In the Black: July 2024
The Tricky Politics of Taxing Tips
The Politics of Taxing Tips
At a speech last month, convicted felon former president Trump floated the idea of excluding tips from taxable income. While in contrast, Biden’s proposed tax plan includes raising the tipped minimum wage. Let's dig in to understand both these proposals and each candidate's economic point of view.
For those unfamiliar with tipped work, the situation is this: tipped workers are paid a lower minimum wage (varies by place, some as low as $2 an hour). They are required to report their tips and pay payroll taxes on them. For most people, the low minimum wage they earn barely covers the payroll taxes.
So why does removing tips from income matter? Because lower reported income makes it difficult to qualify for major things, like buying a car or renting (or buying) a home. Not to mention that it lowers their future social security, unemployment, and disability benefits. Not paying taxes on tips can be helpful in the short term, but the long term consequences are pretty dire.
How did we even get to this problem? As Americans we take a tipping culture for granted, but it’s not the norm worldwide. It started as a standard practice after the Civil War. It’s actually pretty wild if you reflect on it. Instead of charging prices that allow the business to pay their workers a fair wage (see Biden's proposal), we rely on the customers to pay the business employees directly (at least partially). If you are ready to get even more mad about economics and the history of tipping, read this NYT opinion piece.
Trump proposes more tax cuts for big corporations, and you are going to love how he’s going to pay for it.
The Tax Cut and Jobs Act is up for renewal in 2025 and whoever is in the White House will steer US tax policy going forward. Which is why I’ve kept a really close eye on both candidates' proposals, and also I'm a big nerd. In 2017, Trump PERMANENTLY cut Corporate tax rates from 28% to 21%. The budget shortfall this caused is a story for another day but….
Recently Trump said he’d like to cut rates further for big corporations to 20%. Woof.
He has started to address how we would propose to pay for all this: a 10% Tariff on all imported goods.
He's expressed that importing countries would pay the tax and that's true, BUT the important part he's not talking about it that the only way to do that is to raise the prices. Aren't we trying to LOWER inflation???
Welcome to Tax Baby Reena!!
We are so pleased to announce the arrival of Reena, the cherished daughter of Justine, our long time tax manager. She had the good grace to wait until after the 2023 tax deadline to make her debut, and we are very grateful for that!!!
