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It comes as little surprise that both candidates announced this policy proposal in Las Vegas, as reported byCNBC.
Nevada remains a swing state, and its economy relies heavily on the hospitality sector.
For those workers, having no taxes on tips would make no difference to their taxes.
In 2021, for example, the bottom 57% of households paid no federal income taxes.
So which hospitality workers would benefit from the new policy?
Those earning strong incomes at higher-end restaurants and other establishments.
And that says nothing of the fact that tips are notoriously underreported.
That makes todays effective tax rate lower than for W2 workers earning similar sums.
But if Uncle Sam stopped taxing tips entirely, where does that leave other low- and moderate-wage workers?
Other low-paid workers who dont collect tip income would not receive any benefits from this program, adds Musson.
A Precedent for Other Tax-Free Income Types
That inherent unfairness creates a slippery slope.
It raises questions about what other types of income the government should exempt.
Already, Donald Trump hasproposed eliminating taxes on Social Security benefits.
And as certain types of income get special treatment, everyone will rush to take advantage of it.
Say you operate as afreelance graphic designer(or, ahem, a freelance writer).
McDonalds then moves their workers to the subminimum wage rather than the standard minimum for hourly workers.
That keeps labor costs extremely low for many hospitality businesses.
But every tip worker will tell you just how unpredictable their income is.
Less predictability meansmore difficult budgeting.
Sure, the federal government could spend less.
It benefits the restaurant industry, which is why the National Restaurant Association backs it.
It could also benefit anyone else creative enough to contort their income classification as tips.
Politicians pander on the campaign trail.
Its unavoidable but no less frightening when the popularity contest centers around poor economic policies.
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