"No tax on tips" will harm more workers than it helps
When President Trump proposed exempting tipped income from taxation during his 2024 presidential campaign, many viewed it as a politically expedient gimmick to win support among tipped service workers. Unfortunately, then-Vice President Harris soon followed suit, and since the election, a federal “no tax on tips” bill has been reintroduced and lawmakers in at least 20 states have proposed similar bills (see map below).
Now that lawmakers in a multitude of states have supported the idea, it’s worth unpacking just how incredibly foolish and dangerous these proposals are. In summary, exempting tips from taxes would:
1. help very few workers and undermine pay increases for many more;
2. expand the use of tipped work—a system rife with discrimination and worker abuse— potentially leading to consumers being asked to tip on virtually every purchase; and
3. deplete state and federal budgets and create new avenues of tax avoidance, especially for high earners.
https://www.epi.org/blog/no-tax-on-tips-will-harm-more-workers-than-it-helps-proposals-in-congress-and-now-20-states-could-encourage-harmful-employer-practices-and-lead-to-tip-requests-in-virtually-every-co/
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