WASHINGTON ― Republicans never proposed a tax break on tips before, but now that Donald Trump has embraced the idea, several lawmakers are putting it into legislation.
Sen. Steve Daines (R-Mont.) said Wednesday he would soon write a bill to eliminate federal taxes on tips.
“It’s a stroke of genius by President Trump, and it shows the American people how in touch he is with the challenges of the working class in our great country,” Daines, leader of Senate Republicans’ campaign efforts, said on Fox Business on Wednesday.
Reps. Matt Gaetz (R-Fla.) and Thomas Massie (R-Ky.) are a step ahead of Daines, having already introduced a bill on Tuesday that would cut federal taxes on tips, which are treated the same as ordinary wages for tax purposes.
“As the cost of living continues to rise, the hardworking men and women in the service industry, many of whom may be working a second job to make ends meet, must be allowed to keep every dollar of tip money they earn,” Gaetz said in a release.
Trump first pitched the idea earlier this month in Nevada, a battleground state with a seizable leisure and hospitality industry, where tipping is most common.
“For those hotel workers and people that get tips, you’re going to be very happy because when I get to office, we are going to not charge taxes on tips,” Trump said at a Nevada rally on June 9.
Trump narrowly lost Nevada to Joe Biden in 2020, and the tips proposal is a clear effort to boost his prospects in their rematch this November.
The proposal has some potential drawbacks for Republicans, including its cost. An analysis by the Committee for a Responsible Federal Budget, a group that opposes deficit spending, said making taxes tip-free would cost the government somewhere between $150 and $250 billion over 10 years.
The budget cost could soar to $500 billion if more tipping became more common, which would be likely if the government gave tips such an advantageous tax treatment. Social Security, Medicare and income taxes typically take a chunk out of every W-2 wage earner’s paycheck.
“In practice, exempting tip income from taxation would lead workers and employers to reclassify ordinary income as tip income where possible and could lead to a larger shift toward lower base pay and higher tipped income, more broadly,” the CRFB said in its analysis.
Already, Americans tell pollsters that requests for tips have spread to more types of businesses, with a sizable majority saying they’re not fond of the practice.
It’s not clear if the tip bills will become a Republican priority next year, when sweeping tax cuts Trump signed into law in 2017 are set to expire (and Nevada’s electoral votes have been counted). Republicans have previously said they want to make the cuts permanent, which would cost an eye-popping $4 trillion over a decade. Lawmakers might hesitate to add another several hundred billion to that total.
“There’s all kinds of dynamics that aren’t even known yet, so we’re evaluating what we do now know and discussing different approaches that might be possible,” Sen. Mike Crapo (R-Idaho), the top Republican on the Senate tax committee, told HuffPost on Tuesday.
