Kamala Harris recently floated the entirely original idea of eliminating taxes on tip income. How would this work in practice?
Consider the hypothetical case of Abu Mohammed Alsomiri, a personal trainer in Dearborn, Michigan. Clients currently see Abu twice per week and pay $80 per session via Venmo or Zelle. After Kamala’s no-taxes-on-tips program is implemented, Abu says that he provides training at no cost because he is so passionate about fitness, but tips are gladly accepted and that anyone who doesn’t tip at least $80 per session may need to be dropped from his schedule because he tends to be busy.
Or how about Catherine Débrosse, a Haitian migrant with Temporary Protected Status (extended most recently in July 2024) who attended law school in Maskachusetts and became a divorce litigator in Boston. She was previously charging $1000 per hour and paying taxes on her $1.5 million/year income (not every hour is billable). She tells clients that they have to pay her $300/hr and then she expects a $700/hr tip, which is never expected, but always appreciated. At the same time, she notes, due to her great track record at winning custody, child support, alimony, and property division, she’s too busy to work for clients who don’t tip so the clients who don’t tip can expect to have her withdraw from their case. Now Ms. Débrosse pays taxes on only 30% of her income?
What stops corporations from tipping? John Q. Nerdly volunteers to work at Nvidia as a software engineer keeping the CUDA flame alive. If the company appreciates what Mx. Nerdly does, Nvidia can give him/her/zir/them a $20,000 weekly tip (purely voluntary). Now Mx. Nerdly doesn’t have any taxable income. If the tips arrive weekly, Mx. Nerdly never risks working for more than a week without some financial compensation. In fact, Nvidia could eliminate that risk by providing a “first week tip” that is comparable to a month of regular expected tips.
In Kid perspectives on contracts I chronicled a situation where I paid a contractor more than he said (and the paperwork said) I was required to. He wouldn’t have to pay taxes on the amount that I added voluntarily because that was a tip?
Chevrolet dealers will soon be selling the ZR1 version of the C8 Corvette at a $50,000 markup. What if they say that their supply of these 1,064 horsepower cars is limited and they will be happy to sell them at MSRP, but unfortunately must limit sales to those who are decent tippers (where “decent” is defined as a $50,000 tip)? (This would be a great car for going to Publix except that Chevy eliminated the front trunk to make 1,000+ hp happen. The rear trunk isn’t huge and it gets quite hot due to being next to the engine.)
IRS would implement this idea and they could set income limits for tip deduction. But certainly a lot of professions would try to shift their income into tax-free tips, and make 30% more, when US merchants are already obsessed with tipping. Restaurants would probably make 20+% tip mandatory. What a nightmare…
+1
A novel approach to tipping was shown in the episode of Third Rock From the Sun where John Lithgow’s Ohio-based alien placed his potential tip on the table and adjusted it throughout the meal according to the level of service.
Dine in Copenhagen and the faff of tipping is forgotten: maybe you round up the bill. I found that a significant plus. Is it that non-Danes can’t be trusted to give good service without a bribe?
@df
There is a joke in Norway about howto get quick service:
put a stack of quarters on the table, and remove one per minute of waiting for the food.
Obviously an old joke from decades ago, when the money was worth more.
If Harris dances at a political campaign pay per sit dinner, are political donations to her can be considered as tips? I think there is a clip.of her trying to dance Hawaiian style.
The proposition itself is copied from Trump and is solid. Why would customers at a restaurant tip Uncle Sam? Harris was a tie breaking vote against this proposal in congress. Now she is repeating whatever Trump has suggested. If you belive her I have a nice parcel of land in Florida to sell you 😉
I rarely dine out but recently went to a seafood place while vacationing. Prices are up at least twice from the time I had a family dinner out statesside in 2021, which was already elevated. Our order was rather frugal by my previous standards. Tip was added into total bill and was miniscule, less than 5%. I gave 10% extra tip and my waiter was appreciative and nother waiter ,who choose party tables over my small table, seemed really disappointed. Guess his tip was not great. I felt really sorry for people in service industry who rely on tips for their income. Their earning under pressure from rising bottomline costs for food service businesses and from diminishing spending income of customers, due to Biden/Harris economic policies. Harris is trying to gaslight by repeating Trump’s proposal which she previously had prevented from becoming law.
