William Simpson
Former President Donald Trump’s pledge to stop taxing tips would cost the federal government as much as $250 billion over 10 years, according to a nonpartisan watchdog group.
The proposal — first made by Trump just over a week ago in Nevada — would increase the country’s red ink by between $150 billion and $250 billion and possibly much more if it caused a shift in overall compensation from salaries to tips. . the Committee for a Responsible Federal Budget said in its analysis released Sunday.
When making a proposal to win over voters In a battleground state that relies largely on the hotel industry, Trump said at a June 9 rally in Las Vegas that he would get rid of tip taxes, “immediately, right out of the gate, because it’s been a point of contention.” for years and years and years.”
Changing the law would require approval from Congress, which has not acted before. But in 2025, lawmakers will have the opportunity to rewrite the nation’s tax laws when Trump’s 2017 tax laws expire. Tips were not included in the original legislation.
The IRS legally requires workers who earn wages based on tips to report their earnings on taxes, which are then taxed at the same rate as regular income.
“In practice, exempting tip income from taxation would lead workers and employers to reclassify ordinary income as tip income whenever possible and could lead to a larger shift toward lower base wages and higher tip income, more broadly”, stated the CRFB.
Assuming an additional 10% change in tip income would increase the cost to $275 billion, and a doubling of tips offset by lower wages could cause the price to rise to $500 billion, the group projected.
A Trump spokesperson did not immediately respond to requests for comment.
Asked about the former president’s proposal while briefing reporters on President Biden’s tax proposals last week, national economic adviser Lael Brainard declined to specifically address the idea of exempting tips from taxes.
“Our view is that the significant set of policy changes that would truly improve the living standards of Nevada workers would be to raise the minimum wage” and eliminate the minimum wage in Nevada, which would save workers $6,000 a year, Brainard said .
The Biden administration proposes that tax cuts for those earning $400,000 or more a year will expire as scheduled in 2025 but continue for families earning less.
Trump’s campaign has also proposed extending individual and estate tax cuts adopted in 2017, and the presumptive Republican presidential nominee recently floated the idea of reducing the corporate tax rate from 21% to 20%.
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