In 2024's already baffling presidential race, it seems only fitting that a barroom brawl has broken out over tipping. Former President Donald Trump jump-started the debate at a campaign rally last month and seized media headlines by pledging to eliminate taxes on tips if he were reelected.
In prior decades, this might have been brushed off as mere campaign trail bluster, but today, off-the-cuff remarks on the stump are often the closest thing we have to deliberative policy making. Right on cue, Republican senators introduced legislation in Congress that would eliminate income taxes on tips, and the idea has even made its way into the Republican Party's 2024 platform.
But while Trump may think he's the first politician to mainstream tipping policy, he's actually late to the party. President Joe Biden weighed in on tipping during the 2020 election when he pledged to end the so-called tipped wage credit—a practice that allows restaurant servers and others in the hospitality industry to be paid below the statutory minimum wage so long as their tips make up the difference.
Upon taking office, the Biden administration tightened the rules around the tipped wage credit, narrowing the type of work it could be applied to and curtailing its use in federal contracts. Progressive politicians at the state and local level have pushed to eliminate the credit and apply traditional minimum wage laws to all tipped workers. Washington, D.C., voters approved a ballot initiative eliminating the tipped wage structure in 2022, and Chicago followed suit last year. At the state level, New York, Maryland, and Illinois have recently considered legislation that would likewise scrap this model.
The motivation is clear: Both parties are trying to appeal to members of the tipped economy in their efforts to woo the working class. Democrats want to apply one-size-fits-all minimum wage rules that harken back to the New Deal Era, while Republicans appear to believe that a simple proposed tax cut will earn them significant working-class support.
Unfortunately, neither of these ideas is the best solution for helping workers in the restaurant and hospitality industry. Many restaurant workers prefer the tipped wage structure and make far more than they would under traditional minimum wage rates. Further, in cities like D.C. that have eliminated the tipped wage credit, there has been a spike in restaurants tacking "service fees" of 10 percent to 20 percent onto customer bills, demonstrating that eliminating the tip credit often results in higher dining costs.
As far as Trump's no-taxes-on-tips idea, it may have as many drawbacks as benefits, and it is uncertain how much relief it would actually bring workers if it doesn't apply to federal payroll taxes in addition to income taxes.
While both policy proposals leave much to be desired, the candidates are not wrong on the politics. The restaurant sector is the second-largest private sector employer with over 15 million workers and is a key employer of workers without college degrees and formerly incarcerated individuals. The industry is deemed so critical in terms of providing employment opportunities and economic benefits to local communities that some commentators have taken to declaring: "As restaurants go, so goes the economy."
Despite its centrality to the country's economic well-being, workforce labor issues continue to roil the industry. One of the primary criticisms and drawbacks of restaurant work is the lack of benefits that workers receive in these jobs. Work-life balance is often notoriously lacking as well, with many pointing to the prevalence of "just-in-time scheduling," in which workers can be called into work on short notice in response to real-time spikes in dining demand.
If politicians want to help restaurant workers, this is where their focus should be. And the answer is not simply to mandate more benefits for workers but rather to find nimble policy ideas that can help both restaurants and workers. For instance, the industry could perhaps borrow parts of the portable benefits model that is starting to make waves as a solution for increasing benefit offerings to workers in the gig economy. In fact, more restaurants are starting to enlist the gig economy to fill restaurant shifts during extra busy times—a practice that could be encouraged and tethered to a portable benefits model.
The industry should also be freer to experiment with writing entirely new systems of labor and employment law. This could be done in myriad ways, but one possibility would be to create a collaborative committee that is equally comprised of restaurant owners and workers. This group would be powerless to act unless both groups agreed—if no agreement were reached, status quo labor law would apply as it does now. But if they could reach an agreement on new rules, both sides of the labor debate could benefit from this policy experimentation.
As one example, the negotiating parties could agree on a higher minimum wage for workers who agree to be ready within two hours of whenever they are needed—a nod to the just-in-time scheduling desires of employers—and a lower minimum wage for assured regular hours—providing an option for workers who want more scheduling predictability. When it comes to tipping, agreements such as allowing waiters to opt to keep 100 percent of their tips instead of being compensated via a traditional minimum wage could be pursued—a setup that would empower restaurant workers to make their own decisions on how they want to be compensated.
In other words, the industry needs more flexibility and more drastic regulatory reforms that would allow it to update its labor rules for the 21st century. Simply importing last century's minimum wage rules or promoting a minor tax reduction isn't going to cut it.
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