Before I address the topic at hand, let me first say that I have the utmost respect for those who are able to regularly crank out content in blogs and vlogs. They have dedication to the process I clearly do not have. I do have an interesting life with many things going on, but I feel that if it were a higher priority for me, I could bang out one every week. But something always seems to come up (right now, it’s golf as the weather has finally turned in western NY) that allows me to de-prioritize blogging. I’ll keep trying to get out content when I can. I hope some of you will find my posts interesting.
One more thing before I get to the bottom line; I want to throw out one of my favorite trivia questions (I have told many of those who know me well). The question: name the only Black artist in the Rock & Roll Hall of Fame and the Country Music Hall of Fame. I’ll answer it in my next post (of course by them you could have looked it up if you didn’t know the answer). I think it might surprise you.
Now, on to today’s topic. Recently, there have been some advocating to exempt tips from taxation. It was somewhat of an issue during the 2024 Presidential campaign. Donald Trump raised the issue while he was campaigning in Nevada. It was actually a savvy move given that a very large number of workers in the state obtain a significant amount of their income from tips. Kamala Harris subsequentially also mentioned it, although not as enthusiastically as Trump. It was probably a factor in the state going Red in 2024. How much of a factor I cannot tell you. Trump also mentioned in in his recent address to Congress in March.
I must say that having considered it, I think that exempting tips from being taxed is a bad idea. Why do I say that? Well, there are 2 reasons.
Reason number 1 is fairness. Consider the following 3 employees:
- Person 1: Works in an auto factory and earns a $60,000 in a calendar year, all of which is taxed
- Person 2: Works as a realtor and earns $60,000 in a calendar year, all of which is taxed
- Person 3: Works as a server in a good restaurant and earns $60,000 in a calendar year, $10,000 of which is taxed (keep in mind many restaurant employees earn less that the minimum hourly wage as salary) and $50,000 is untaxed tips
In this scenario, I find the situation extremely unfair to persons 1 and 2, who are paying significantly more taxes than is person 3 even though person 3 has earned the same amount of money. Person 3 has access to the same roads, services, protection from enemies and criminals, etc. as do persons 1 and 2 but is contributing less money to gain what the government provides. I just can’t sign on to this.
The other issue regarding this is one that many people might not realize should their tips not be taxed. The one major benefit that would be greatly reduced to these workers would be Social Security. Keep in mind that the amount of Social Security that one earns is based on his/her taxable income. In the Scenario I described above, person 3 would have a much lower Social Security income than would persons 1 and 2. I suppose a system in which person 3 could pay SS tax (but not income tax) on tip income could be devised, but I haven’t heard it ever described this way. I don’t think most individuals for whom tips are a significant percentage of their income earn enough that they would be able to save large enough chunks of money for retirement to offset the meager amount of SS money received when they decide to retire. As I said, I’m not sure many of those who earn most of their money as tips realize what will await them when they want to stop working.
In conclusion, for the reasons I cites above, I not only think that exempting tips from taxation is unfair to all workers who aren’t in this situation, but I also believe that those in favor of the idea are unaware of the downside to a change like this.
I am pretty certain that most of us have issues with the tax laws. I personally don’t think that this proposed change has merit.
#Income taxes
#Workers who earn tips
#Social Security
#Retirement income
Disentangling the mess 