Forget Trump’s Idea of Tax-Free Tips

The Republican Party has a knack for tapping into the frustrations of people who are struggling to get by without actually helping them. GOP presidential nominee Donald Trump has offered up a new idea, for tips to be exempted from taxes. Building on that, Senator Ted Cruz (R-TX) introduced the No Tax on Tips Act in the Senate. Such knee-jerk ideas—Trump claimed he thought of it after an interaction with a Las Vegas server—do little to address economic inequality.

Tipped workers are among the lowest paid in the nation, and, depending on which state they live in, they may be entitled to less than the minimum wage. The federal minimum wage for tipped workers is an appalling $2.13 per hour—a floor that was last set in 1991.

For those surviving on the edges of our economy as a server or a food delivery driver, it may seem enticing to have tax-free tips—most GOP promises to working-class Americans are a mirage. But there is a solution that is far more equitable, that would benefit the public at large, and especially workers who currently rely on tips. While it may sound radical, what people desperately need—those who earn tips and those who pay them—is to eliminate the need for tips altogether.

A March 2024 report by the Center for Economic and Policy Research (CEPR) explains that the tipped minimum wage at the federal level is no longer linked to the minimum wage for other workers and has been frozen since 1991 because of legislation signed by then-President Bill Clinton. Because tips are expected to make up the difference between actual wages and take-home pay, as the federal minimum wage for other workers has risen, the percentage of tipped worker wages that comes from tips has risen along with it. Today, a whopping 71 percent of tipped workers’ wages at the federal level comes from what customers directly pay them.

If you’ve ever been lucky enough to travel outside the United States, one of the starkest differences you’re likely to notice is that tipping is not as customary as it is in this nation. There’s a good reason for our unique tipping culture. As it is with many unjust institutions, tipping has an ugly history that goes back to European serfdom and American enslavement.

“The practice of tipping is traced to the Middle Ages and the European feudal system, when masters would sporadically give pocket change to their servants,” explained CEPR’s Sylvia Allegretto. She pointed out that in “the post–Civil War period, the idea took a firm hold in the United States as employers were hiring formerly enslaved people.” In other words, the idea of tipping workers rather than paying them a fair wage grew on the backs of Black Americans and is a legacy of racist segregationist policies.

Today, Americans as a whole are struggling to make ends meet in spite of happy projections linked to Wall Street shareholder dividends. And yet we are expected to essentially subsidize our fellow workers each time we dine out, order food delivery, or even buy a cup of coffee.

The rules are arbitrary and ever-changing. For example, tips for Doordash and Uber drivers are the norm, but not for Amazon delivery workers or bus drivers. One financial adviser explained, “Customers are also increasingly prompted to tip for other services, such as car maintenance, retail stores and self-serve food, and many are feeling confused and frustrated as a result.” A 15 percent tip used to be the norm. That has crept up to 18 percent, and in some cases, even 25 percent of one’s bill.