Former President Donald Trump’s plan to end taxes on tips could come with a price tag of $250 billion, a budget watchdog estimated in a new analysis.
The Committee for a Responsible Federal Budget estimated Sunday that exempting tip income from federal income and payroll taxes could lead to a decrease of $150 billion to $250 billion in federal revenues over a decade.
The watchdog noted the estimate was calculated on “a static basis” and that it does not factor in certain behavioral effects but is instead the “net of revenue gains” from eliminating the Federal Insurance Contributions Act Tip Credit.
“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 group said.
The group said its analysis takes into account the tax cuts set to expire as part of Trump’s signature 2017 tax law, such as lower individual tax rates.
“President Trump has called for extending those expiring provisions if elected to a second term, which would reduce the fiscal impact of exempting tip income by between 10 and 15 percent, increasing deficits by between $125 and $225 billion,” the watchdog said.
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Trump made headlines earlier this month when he vowed to prioritize ending taxes on tips if he wins back the White House later this year.
“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 during a rally in Las Vegas.
“We’re going to do that right away. First thing in office, because it’s been a point of contention for years and years and years,” he added. “And you do a great job of service; you take care of people, and I think it’s going to be something that really is deserved.”
