Tipping has always been a controversial subject in the US. Imported from Europe and popularized by some accounts after the fall of slavery to reinforce racial wage disparities, the practice comes freighted with historic baggage.
Nor is it overly popular with consumers. Since the pandemic, 72% of US adults say tipping is expected in more places today than it was in 2019, according to a Pew survey. Four in 10 Americans oppose the suggested tips that have been popping up on payment screens everywhere from coffee shops and dry cleaners to self-service machines in airports.
That hasn’t stopped Donald Trump and Kamala Harris from putting tips at the center of their election battle. Earlier this month, in a bold move, the vice-president endorsed a policy that the former president touted earlier this year to ban taxes on tips for service workers, as both candidates have been vying for working-class voters in the 2024 election, especially in the swing state of Nevada.
At a glance, the idea of giving a break to tipped workers is attractive – in some states the minimum wage for tipped workers is just $2.13 an hour and an alarming 14.8% of those workers live in poverty. But the idea throws up many issues. Why should a low-wage worker who gets tips be treated differently to one who doesn’t? Will higher-paid workers be able to use the measure to cut their tax bills? Harris says not, Trump is less clear.
But for some critics the “no tax on tips” proposal is most worrisome because the debate detracts from the fight to eliminate sub-minimum wages and support policies that would raise wages.
“The policy of sub-minimum wage is a way of institutionalizing low wages,” said the Rev Dr William J Barber II, president of Repairers of the Breach and the founding director of the Center for Public Theology and Public Policy at Yale Divinity School. “What happens is the people forced to work those jobs that we call essential end up being economically rejected and treated like they’re expendable.”
Barber explained that although both Harris and Trump have endorsed the policy of ending taxes on tips, there are stark differences between the candidates on economics and that poverty is a systemic issue that needs broad policy solutions rather than just one concession such as eliminating taxes on tips.
“[Trump] can say it all he wants. He had four years to do it and he didn’t do it. But what he did do was give greedy people a $2tn tip through tax cuts,” said Barber. “When Harris launched her campaign she said: I want to see a world where no child lives in poverty.”
Harris is now considering a $75,000 annual income cap on her tips policy and prohibiting tax on tips only for service and hospitality workers. Her plan would also exempt the payroll tax, which funds social security and Medicare, and tie the no-tax-on-tips policy to an increase to the sub-minimum wage for tipped workers.
Lena Simet, a senior researcher and advocate on poverty and inequality at Human Rights Watch, authored a 2022 report on the impacts that eliminating the sub-minimum wage would have on reducing poverty and inequality. It noted that although employers are supposed to compensate workers when tips don’t make up the difference between the sub-minimum wage and minimum wage, they often ignore this mandate.
“I think there’s often a misperception that workers in service industries, tipped workers, are receiving wages far above the minimum wage or living wages due to the tips that they receive. So there’s this idea that they’re doing quite well, while in reality, of course, there are some workers who see very generous tips, but it’s not the majority of workers,” said Simet. “Without having these earnings floors in place, the minimum wage floor and calling for an increase, workers are vulnerable to exploitation and inequality in the labor market which is harmful overall for the economy.
“It doesn’t mean that workers can no longer be tipped. It just means a tip comes on top of a wage floor that would guarantee them a minimum,” added Simet. “We see many countries’ alternatives for wage floors – where this reliance of workers on tips is really not practiced – and that it’s, in fact, a win for workers. It’s also a win for customers and for consumer protection purposes. The main point is really to make employers aware of their responsibilities of providing workers with decent wages, and not allow for these huge fluctuations where workers simply don’t know how much they’re going to make on a given day.”
The Culinary Union in Nevada, has endorsed the tip tax proposal in conjunction with raising the minimum wage. The union, which represents 60,000 workers in Las Vegas and Reno, Nevada, has endorsed Harris for president.
“It is outrageous that over a million workers in this country are not guaranteed a fair minimum wage in 2024. Employers across the nation need to take responsibility for paying a real minimum wage and Congress must ensure it,” said Ted Pappageorge, the union’s secretary-treasurer. “Seven states - Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington - have banned the sub-minimum wage for tipped workers, ensuring that these workers receive the same minimum wage as non-tipped employees.”
Nevada is a key swing state for the presidential election, and Jacky Rosen, the state’s Democratic senator, is seeking to re-win her seat this year. Both she and her Republican opponent have supported the no-tax-on-tips proposals. According to recent polls, Trump still has a two-point lead over Harris in Nevada, but that gap has dwindled from a nine-point lead over Biden in May.
Al Horsford, a Democratic state representative, and the Culinary Union have supported ending the sub-minimum wage. Horsford told the Nevada Current he plans on filing legislation with colleagues on the issue. Bernie Sanders and 29 other US Democratic senators have sponsored legislation to phase out the sub-minimum wage, while Republicans have historically opposed similar efforts.
A report published by One Fair Wage in July 2024 noted “ending income taxes on tips will not make sub minimum wages livable”. The report cited the policy proposal’s benefits are limited given 66% of tipped restaurant workers do not receive high enough income to pay federal income taxes currently on their wages.
“My hope is that the sudden new intention and desire to pander to tipped workers results in everybody supporting what workers are actually demanding and winning, which is a full livable wage,” said Saru Jayaraman, president of One Fair Wage and director of the food labor research center at University of California Berkeley. “What workers really need and want is an actual livable wage with tips on top.”
One Fair Wage and others have published research demonstrating that states and localities that have ended sub-minimum wage have workers who receive higher overall earnings, are less likely to face poverty and face less harassment on the job.
The proclivity of tipping in the US has origins stemming from slavery. After the American civil war, employers exploited tipping as a way to avoid paying former slaves the wages their white colleagues would have received. Industry has consistently fought to maintain the wage gap for tipped workers, and when the first federal minimum wage was mandated in 1938, tipped workers were excluded.
It took several decades, until 1966, for a sub-minimum wage for tipped workers to be federally enacted.
While the federal minimum wage of $7.25 an hour has remain unchanged since 2009, the sub-minimum wage for tipped workers has remained $2.13 an hour since 1991, when Republican activist and then head of the National Restaurant Association, Herman Cain, offered legislators a compromise to avoid lobbying against a federal minimum wage increase as long as the tipped sub-minimum wage remained stagnant.
Industry groups have continued fighting against efforts to raise the minimum wage and ban sub-minimum wages for tipped workers, including an astroturfed “save our tips” campaign launched during the Trump administration to oppose efforts at state levels, arguing the policies would result in decreased pay for workers.
“They’ve been making the same argument for 90 years, since 1938 when they passed the first federal minimum wage as part of the New Deal,” added Jayaraman. “A full minimum wage with tips on top has resulted in the seven states already enacting this doing much better on every measure. Those states have higher restaurant sales per capita, higher small business growth rates per capita, higher overall restaurant industry job growth rate, higher tipping averages, one half the rate of sexual harassment in the industry.”
