As the 2024 US presidential campaign is in full swing, one measure surprisingly unites Kamala Harris and Donald Trump : tax exemption for tips. A rarity in a political landscape marked by deep divisions between the two main candidates for the White House.
A strategic alliance in a key state
Democratic candidate Kamala Harris recently embraced this idea, initially championed by Donald Trump, at a rally in Las Vegas. By promising not only to tax tips but also to raise the minimum wage, Harris made a strategic move in Nevada, a key state where the vote of service sector workers, who rely heavily on tips, could prove decisive in November. With nearly 350,000 employees in the hotel and restaurant industry, this group of voters is particularly sought after, especially after the victory of Joe Biden in 2020 with a margin of less than 40,000 votes.
An obvious electoral issue but severe economic criticism
If this measure is electorally attractive, it is far from unanimous among economists. According to Ernie Tedeschi, economic director of the Budget Lab at Yale University, only 2,5 percent of American workers, or about 4 million people, are partially compensated with tips. Of these, nearly 40% are not even taxable at the federal level. The direct impact on these employees would therefore be limited, while the cost to public finances could amount to between 100 and 250 billion dollars over ten years, according to the Committee for a Responsible Federal Budget (CRFB).
A worrying tax optimization risk
The CRFB also warns of the risk of budgetary excesses. Exempting tips could encourage some workers and employers to reclassify part of their ordinary income as tips, thereby inflating the bill for public finances, which could reach $500 billion in the event of massive abuse. This risk of tax optimization worries both the progressives at the Center for American Progress and the conservatives at the Tax Foundation, who see in this “seductive slogan” a potential to extend the culture of tipping to even more professions.
In conclusion, if the tax exemption of tips seems to be a rare point of agreement between Kamala Harris and Donald Trump, it nonetheless remains a controversial measure, raising major economic and fiscal questions just months before the presidential election.
