Although former President Donald Trump is not exactly known for his detailed policy proposals, he has recently announced support for tax policies that, if enacted, would change how millions of Americans file their taxes. He was recently joined by Democratic nominee Vice President Kamala Harris in making a tax pledge that may sound good to certain voters, but which some experts have met with skepticism.
In June, Trump highlighted the plight of a server who complained about paying federal taxes on her tips, pledging that he would support exempting unspecified taxes for tipped workers. “For those hotel workers and people that get tips, you’re going to be very happy, because when I get to office, we are going to not charge taxes on tips,” Trump said in a rally in Nevada, in an effort to appeal to that state’s significant population of service workers. “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.”
But the Republican presidential candidate isn’t the only one making such promises: At a rally in Las Vegas on Saturday—the same city where Trump made his pledge to end taxes on tipped wages—Harris vowed to “eliminate taxes on tips for service and hospitality workers.” Separately, she promised to raise the minimum wage. Also like Trump, Harris did not provide details on which taxes would be exempted.
Trump has also expanded his goals beyond exempting unspecified federal taxes from tipped wages. In early August, he followed up with a post on social media promising to support ending taxes on Social Security. “Seniors should not pay tax on Social Security!” Trump posted to his Truth Social network, following up a few days later with a pledge combining the two policies: “No tax on Social Security for seniors, no tax on tips!”
While seemingly uncharacteristically wonky, these campaign promises are an overture to workers in a critical swing state—Nevada, which Trump narrowly lost in 2016 and 2020—and to older Americans, who are the most consistent voters.
Service workers are almost entirely reliant on tips for the lion’s share of their income, particularly in states that adhere to the $2.13 per-hour federal minimum cash wage for employees who also receive tips. Very few states require businesses to pay tipped employees full state minimum wage before tips. (In Nevada, where both Harris and Trump announced these promises, the minimum wage for all workers is $12 per hour as of July this year.)
Trump has not specified whether he would like to see tips exempted from income taxes or payroll taxes. Shortly after he suggested the proposal, GOP Senator Ted Cruz introduced the No Tax on Tips Act, which would exempt cash tips from federal income taxes. A separate proposal introduced in the House by Republican Representatives Thomas Massie and Matt Gaetz would exempt both income and payroll taxes from cash tips. Cruz’s bill has a companion measure in the House and has since been co-sponsored by Democratic Senators Jacky Rosen and Catherine Cortez Masto, both of Nevada, which has the highest proportion of hospitality and food service workers of any state. Like Cruz, Rosen is up for reelection this year.
Supporters of exempting taxes on tips argue that it will help struggling low-wage workers in the service industry. “It’s going to be working people who benefit from that,” said Republican Senator Josh Hawley, who supports Trump’s idea, even as he has not specifically signed onto Cruz’s bill. “It’s not going to be rich people. They’re not subsisting on tips. The people who are really subsisting on tips, they need that money.”
But skeptics wonder whether these proposals would truly reach the people that most need tax relief. Tipped workers comprise only around 2.5 percent of all employment, according to the Yale Budget Lab, and less than 4 percent of the bottom half of hourly wage earners—those earning under $25 in 2023—were in tipped professions. Moreover, more than one-third of tipped workers already earn too little to pay income taxes, meaning that they would not be directly affected by a policy exempting federal income taxes from tips.
“If we reasonably assume that the goal of this policy is to provide tax relief to working-class families, this is an inefficient way to do it,” said Ernie Tedeschi, the director of economics at the Yale Budget Lab. The policy could also pose a problem for relatively low-wage tipped workers who might otherwise receive the child tax credit, or the earned income tax credit.
“A nonrefundable tax credit only accrues to you if you have any sort of federal tax liability. So if you reduce that federal tax liability because you get that tipped exemption now, that’s great, but then you lose a portion of that nonrefundable tax credit like the child tax credit,” explained Tedeschi. “So you might not be any better off as a result of that.”
Still, supporters note that the population of tipped workers who would receive the credit outnumbers those who would not. Republican Senator Kevin Cramer, a co-sponsor of Cruz’s bill who worked as a host at a restaurant in his youth, called the measure “good politics and good policy.” He also argued that it would assist a significant number of people who do earn enough to pay income taxes, and for those who do not earn a sufficient amount, this policy would leave them “no worse off.”
“If somebody doesn’t pay any income taxes—if they’re not making enough while they’re earning tips—they’re probably eligible for other programs,” Cramer said.
But Howard Gleckman, a senior fellow in the Urban-Brookings Tax Policy Center at the Urban Institute, said that the tipped workers who would be exempt from paying federal income taxes may already be earning a healthy paycheck. A 20 percent tip on a $200 meal in a high-end restaurant stretches a lot further than a 20 percent tip on a $10 meal at a local diner. A server at the high-end restaurant would benefit more from seeing their tips exempt from taxes, while a server at the local diner would earn more money from a higher tipped minimum wage, said Gleckman.
“It’s a very regressive proposal because what it means is, the more you make, the more benefit you get,” he said. “You shouldn’t be benefiting that small number of tipped workers that are earning more than $50,000 or $60,000 a year. You should be thinking about benefiting the low-wage, low-income tipped workers who are making maybe $20,000 or $30,000 a year.”
It’s also difficult to predict how prospective tippers would respond to the knowledge that tipped workers are exempt from income taxes. The Tax Foundation, a conservative-leaning think tank, raised the prospect that some employers would find it more profitable to transition to tip-based wages. Lawmakers could theoretically write a provision to ensure high-paid workers like lawyers or doctors do not begin to earn some of their income as voluntary tips, but none of the measures introduced in Congress currently include those guardrails.
