Here is a “tip” for you. Making them tax free is stupid, pandering and irresponsible

If you are on the political right, it is saving workers money. If you are not on the right, the reality is higher deficits and federal debt.

Yeah, it’s election rhetoric, but in this time of deficits and debt, to say such a thing is disturbing, not unlike forgiving student loans knowingly incurred.

The National Pulse puts it this way:

Former President Donald J. Trump‘s proposal to end the taxation of tip wages could see workers in the service industry save billions of dollars every year. Analysis by the Committee for a Responsible Federal Budget suggests that no longer subjecting tips to federal income taxes would result in a $250 billion tax cut over a 10-year budget window.

Under the Internal Revenue Service (IRS) statute, all tip income workers earn is subject to federal income taxes. Ending the taxation of tips would require Congressional action to amend the federal tax code and direct the IRS to stop collections on that source of income. However, it appears former President Trump‘s idea has gained traction among Republican lawmakers on Capitol Hill.

The Committee for a Responsible Budget actually says this:

We estimate exempting all tip income from federal income and payroll taxes would reduce federal revenues by $150 to $250 billion over ten years on a static basis and could reduce revenue significantly more once behavioral effects are incorporated.

At a June 9 speech in Nevada, President Trump declared “When I get to office, we are not going to charge taxes on tips.”

Under current law, tips are treated as ordinary income and subject to both federal income and payroll taxes, although tips are notoriously underreported and employers are subsidized for paying their share of the payroll tax on tips through a FICA tip credit.

Although the Trump campaign has not outlined its proposal in detail, we assume it would make tip income exempt from federal income and payroll taxes. On a static basis, we estimate this would reduce revenue by $150 to $250 billion between Fiscal Year (FY) 2026 through FY 2035, depending on how fast tip income grows and over what distribution of income it is concentrated.

This estimate is net of revenue gains from eliminating the federal FICA tip credit but does not include behavioral effects. In practice, exempting tip income from taxation would lead workers and employers to reclassify ordinary income as tip income where possible and could lead to a larger shift toward lower base pay and higher tipped income, more broadly. The magnitude of that behavioral effect is uncertain and would depend significantly on the regulatory guardrails that accompany the policy. As an illustrative example, if tips were increased by 10 percent, the policy would reduce revenue by $165 to $275 billion, and if they doubled it would increase deficits by $300 to $500 billion.