Harris blindsided Democrats with ‘no tax on tips’ plan

Vice President Harris blindsided Democratic lawmakers and progressive activists by endorsing a proposal first floated by former President Trump to exempt tips for service and hospitality workers from taxes, an idea Democrats had previously criticized as “bogus” and a “ploy” for votes.

Harris’s support for the idea is being seen as an aggressive play for votes in Nevada, a critical swing state where service workers will be key, and as an effort to neutralize whatever advantage Trump may have gained by first floating the idea during meetings with GOP lawmakers on Capitol Hill in June.

But key Democratic lawmakers and progressive activists have raised serious concerns about the substance of the proposal to shield tipped income from taxation, worrying it would leave out many lower- and middle-income workers who are just as deserving of tax relief but don’t work for tips.

Policy experts also question how such a proposal could be drafted without having major impacts on economic behavior, potentially costing the federal government much more than the $100 billion to $200 billion it is currently projected to add to the national debt over the next 10 years.

Another criticism from the left is that employers could use tax-free tips as an excuse not to raise base-level wages and could even prompt some businesses to become more aggressive in soliciting tips from customers in lieu of raising workers’ hourly pay.

“It’s not something I saw coming,” one senior Senate Democratic aide said. “I did not expect her to go on the tipped-wage thing. I did not see it as a serious proposal from Trump, and it doesn’t become a serious proposal now.”

Senior Democrats on the Senate Finance Committee and House Ways and Means Committee, which have primary jurisdiction over the tax code, criticized the proposal when Trump first floated it in meetings with GOP lawmakers in June.

Trump told Republican senators he got the idea from a waitress he met.

Senate Finance Committee Chair Ron Wyden (D-Ore.) called Trump’s idea to eliminate taxes on tips a “bogus proposal” and predicted it would be wiped out by other Trump policies, such as tariffs, that would increase the costs of goods.

Rep. Lloyd Doggett (D-Texas), a senior member of the Ways and Means Committee, called the proposal to shield tips from taxes an “election-year ploy.”

Lael Brainard, the director of the White House Economic Council, declined to comment on the idea of eliminating taxes on tips when Trump put it in the spotlight in June.

“What I can say is that President Biden has fought for real solutions that actually address workers’ legitimate need for fair wages, we think much more effectively,” she told The Associated Press in mid-June.

Sen. Debbie Stabenow (Mich.), a member of Senate Democratic leadership and the Senate Finance Committee, said in June that she didn’t think Trump’s proposal was serious and expressed doubt it would do enough to help low-wage working people.

The senior Senate Democratic aide said the idea hadn’t received any serious discussion in the Senate before Trump floated it in June.

Steven Rosenthal, a senior fellow at the Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution, said it would be very difficult to draft legislation to exempt tipped income from taxation in a way to prevent people from trying to exploit it.

“I don’t know how I would draft it to exclude my plumber or my maid. Are those service workers? If they are employees … will the employer ask for the employees to be compensated more by tips going forward?” he asked. “We already have too many people asking for tips. … What are we going to see? A grocery teller asking for tips? Plumbers? Where would you draw that line?”

Rosenthal said there’s no difference between Trump’s and Harris’s plans but cautioned it’s tough to tell, because neither candidate has provided many details on their proposals.

“Trump proposed no tax on tips in June, and largely the left has been beating up on that proposal. So for Harris to offer a largely identical [proposal], I think catches people short,” he said.

“I try to call the balls and strikes straight. To me, both the Trump and Harris ‘no tax on tips’ are very poor ideas,” he said.

The Harris campaign pushed back against the criticism by encouraging The Hill to reach out to former Nevada Gov. Steve Sisolak, a Democrat, and labor unions that support the idea.

Sisolak told The Hill in a statement that workers need better wages and Harris is the only candidate in the race with a “proven record for delivering results for workers.”

“Unlike Donald Trump, whose anti-union policies harmed workers and who opposes efforts to raise wages, Vice President Harris has actually walked the walk when it comes to fighting for working people, which is why she’s endorsed by dearly every major labor union across the country, including Nevada’s Culinary Union Local 226,” he said. “Her proposals to end tax on tips for hospitality workers and raise the minimum wage will give workers the relief they deserve.”

Nevada’s two Democratic senators are also backing the proposal to eliminate taxes on tipped income.

Sen. Jacky Rosen (D-Nev.), who is in a tough battle for reelection, and Sen. Catherine Cortez Masto (D-Nev.) last month announced their support for the No Tax on Tips Act.

The proposal also has the support of Nevada’s powerful Culinary Union, the largest organization of working women in Nevada.

Ted Pappageorge, the secretary-treasurer of the Culinary Union, said shielding tips from taxes would “provide relief to hospitality workers.”

White House press secretary Karine Jean-Pierre said Monday that Biden would “absolutely” sign legislation to eliminate taxes on tipped wages if it reached his desk.

But Harris’s surprise endorsement of one of Trump’s signature tax ideas has underscored the feeling of uncertainty that many Democrats and progressive activists feel about where she is on major economic issues.

Democrats have assumed for weeks that Harris would largely continue Biden’s economic and tax agendas, but her campaign has put out little information on her policy visions, leaving many political allies guessing about where she would land on major questions if elected president.

Trump’s landmark 2017 Tax Cuts and Jobs Act is due to expire at the end of 2025, teeing up tax reform as the top issue of the new Congress next year, and some Democrats find Harris’s lack of a clear economic agenda separate from Biden’s concerning.

Bob Borosage, co-director of Campaign for America’s Future, said progressives were caught off guard by Harris’s surprise endorsement of Trump’s idea.

“Most people thought it was a silly idea when Trump did it,” he said.

“I think she just endorsed it to take it off the table. I don’t think it’s a serious thing,” he added.

Borosage said he and other progressives are more focused on the fight to raise the so-called cash wage, which he called a “subminimum wage,” that restaurant servers earn on an hourly basis. That level is below the statutory minimum wage earned by workers who don’t collect tips.

“The real question is the subminimum wage and whether you’re going to raise the subminimum wage and overcome the opposition of the restaurant lobby. And she’s for raising it and raising the minimum wage itself,” he said.

Tipped minimum wage workers in some states earn as little as $2.13 an hour in what the Department of Labor defines as “cash wages” — their base pay, not including tips — while the federal minimum wage currently stands at $7.25 an hour.

The National Restaurant Association, however, points out that tipped workers in restaurants are guaranteed under federal law to make $7.25 an hour. If they don’t make enough in tips to reach that threshold, the restaurant owner is required by law to make up the difference. This is also true in cities and states where the minimum wage is above the federal minimum wage.

Vanessa Sink, the media relations director of the National Restaurant Association, said its research found that the median hourly income of tipped service is $27 an hour with top earners making more than $41 an hour. 

Harris’s sudden announcement on not taxing tipped wages has highlighted that progressives don’t know for sure whether she’ll embrace other tax policies favored by Trump.  

Borosage said “we don’t know” whether Harris will continue Biden’s economic and tax policies.

“There’s no way to know really until she lays out her platform, which she hasn’t done yet,” he said, though he noted the Harris campaign has promised to unveil her policy views in more detail soon.

Harris ran as a bold progressive during the 2020 Democratic presidential primary cycle, signing on to Sen. Bernie Sanders’s (I-Vt.) Medicare for All Act in 2019 and announcing she would support eliminating the Senate filibuster to enact the sweeping Green New Deal to transform the U.S. economy to a green-energy economy. She has since backed away from those ambitious proposals.

Updated at 5:14 p.m.