President Trump has focused his 2024 campaign on a number of issues that one would expect, but he shook up the game this summer by issuing a new policy proposal: “No Tax On Tips.”
While his campaign hasn’t released the usual detailed policy papers on it yet, the president made it clear what he means: “restaurant workers, hospitality workers, and anybody else who gets tips.”
The Left responded immediately with what they see as the downside: by reducing federal taxes on tips, federal revenues would drop by a huge amount of money, or at least, by an amount of money that sounds huge.
The Committee for a Responsible Federal Budget declared that this program would likely cost the federal government between $150 and $250 billion in revenues over ten years. The Democrats consider this terribly irresponsible.
But they happily spend that much in weaponry for a war between Russia and Ukraine, or for hotels, food, education, transportation and hospital bills for illegal aliens. At least President Trump’s proposal is for American workers.
And when you re-read that number, you see that the estimate is over ten years. That means the accountants are estimating a cost to the federal government averaging $15 to $25 billion per year, in a nation with a federal government currently running a $2 trillion deficit on a $6.5 trillion annual budget.
Viewed in that context, to describe President Trump’s proposal as being a drop in the bucket – a veritable rounding error — would hardly be an exaggeration.
What’s the visual on this? The modern Left can’t bear to miss out on an opportunity to take the last dollar out of a waitress’ hand as she boards the city bus to go home at 1:00 a.m. The first thought of the Left is now — and is always — the impact on federal revenue.
But don’t stop there; this situation reveals much more than that.
President Trump comes from the hotel business and the building trades; he knows how much tips matter to waiters and waitresses, bartenders and busboys, hotel housekeeping and room service. He knows also that tips are a part of other jobs unrelated to hospitality; the delivery driver from the furniture store, the Instacart driver with your groceries, the furnace or A/C repairman whom the homeowner tips as he leaves.
President Trump and his voters know that these workers value those tips a lot more than the federal government values its revenue.
The Left may wail that they can’t possibly do without these $15 to $25 billion per year in federal revenue, but judging from that $2 trillion annual deficit, it’s not really cramping their style all that much; the politicians and bureaucrats will spend those $15 or $25 billion whether they have it or not, so we may as well pay more attention to how the recipients of the tips feel about it.
Turns out, the recipients actually do need the money.
With credit card interest rates over 20% these days, those workers only spend money if they actually have it in their hands. These tips matter a lot more to them than they do to government; maybe we should give the edge to leaving it in the hands of the earners so they can spend it.
And that is what they do. The earners spend every dollar they have in their local economy. If a waiter, bartender or delivery man has cash, they’ll put it right back into the hopper, by buying pizza for their family or buying diapers and formula for their kids. As every economist knows, money in the private sector multiplies; it keeps creating more value with every exchange until the sponge of government soaks it up and takes it out of circulation.
So, President Trump’s proposal isn’t just good for the recipients of these tips; it’s good for their local communities as well.
President Trump and his supporters know this; the Left doesn’t understand it.
But we’re not done yet.
Another tidbit that we have learned from paying attention to the Left in recent years is that they love to accuse the American taxpayer of cheating on their taxes, and they keep putting billions of dollars into the IRS’ budget for fishing expeditions to see who just might be under-declaring. Read any Democrat’s commentary on this issue, and you barely scratch the surface before they talk about how many people they believe cheat on this, and how much they’d love to catch them all, and fine them for taxes and penalties. The modern Left wants you scared of your government. Why else the $87 billion for new investigators? Why else the continued effort to lower the cash reporting threshold from $10,000 to $600?
Making tips tax-free would take one of the Left’s favorite whips out of the hands of the bureaucrats. It might be worth doing for that alone.
Yet another side of this story is the entrepreneurial aspect of it all. America is slowly being transformed from a nation of small businessmen into a nation of corporate employees.
For many workers, the tip jar is the constant reminder that working harder, delivering more of a service than “the minimum work for an hourly wage,” is the path to success. Tips encourage the very drive that propels the employee upward; it’s not just financial, it’s psychological. How much more beneficial would that process be for that worker, if he or she didn’t have to fear running afoul of the taxman?
President Trump understands this motivator – in a way that politicians and bureaucrats simply don’t.
Finally, we must address the natural reaction from every other taxpayer: “It’s not fair. If I pay taxes on all my income, why should these guys get a break on some of theirs?”
An understandable question, but there’s an answer to that one too: Would the tax system be fair without this change?
Of course not. The ship sailed on that question years ago.
The tax code is literally designed to be unfair. You and I pay different tax rates on identical income, depending on whether we’re married or single, have small children or kids in college, made our income as wages or investment property or stocks or dividends or government bonds. The office employee gets three or five or ten percent of his income to be tax-free by putting it in a 401K or IRA that most tip earners can’t afford to participate in.
The tax code is thousands of pages long because we have spent a century customizing specific advantages – for electoral demographics, for political donors, for the politicians themselves and for their friends…
We claim to put all these other customizations in the tax code specifically because we believe they will benefit the economy.
Well, this one actually will.
So why not do it?
This one policy proposal has revealed so much. It isn’t just that the Trump plan understands the economy and the Democrats don’t; it’s that the Trump movement understands human nature, and the Democrats don’t even care to attempt to.
John F. Di Leo is a Chicagoland-based international transportation manager, trade compliance trainer, and speaker. A one-time Milwaukee County Republican Party chairman, he has been writing a regular column for Illinois Review since 2009. Read his book on vote fraud (The Tales of Little Pavel) and his political satires on the current administration (Evening Soup with Basement Joe, Volumes I, II, and III).
Image: Ornello_pics, via Flickr // CC BY 2.0 DEED
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