Moreover, Gleckman worried that tipped workers would start seeing lower gratuities, and gave the example of a warehouse worker visiting a restaurant. If the warehouse worker knows that she is earning roughly the same amount as her server but the server does not pay the same income taxes, the warehouse worker may be less inclined to leave a generous tip at the end of a meal.
If Congress approved a bill that would exempt payroll as well as income taxes, the Committee for a Responsible Federal Budget found that it would reduce revenue by between $150 and $250 billion over 10 years. It could also hasten the financial issues with Social Security and Medicare, which are both set to reach insolvency in the early 2030s.
“A proposal that would exempt payroll taxes even for a small slice of the population could meaningfully change that calculus and make it earlier than that,” said Tedeschi. “You could backfill the lost revenue to the Social Security Trust Fund, but that’s going to increase the deficit. So by exempting payroll tax, you’ve made this proposal much more expensive than it was before.”
However, exempting payroll taxes would benefit the restaurant and hospitality employers—such as Trump himself—as they would no longer need to pay payroll taxes either.
The proposal has earned skepticism from some industry groups. Although the National Restaurant Association has endorsed Cruz’s bill, the union that represents Nevada’s army of hospitality workers has questioned whether Trump is serious.
“This is what we call a wild-ass campaign promise,” Ted Pappageorge, the secretary-treasurer of Culinary Workers Union Local 226, told The Nevada Independent in July. United Here, the hospitality workers union, endorsed Vice President Kamala Harris for president this month, with union president Gwen Mills dismissing Trump’s proposal as unserious and a ploy to earn voters.
However, Culinary Workers Union Local 226 supported Cortez Masto and Rosen signing onto Cruz’s bill and Harris’s words on Saturday—indicating that their issue wasn’t with the promise to end taxes on tips, but the candidate who first made the pledge.
“The path to victory runs through Nevada and the Culinary Union, and we will deliver Nevada for President Kamala Harris and Vice-President Tim Walz,” Pappageorge said in a statement.
Posting on his Truth Social site on Saturday evening, Trump accused Harris of copying his idea, saying “she has no ideas, she can only steal them from me.” He added: “The difference is, she won’t do it, she just wants it for Political Purposes!” Trump posted on his Truth Social site. A president would not be able to end taxes on tipped wages unilaterally, but would require congressional action.
A Harris spokesperson did not provide details on which specific federal taxes she wished to see exempted, but noted it would require legislation. “As president, she would work with Congress to craft a proposal that comes with an income limit and with strict requirements to prevent hedge fund managers and lawyers from structuring their compensation in ways to try to take advantage of the policy,” the spokesperson said.
Skeptics also see Trump’s proposal to end taxes on Social Security benefits as an effort to attract voters without considering policy consequences. The Committee for a Responsible Federal Budget found that such a policy would increase deficits between $1.6 and $1.8 trillion through 2035; the analysis also found that it would dramatically increase the Social Security and Medicare hospital insurance fund shortfalls, and accelerate both programs’ insolvency.
Like Trump’s proposal to exempt taxes on tips, ending taxes on Social Security benefits would not necessarily benefit the poorest recipients. Currently, roughly 40 percent of people who receive Social Security pay income taxes on their benefits. A Tax Policy Center analysis found that households earning $32,000 or less would receive little to no benefit from such a policy, while recipients making between $32,000 and $60,000 would get an average tax cut of $90 per year. When considering after-tax income, the biggest beneficiaries would be middle- and upper-middle-income households, said Gleckman. But while it might help recipients in the short term, the long-term result would be accelerated insolvency of the program—with one estimate finding that median Social Security benefits would be reduced by $5,900 once the program is insolvent.
The idea of ending taxes on Social Security has earned some bipartisan support from lawmakers. A Republican-led bill in the House would repeal the tax and prohibit tax increases to cover the shortfall. Meanwhile, a separate bill from Democratic Representative Angie Craig would repeal the tax and offset the losses by implementing a Social Security payroll tax for earnings over $250,000. GOP Senator Pete Ricketts has also introduced a bill to phase out the tax on benefits over multiple years.
However, other Republicans are skeptical of the proposal. GOP Senator Bill Cassidy noted that, under current law, recipients of Social Security benefits today would also see a cut of at least 20 percent in their benefits when the program becomes insolvent—not just those who will be receiving Social Security after 2033. “That’s going to offset anything we do,” Cassidy said. “You’ve got to govern, and you’ve got to make sure that you don’t hurt people.”
Congressional Republicans generally believe that one of Trump’s crowning achievements while in office was the $1.9 trillion tax cut legislation approved in 2017 under the auspices of a GOP-led Congress; Republican Senator Thom Tillis called the legislation “one of the single most positive impacts that we had in that administration.” But with several of that measure’s provisions set to expire at the end of 2025, lawmakers are expecting to engage in extensive negotiations on tax policy next year.
These conversations may include some of the proposals Trump is floating, including the nebulous plan to exempt certain taxes on tips, the pledge to end taxes on Social Security benefits, and his desire to cut the corporate tax rate to 15 percent. Even that latter policy faces some Republican skepticism; Tillis said he would consider raising the corporate tax rate from its current 21 percent, which was established by the 2017 law.
“The concern I have with [cutting the rate] is when you see how much we’ve lowered the rate, can we really honestly say it’s going to spur the economic activity to justify it?” Tillis said.
Ultimately, whether any of these ideas come to fruition—or even garner consideration in Congress—depends on whether Trump is successful in November. If he does win the election, it also remains to be seen whether he would actually pursue proposals to exempt taxes on tips or end taxes on Social Security benefits as part of negotiations over a larger tax bill. When asked how much the shape of future tax policy would be dependent on the election, Tillis quipped: “A whole lot.”
