Commentators on both sides of the political aisle have had much to say about the idea of a law which would exempt service workers’ tips from taxation.
Trump supporters, in particular, seemed to love the idea when he brought it to the table, because it brings new potential voters into the growing tent. Lots of young people work in service jobs and earn tips, after all, and few of them have voted Republican in recent years.
When the Harris campaign adopted this position, some in the Trump camp were angry that she’d steal his idea. But there’s no hypocrisy in that. It’s just an entirely left-wing proposition that Democrats now wish they would have floated before Trump did.
Here are undeniable facts. Income is taxed by our federal government, and tips are a form of income.
Now, if you want to argue that income should not be taxed by the federal government, I couldn’t possibly be more in favor of your position on the matter. But since income is taxed, the question at hand is how income can be taxed fairly.
What is fair, after all? Democrats seek to push the top marginal tax rates ever higher to sluice more money from high income earners, even though the top quintile of income earners pay nearly all income taxes. It has long been their philosophy that people who earn more should be taxed more heavily than those who earn less. This is an idea stolen from none other than Karl Marx, who argues in The Communist Manifesto that a heavily progressive income tax is one of the ten planks of communism.
It is that same impulse which has driven the calls to exempt tips from taxation. The idea is that people who earn tips are often poorer than people who earn wages.
That idea is stupid enough that a simple observation would, in a sane world, quell all future discussion. After all, it would be difficult to explain why the cook or the dishwasher deserves to have all of his earnings taxed, but the waitress or bartender doesn’t deserve to have the bulk of her earnings taxed.
The truth is that this is a timely scheme to buy votes, and nothing more.
And unfortunately, Trump has expanded his plans to include placing tax exemptions on income earned in overtime wages.
The logic, of course, is the same. Blue collar workers earning hourly wages earn less than white collar workers who earn salaries. Therefore, wage-earning blue-collar workers deserve to have a tax exemption carved out for them, while salaried white-collar workers will still have to pay taxes on all their income, or go to jail.
It often isn’t the case that salaried workers earn more than waged workers, of course. Consider that there are already incentives for many wage-earning workers to take overtime shifts. Most people know that overtime work is often referred to as “time and a half,” because employers will typically offer at least 50% additional pay (sometimes much higher) to employee’s hourly wage in overtime. This usually benefits both employers and employees, because it makes more sense to pay an employee more when additional work is needed than to hire and train additional workers to be idle or on standby when overtime work is not needed.
Inverse to that voluntary business arrangement between employees and employers, unions may negotiate insanely high overtime rates that are baked into union workers’ expected annual incomes, while demanding protection for existing workers’ access to overtime pay in the form of opposition to automation, for example. This is one reason why, as I observed regarding the recent dockworkers’ union strike, a union dockworker in Oakland earns $230,000 annually on average, while an aerospace engineer earns $134,000 on average.
The engineer’s salaried arrangement may function quite differently. If an employee is offered a $100,000 salary, for example, there may be weeks where 30 hours of work is enough. There may be weeks when 60 hours and substantial travel time is required. At the end of the year, the dockworker and the aerospace engineer may work a comparable number of hours, but the dockworker will not only have earned substantially more income due to negotiated wages for overtime, but according to the “no tax on overtime wages” policy that Trump has floated, a substantial portion of the dockworkers’ income will not be taxed while the aerospace engineer may earn significantly less and he will be taxed on all dollars earned.
Are conservatives actually suggesting that such broad and ridiculous tax carveouts approach anything resembling a morally correct position? Beyond that, do we accept the suggestion that the appropriate role of government is to discriminate against individual workers based upon job description and employment arrangements in such ways?
I disagree wholeheartedly with all of that, and for the life of me, I can’t understand how anyone can morally argue in favor of any of it.
But as terrible as the Republican ideas-turned-slogans like “no tax on tips” and “no tax on overtime” are, Democrats are promoting the most economically destructive policy imaginable, and it is an idea that carries with it nothing short of the death of individual liberty and private property in America.
And that policy is the notion of a federal wealth tax, an affront to liberty so severe that its implementation would reshape our nation in ways that will make it unrecognizable to anyone who ever lived as an American up to this point.
The media are attempting to give this idea legitimacy by calling it an “unrealized capital gains tax.” Most Americans rarely think about capital gains in their daily lives, and this is why the capital gains tax rate has far more potential for dramatic fluctuation than the income tax rate — most people do not think that a “capital gains” tax hike will negatively impact them.
The idea that a “capital gain” can be legally taxed by the federal government derives from the Sixteenth Amendment, and this is important. Until 1913 when the Amendment was ratified, the Constitution only allowed for indirect “Taxes, Duties, Imposts and Excises.” Direct taxes could only be applied if apportioned among the states according to the Census.
The original idea was that there would be a voluntary nature to federal taxation — you could choose to not buy an imported good and suffer the costs incurred by tariffs, or you could choose to not pay excise taxes by not buying whiskey, for example. The Sixteenth Amendment changed all of that, and allowed the federal government to directly seize a citizen’s “income, from whatever source derived.”
What this means is that a transfer of money into your hands is required for it to be federally taxable, and that “from whatever source derived” does a lot of heavy lifting in tax law.
When your employer pays you, for example, that’s taxable. When you die, the transfer of money to your beneficiaries is potentially taxable, because there was a transfer of value into their hands. Eventually, the government gave Americans some avenues to avoid immediate taxation, like your 401(k), but the moment you transfer that money out of your tax-sheltered account and into your bank where it might be spent, that money is taxable. If you own stock that is not in a tax-shelter and it pays a dividend, you owe income tax. And it you sell a long-held stock or your home for a profit, you “realize” the increased value of the stock or your home relative to the original purchase price, and the difference is therefore potentially subject to capital gains tax.
What’s never happened before, and what is nothing short of the death of individual liberty and the end of America as we know it, is the suggestion that wealth that has not yet been transferred into an American individual’s hands is ripe for legal taxation by the government.
Once this door is open, there is no closing it. If the government claims for itself the right to forcibly confiscate your property based upon the current value of your investment holdings prior to your ever selling them or collecting the value upon them, then the government can do anything it wants without any limitation.
If you don’t believe that, consider that the first income tax law of 1913 had seven marginal tax brackets that capped at 7%. If you earned less than an inflation-adjusted $626,000 in 1914, you owed 1% of your income to the government. By 1918, there were 55 tax brackets which capped at 77%. Everyone earning under an inflation-adjusted $125,000 had seen their taxes increase 600%, and anyone earning more than that saw tax increases that were far more painful.
Donald Trump has pitched some pretty bad economic ideas in this campaign cycle. I certainly don’t love it, but he is clearly the better pick for American conservatives in this election cycle. And that is particularly because, if for no other reason, Kamala Harris is presenting is the most devastating economic idea that could ever be introduced in this country, accompanied by the most destructive social agenda, the most inept foreign policy prescriptions, and is arguably the most unlikable and unqualified presidential candidate in American history.
Perhaps that’s the result when one party decides that its voters don’t matter in selecting a candidate.
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