President Donald Trump has announced (several times) that he will end the taxation of tipped income. There is a lot to celebrate whenever a tax goes away—but the devil is in the details.
First, the numbers. There is $36.4 billion in reported tip income in the United States annually—emphasis on "reported," as many cash tips escape the notice of the IRS. Of that, $24.2 billion is from full-service restaurants. If you figure that the average tipped service employee is in the 12 percent tax bracket, that's about $4 billion to the IRS, in the context of a $6.9 trillion budget. And by the way, the IRS requires you to keep track of your tips if you make $20 or more in tips in a calendar month. All the paperwork, all the hassle, all the audits, just for $4 billion to the federal government, an amount it will burn through in about 18 hours.
Trump is right to want to get rid of taxes on tips, primarily because it's a heavy paperwork load and it generates practically no revenue. Promising to get rid of it was a downright genius political move because it appealed to the 4 million workers in tipped occupations, and he was buying those votes for practically nothing.
