Will ‘no tax on tips’ make tipping culture even more taxing for Americans?

[Sen. Ted Cruz]

Next time you go out at a restaurant, I encourage you just just ask the waiter, ask the waitress, hey, what do you think about no taxes on tips?

[Simone Del Rosario]

Ted Cruz and a bipartisan group of lawmakers reintroduced a bill to do away with federal taxes on tips.

Critics argue a law like this will make tipping culture worse, when Americans already find it to be taxing. It’s already taking a hit on generosity. Americans are tipping at a lower rate today than they have in years.

Cruz and his co-sponsors promise this bill will offer financial relief for those who need it most. And the proposal mimics one of President-elect Donald Trump’s campaign promises.

Sen. Ted Cruz:

it’s very simple. It provides the tip workers, whether waiters or waitresses or bartenders or taxi drivers or barbers or hairstylists or nail salon workers that receive tips, they can deduct those tips from their income tax so that those tips are tax free.

Simone Del Rosario:

When these proposals first came forward last year, the right-of-center Tax Foundation cast doubt on the impact Noting only 2.5% of the workforce is tipped, “the policy would leave the vast majority of low- and middle-income earners out of the loop.”

And they turned their attention to the unintended consequences of such a policy. They said, “the proposal would make more employees and businesses interested in moving from full wages to a tip-based payment approach.”

“I’m so over tipping, it has gone too far.”

Simone Del Rosario:

It’s a common sentiment. Americans are tipping less than they have in years. And we’re not talking about tips at the counter.

The average tip at a full-service restaurant fell to 19.3% in the third quarter of last year. That’s according to data provided to Straight Arrow News by Toast, which handles restaurant payment systems.

Toast gave SAN data going back to 2018. The current tip rate is the lowest recorded across this seven-year span. Full-service tips peaked at 19.9% in the first quarter of 2021.

Tips at quick-service restaurants are also at a seven-year low.

“So tipping in the United States is out of effing control.”

“I hate New Age Tipping”

Simone Del Rosario:

A survey from Bankrate in June of last year found 59% of Americans have a negative view of at least one aspect of tipping.

35% say tipping culture as a whole has gotten out of control. Meanwhile, 34% say they get annoyed with pre-entered tip screens at places like coffee shops and fast-casual restaurants. And 11% are straight up confused about who and how much they should tip.

“OK… We need to come to a common consensus… Where are we tipping and where are we not tipping these days?

Simone Del Rosario:

The Tax Foundation warns the “where you do tip” category could get even bigger if no-tax-on-tips goes through.

President-elect Donald Trump initially pitched the idea himself in June while campaigning in Nevada.

Donald Trump:

“When I get to office, we are going to not charge taxes on tips, people making tips.”

Simone Del Rosario:

The location was no coincidence. Nevada has the highest concentration of tipped workers in the U.S. There are roughly 350,000 hospitality workers in the state, many of who rely on tips.

That promise may have helped Trump with Nevadans. President Joe Biden won the state in 2020 by more than 30,000 votes. In 2024, Trump won by 45,000 votes. It’s important to note, after Trump proposed the idea, Vice President Kamala Harris also endorsed the concept.

Now that Cruz has reintroduced the issue, the two Democrats co-sponsoring it are Nevada Sens. Jacky Rosen and Catherine Cortez Masto.

Former Comptroller General David Walker tells Straight Arrow News the unintended consequences go beyond expanding tipping culture.

David Walker:

I don’t see how this revenue loss would be offset by additional economic activity. So therefore this quote, unquote, tax cut would not pay for itself. It also would have an adverse impact on Social Security and Medicare, because you end up getting taxed on wages and on, you know, certain other forms of income, you know, through that.

“I’m not saying you shouldn’t tip. I’m saying that if you work in a tipped industry, you shouldn’t be mad when people don’t. I’m struggling to think of any other job or industry where you get mad at the customer for not paying you instead of your employer for not paying you enough.”

Simone Del Rosario:

To boost the earnings of service industry workers, Walker had another idea in mind.

David Walker:

Candidly, I think that what we ought to be doing with regard to waiters and waitresses and those who rely primarily on tips for their income is we ought to be going to the European model. We ought to pay them enough money such that they don’t have to rely upon tips in order to be able to have a decent standard of living.

Simone Del Rosario:

The federal minimum wage for tipped workers is $2.13. The regular minimum wage is $7.25. For SAN, I’m SDR.