In the highly polarized US election campaign, presidential candidates have announced their support for eliminating the tip tax, the BBC reports. The Tax Foundation, a think tank, estimates that the changes will cost the state budget $107 billion over a decade.
In June, the former president Donald Trumpthe Republican candidate presented a proposal abolition of tip tax. His decision, he claims, was influenced by the intervention of one of the waitresses, who complained about the amount of fees she was paying.
A few days ago, Democratic candidate Kamla Harris spoke in favor of the same idea. The BBC notes that she earned the nickname “Copy Cat Kamala” for copying Trump's idea.
The proposal of both candidates is intended to attract the attention of voters working in the service industry, such as bartenders, hairdressers, waiters and taxi drivers, who receive a significant part of their income in tips.
Tip tax repeal is a “niche problem”
Both candidates have announced their support for the idea in Nevada, a state seen as “unstable” in this campaign. According to the BBC, restaurants and hotels there employ more than 20 percent of the workforce.
“Despite all the media hype surrounding the tip tax repeal, it is still a relatively niche issue,” the BBC said. According to a Yale University study Around 4 million employees receive tips nationwideor less than 3 percent of the entire workforce. Interestingly, a significant portion of these workers, about 37 percent, earn so little that they do not have to pay income taxes to the government.
The financial implications of this measure are currently unknown, as some proposals in Congress focus only on the income tax, while others allow for the possibility of eliminating both the income tax and the payroll tax.
Experts are divided on the Trump-Harris proposals. Some analysts say the changes will unfairly shift the tax burden onto non-tipped workers, while others say the new rules will encourage the extension of tips to other jobs, which would have an even better financial impact for service industry workers.
There are also voices that the biggest beneficiaries of the changes will be employers who will stop paying the minimum wage, explaining this by the high profits that employees make from tips. The Tax Foundation think tank estimates that the elimination of the tip tax the state budget will lose $107 billion over the course of a decade.
Tip Tax in the USA – What are the rules?
Under current law, employees are required to disclose all tips over $20 a month to their employers. The federal government then collects income tax and a payroll tax on that tax, which funds social programs.
In 2018, Americans reported $38 billion in tip income to the federal government. That means each taxpayer received an average of $6,000 in tips per year.
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