Vice President Kamala Harris’ call to scrap taxes on tips adds to the bipartisan support for a proposal her rival, former President Donald Trump, floated two months earlier. But the fate of the policy idea could hinge on broader disagreements on base pay regardless of who wins the election.
Unlike Trump, Harris proposed pairing the elimination of federal taxes on tip income with a bump in the national minimum wage, which has been $7.25 an hour since 2009.
Many tip earners, however, are paid a much lower “subminimum” wage that requires employers to make up the difference whenever gratuities don’t add up to the federal pay floor. The U.S. subminimum, which a handful of states have replaced with across-the-board hourly minimums, has been $2.13 an hour since 1991.
“It’s heartening that everybody’s talking about it,” said Saru Jayaraman, president of the labor advocacy group One Fair Wage and director of the Food Labor Research Center at the University of California, Berkeley. But “it means nothing until we raise these workers’ wages and end the subminimum wage for tipped workers,” she said.
Without those changes, Jayaraman — who torched Trump’s plan as a “fake solution” in June — said, she wouldn’t support a standalone proposal on tip taxes. “The top issue for Black voters, Latinx voters and young voters this cycle is the cost of living and jobs with living wages,” she added.
It means nothing until we raise these workers’ wages and end the subminimum wage for tipped workers.
Saru Jayaraman, President of One Fair Wage
That criticism came amid concerns by fellow labor advocates that the proposal — which GOP lawmakers drafted into legislation backed by the National Restaurant Association — would incentivize business owners to make more of their workers tip earners to save on taxes. The Harris campaign said its plan would include strict rules to prevent that, along with an income limit.
The National Restaurant Association, which represents major food and beverage chains, didn’t address Harris’ proposal directly but reiterated its support for the No Tax on Tips Act, which Sen. Ted Cruz, R-Texas, introduced in July. A spokesperson for the trade group called the bill “sensible legislation” for industry workers that would put “more money in their pockets at a time when we’re all feeling the squeeze of higher prices.”
Tax experts note that many tip earners make too little to owe federal income taxes, and the roughly 4 million workers in tipped industries are far outnumbered by untipped hourly workers subject to minimum wage laws. Some tax policy analysts also say making tips tax-free would be costly and hard to implement.
The growing focus on tip income comes as consumers have become stingier tippers, with surveys indicating many tip-fatigued customers are tired of being asked to help ensure that baristas and servers earn enough to live on. The policy debate also coincides with a growing push to raise minimum wages and do away with subminimum pay.
While support for higher base pay is more widespread among Democrats on Capitol Hill, some congressional Republicans, including Trump’s running mate, Sen. JD Vance of Ohio, co-sponsored a minimum wage hike last year. But that policy was tied to mandating that businesses ensure that employees are authorized to work in the United States. Trump, for his part, has voiced mixed positions on the minimum wage since entering politics. A campaign spokesperson didn’t immediately respond to a request for comment.
At least 25 states and Washington, D.C., have increased their minimum wage within the last year under legislation already passed, while 20 have raised their tipped wage. Recent months have seen more movement in the courts and at the polls as well.
The Michigan Supreme Court cleared the way this month for the state’s subminimum to be phased out by early 2029. Jayaraman said One Fair Wage, which has pushed such changes in many states, is optimistic about efforts in Massachusetts, where a similar bill is on the ballot in November. She also noted that Chicago began phasing out its subminimum last month.
Tip earners have already benefited in some places that recently hiked base pay.
Chicago servers and bartenders at establishments using the Toast payment platform earned a median hourly base wage of $9.48 in the first quarter of 2024, up from $9 in the same period in 2022, the software provider found. In Washington, D.C. — which passed a measure last year to gradually raise base wages to $10 an hour — servers and bartenders earned a median of $8 an hour in the first quarter, up from $5.05 in 2022.
One potential trade-off: The district’s average tip rates dipped, and only partly recovered, after the change took effect, Toast found.
I don’t have this job because I want it. I have this job because I have to have it right now.
Heather Clark, 37, bartender
Heather Clark, 37, who bartends on weekends at Shigs in Pit, a barbecue spot in Fort Wayne, Indiana, would welcome tax-free tips. But since she gets paid less for night shifts — $4.36 an hour versus $10 during the day — Harris’ call to pair tip tax breaks with a wage hike sounds much more appealing.
That combo “would make a big difference,” said Clark, who also works full time as a college enrollment coach. “I don’t have this job because I want it. I have this job because I have to have it right now.”
Clark, an independent who told NBC News in June that Trump’s plan on tip taxes wasn’t enough to earn her vote, said this week that she’s backing Harris.
The fine print of any such plan could matter for tip earners. Cruz’s bill applies broadly to “cash tips,” while Harris singled out “service and hospitality workers” in her weekend speech.
“The moment I heard about it, I started keeping an eye on it,” said Steven Garrett, a barber in Montgomery, Alabama.
The 40-year-old married father of five let go of his barbershop in Tuskegee in 2022 because of steep rent and equipment costs, and took a full-time job at a social-services nonprofit group for more financial stability. Garrett said he makes about $50,000 annually but still brings in around $15,000 on the side from barbering — and would love to pocket more by filing tip earnings separately and getting an exemption.
“Sometimes I’ve gotten more in tips than I actually made through services,” he said.
Any relief for tip earners would put a dent in federal coffers if it isn’t offset. The nonpartisan Committee for a Responsible Federal Budget estimates Harris’ proposal would slash government revenue by $100 billion to $200 billion over 10 years. Its assessment of Trump’s proposal projected a deficit of $150 billion to $250 billion over that period.
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