Too complicated. Just use a 50-100% tariff on all imports to fund the govt instead?
Trump is the one who proposed this first.
Trump’s proposal was explicitly for wait staff and others at restaurants, and I believe that is what Harris also proposed.
Tips tend to go to attractive white women, and black diners don’t tip that much. These racial dynamics will be fun to watch play out if tips aren’t taxed.
Joe: I think that the Democrats’ thought leader said “When I am president, we will continue our fight for working families of America, including to raise the minimum wage and eliminate taxes on tips for service and hospitality workers.” https://www.crfb.org/blogs/kamala-harris-plan-exempt-tips-taxes-and-raise-minimum-wage
So I think that should cover at least a personal trainer and a lawyer, both of whom are in the “service industry”. Also my contractor. It’s a “service” not a “good” to be working on a house. Maybe for the Corvette Z06 purchase situation the salesperson would have to become an independent broker to get his/her/zir/their tax-free tip?
“Abu Mohammed Alsomiri, a personal trainer in Dearborn, Michigan. Clients currently see Abu twice per week and pay $80 per session via Venmo or Zelle.”
Unless Venmo or Zelle issues a 1099, this guy isn’t paying any income tax regardless.
“Catherine Débrosse, a Haitian migrant with Temporary Protected Status (extended most recently in July 2024) who attended law school in Maskachusetts and became a divorce litigator in Boston. She was previously charging $1000 per hour and paying taxes on her $1.5 million/year income (not every hour is billable).”
Clearly, the IRS does not rust lawyers. While entities receiving more than $600/yr in services from a non-employee contractor are exempt from filing a 1099 with the IRS for contractors that are incorporated as an S-corp, C-corp, or LLC, they must file a 1099 for lawyers and law firms, regardless.
DTP: We are informed that immigrants love to pay taxes, which is why they’re an essential part of our economy (unlike the native-born, who are prone to criminality of all types). Therefore, it is unthinkable that Abu Mohammed would fail to declare income even if Zelle didn’t 1099 him!
Famous car collector (and local luminary) Jay Leno numbers no Ferraris in his collection. Why? Apparently the Ferrari dealers all demand excessive “gratuities”. Talk about pricing yourself out of the market. Where is Kamala when we need her?
CCR: A neighbor just posted some photos on Facebook of his new Ferrari Roma ($300,000-ish?). He thanked the salesman/dealer “for treating us so well and being patient!” Car & Driver says that it has 612 hp from a twin-turbo V-8. https://www.caranddriver.com/ferrari/roma
I’m not sure what happens to all of that horsepower. The 0-60 time is slower than a standard Corvette (495 hp) and the 1/4 mile time is almost the same. https://www.caranddriver.com/chevrolet/corvette
Why pay to maintain two turbochargers if the car isn’t any faster than the normally aspirated Corvette? (for which one can get an 8-year extended warranty for $2600 at the end of the 3-year factory warranty; 11 years of repairs total for the cost of one Ferrari regular service!)
The Ferrari that I want is the 12-cylinder station wagon: https://www.caranddriver.com/ferrari/gtc4lusso (Wikipedia says it was made from 2016-2020; I guess the AWD feature is a big waste of money and weight here in Florida; with all 12 cylinders burning, the wagon is substantially slower 0-60 than a Corvette).
It looks like the GTC4Lusso could be ours for $200,000. How rich would a person have to be to spend $200k on a vehicle far less useful than our Honda Odyssey? I was talking to a NYC friend last night. He said “I know this guy. He isn’t super rich, but he does have $100 million and a house in Aspen….” I demanded to know what WOULD be “super rich” if not having $100 million in a checking/brokerage account. I pointed out that using the 4% rule, this guy (late 50s) could spend about $10,000/day every day for the rest of his life. “He’d be wiped out by buying one Gulfstream,” responded my friend.
