairness. Making tipping exempt from taxation would self-evidently only help people who derive a significant share of their income from tips — leaving out other low-wage employees.

“If you’re working at McDonald’s flipping burgers, you’re not going to benefit from this — but you’re going to have low wages,” Mark Zandi, the chief economist at Moody’s, told this column.

Zandi also expressed a fear that has been raised from liberal-leaning groups — that making tips tax exempt could erode the larger impetus for an increase in the minimum wage. The federal minimum wage is $7.25 per hour, and for employees who receive tips it is a mere $2.13 per hour.

Saru Jayaraman, the president of One Fair Wage, a group that advocates for an increase in the minimum wage, recently told The Wall Street Journal that the Trump idea was “pandering to workers.” 

“It doesn’t actually solve the problem of economic instability and poverty and struggle that most of these workers are facing right now,” Jayaraman added.

There is a separate concern, too. If the tax system were to be shifted to incentivize tips over regular wages, it seems likely that some jobs that are currently waged would shift to a tipping model. 

Such a shift might exacerbate existing public annoyance about an apparent expansion of the services for which tipping is expected.

Still, Trump is clearly not backing down from a proposal that is easily understood and has populist appeal.

He has even encouraged supporters to write on restaurant and bar checks that the workers should vote for him because of his proposal.

Rep. Marjorie Taylor Greene (R-Ga.), one of the former president’s most ardent supporters, posted a receipt showing she had followed that plan.

“Vote Trump! No tax on tips!,” Greene wrote on the receipt, posted June 14 to the social platform X.

The Memo is a reported column by Niall Stanage.