Business owners could hardly believe their ears. In the span of a few days both presidential candidates endorsed a policy that would solve one of their biggest headaches and cost them nothing.
When former President Donald Trump and Vice President Kamala Harris proposed to eliminate taxes on tips they saw an easy way to give their employees a much-deserved raise. Fortune spoke to several business owners whose staff earn part of their wages in tips all of whom welcomed the initiative on the grounds it would benefit their employees.
“I may be a unicorn here, but I am all about my employees making as much money as they can and bettering their livelihood and their families' situation,” said Carl Sobocinski, founder and president of Table 301 Restaurant Group which owns five restaurants in Greenville, S.C.
Chris Stephens, who handles PR for his wife Maria’s Boston-based tour guide company, Boston Hidden Gems, said they were thrilled for what it could mean for their tour guides, who he estimated make between 20% and 30% of their compensation in tips. “We would love it for our employees, as it would mean more money in their pocket,” he said.
In Sobocinski’s restaurants, most of servers’ income comes from tips. Sobocinski and his CFO Richard Vogt crunched the numbers and estimated servers could save on average 16% to 19% in taxes if the policy were to become law. At his restaurants, the average server who makes about $48,000 a year, $41,000 of which was in tips, would save $6,600 in taxes, he told Fortune. Meanwhile, the highest paid servers, who make $81,000 a year, with $69,000 in tips, would take home an additional $13,000 a year, according to Vogt’s calculations.
While the policy proposal was meant to benefit workers it would also benefit the businesses themselves, according to Keith Hall, a labor economist at the Mercatus Center at George Mason University. “Anything that affects taxing workers is shared by both the worker and the employer,” Hall said
Business owners would be able to offer higher real wages without incurring additional costs—a proposition that is especially appealing in the restaurant business, where margins are razor-thin.
“To me, as a business owner, it's a win-win,” said David Viana, coowner and executive chef of Heirloom Kitchen, a restaurant in Old Bridge, N.J.
As a result, business owners could be incentivized to push more of their employees’ pay into tips, according to Hall. Both because it's what the employees would want; and because by doing so, they would reduce their own payroll, and the payroll tax businesses have to pay.
Viana, Sobocinski, and Stephens all said they didn’t plan to change how they compensated their employees, but they did acknowledge that tips would become much more appealing. Still they emphasized the importance of increasing take-home pay for their workers amid rising cost of living crisis.
Restaurants “are the last bastion for people to have a middle-income kind of opportunity in this country,” Viana said. “The living wage job is kind of going the way of the dodo, in my opinion.”
Doing away with taxes on tips would help make an industry that’s known for being greuling more attractive, Viana added. “It's another way for an industry that has had a bad reputation in a lot of ways—with how we treated our staff and not being able to give them health care and things like that—to put more money in the pockets of individual people.”
Stephens, the tour guide operator, saw one scenario in which the policy could backfire: people saw it as an excuse to tip less. “The point of tips, from a customer’s viewpoint, is generally to support the specific person or group you’re tipping; if you, as a customer, can spend less but still support them the same amount, why wouldn’t you do exactly that?,” he said.
