Both Vice President Harris and former President Trump have promised to eliminate taxes on tip income. Critics of both have raised the obvious points that Harris could (attempt) to do this now and Trump could have done it when he was President. While this tax cut sounds appealing as a political move, there are questions about whether it is a good idea from both a moral and practical standpoint.
On the positive side, eliminating taxes on tips would be directly beneficial to workers who receive a significant tip income. Being able to keep more of their income means that they would have more money to address the high cost of life in today’s economy of high rent and grocery bills. As tipped workers tend to be in the lower economic classes, this tax break has an extra appeal since it will mostly help lower income people. That said, there is the usual concern about tax changes that people will find ways to exploit and abuse this tax elimination. For example, it would not be surprising to see wealthy people suddenly receiving substantial tip income in addition to their capital gains income. But this is not a defect with eliminating taxes on tips itself, although there are concerns about this proposal.
One concern is that the proposal does not address the fundamental problem with jobs that rely on tips. While tipping has greatly expanded, it has not always been practiced in the United States and was once looked upon in a negative light. Like many bad things in America, the negative aspects of tipping can be traced back to slavery: freed slaves sometimes worked jobs for no pay, relying on tips from customers to have an income. While there is now a federal minimum wage for tipped workers, this wage is currently $2.13 an hour (although some states have higher minimum wages).
This means that the income of tipped workers relies heavily on chance. For example, whether a waiter does well on their shift comes down to luck with the generosity of customers. While some might say that a waiter can increase their tips through hard work or skills, this is obviously not consistent. A hard-working waiter might get a lousy tip from a stingy customer while a bad waiter might catch the eye of a customer in some manner and “earn” a big tip. While eliminating the tax on tips does increase take home income, it does nothing to make the income of those who work for tips more consistent. Also, it could be argued that mandating a higher minimum wage for such workers would provide more benefit.
Employers of tipped workers have an obvious incentive to favor the tax cut over any increase in wages, since tips shift the burden of paying the workers from the employer to the customer. In effect, the worker is a short-term employee of the customer, but the customer is not required to compensate them fairly (or at all) for their labor. In defense of this practice, it can be argued that in the case of restaurants, the margins are so tight that this is the only way for the restaurant owners to make a profit. It could be countered that the cost of service should be added to the cost of the food, and this should be paid to the workers. This does have some appeal, since people who tip are already paying more for their food. The main arguments against involve claims that this would cause people who do not tip or who are willing to tip but not willing to pay more for the food itself to cease patronizing the restaurant that adopted such a policy. These do have some appeal, if the claims are true. But the strongest moral arguments against eliminating the tax are based on fairness.
The first fairness argument is that it just as the employer of tipped workers shifts the burden to the customer, the elimination of taxes on tips would shift their tax burden to everyone else who pays taxes. These are the people who make enough to pay taxes but not so wealthy that they can avoid taxes. This is, of course, not a special problem with the elimination of the tax on tips but a general problem with any tax cut. The funds to pay for the military, subsidies to farmers, Trump’s Secret Service protection, border security, and the PPP “loans” for wealthy Republican politicians during Trump’s presidency have to come from somewhere and each tax cut shifts the burden. The obvious response is that the tax cuts can be addressed by spending cuts. But these are unlikely if Harris wins and if Trump wins the cuts would most likely hurt the lower income tipped workers. But if this tax cut was offset by making the wealthy pay at least some of their fair share, then that would make it more morally acceptable in terms of fairness. Instead of redistributing wealth in the usual upward direction, this would at least redistribute some of it back to the workers.
The second fairness argument is that only workers receiving tips benefit from the tax cut. Other workers who make the same income would be paying more taxes despite this sameness of income. A reply to this is to point out that the tax system already favors certain types of income. The maximum capital gain tax is significantly lower than the maximum tax on income from jobs. But at least this special category would benefit workers. The counter to this is to point out that such differences seem fundamentally unfair as income is income and granting special benefits seems unjust.
In closing, since tipped workers tend to be in the lower economic classes, eliminating taxes on tips has a certain moral appeal and it would seem wicked to oppose this. That said, this approach does not meaningfully address the fundamental problem with tip-based jobs and there are fairness concerns in terms of shifting the tax burden and granting some workers a tax cut based solely on the type of income. A better approach would be to address the fundamental problem with tipping, but it is unlikely that Harris would do so and certain that Trump would not.