So maybe if I had $100 million in the bank it would be time for that dream Ferrari in addition to a Corvette Z06?
Let’s check depreciation on my dream Ferrari. Car & Driver says the V-12 version cost $304,000 in 2020 dollars. But my friend who owns a Ferrari says that people always get them with extra-cost options. So maybe it was really $350,000 out the door. At official CPI, that’s equivalent to 426,000 Bidies today.
On preowned.ferrari.com there is a 2020 with 13,165 miles offered at $240,000. So it has lost about $15 in value for every mile driven. https://preowned.ferrari.com/en-US/a/north-america/used-ferrari/usa/continental-autosports/gtc4lusso/ZFF82WNA0L0254928-1722488740857
https://www.continentalautosports.com/service/service-tips/ferrari-warranty/ says that the extended warranty cost is $8,175…. PER YEAR. If we figure it will also cost $5,000/year for maintenance, that’s about what it would cost to keep a Cirrus repaired/maintained!
Okay. Maybe $200 million in the bank is more like the proper amount to have accumulated before spending $30,000/year on a Ferrari (garage, maintenance, warranty, insurance, depreciation).
Our pure tipping future will involve much higher capital gains tax, probably on unrealized gains.
Tipping is a common practice in the USA. Even our government projects are “tipped”. When a project is announced, it is projected to be $X. By the time the project is done, the price is $X + %200 of $X.
Surely a service provider could not indicate in any way that they would only work for customers tipping X amount, as that would hand the IRS prosecutor the game. What would happen is, every service would come with some fig leaf initial step where no value is delivered/expended, but for which a tip can be offered, and without a suitably large such tip, the work simply doesn’t progress to the next stage.
Imagine a house painter comes and does a free estimate for the materials and labor hours it would take to do your project, along with a purely informational note about what that might cost from a *hypothetical, average-market* painter). You might choose to tip the house painter almost exactly that amount (coincidentally) for such a high-quality estimate and then inquire about the painter’s availability where he says he’d be happy to do your project for free. If you don’t tip, he says he’ll have to check his schedule and you never hear from him again.
It has always been a stupid idea.
The proposals are that the plan only applies to people who are _employees_, hence waitresses would get the break but strippers, who I am told are independent contractors, would not.
Regardless, bartenders and waitresses getting tax breaks that teachers won’t get is unfair and wrong and regular people understand this (as well as the fact that they are not personally paid in tips, which is true for about 95% of the workforce).
It’s pathetic that both nominees seem to fail to even pander competently.
FB: Your idea of tips for teachers is a great one and the Palm Beach County Public Schools are 99% of the way there already. On the one hand, the school system has so much money that breakfast and lunch are offered free of charge to all students. On the other hand, they ask parents to sponsor classrooms (purely voluntary). It’s $200 for diamond level “adopt-a-class” for the whole year. There are lower levels of sponsorship, but do you want your kids’ teachers to know that you considered them worthy of only a mid-level sponsorship? It’s thus $200 per year per student? No…. each child will typically have two teachers. Then there is PE, Music, Art, Library (“Media), and Guidance (psychologist, I think). So it works out to about $1,000/year per student if you don’t want to be seen as a cheapskate and ingrate. But if the teachers said “It’s customary to tip another $1000/year in cash” I would pay another $1,000 per child.
Tip someone to work 1/2 day for about 2/3 of the year and have regular raises that do not depend on state of economy and bargaining rights against minor children. What a great idea!
> What stops corporations from tipping? John Q. Nerdly volunteers to work at Nvidia as a software engineer keeping the CUDA flame alive. If the company appreciates what Mx. Nerdly does, Nvidia can give him/her/zir/them a $20,000 weekly tip (purely voluntary).
$20,000 a week, huh? Are you now recommending engineering as a career path?