Trump Plan to End Taxes on Tips Garners Capitol Hill Interest

By Caitlin Reilly and Aidan Quigley, CQ-Roll Call (TNS)

In meetings with congressional Republicans on Thursday that were otherwise light on concrete policy details, former President Donald Trump again trotted out his desire to eliminate federal taxes on income from tips.

Many Republicans said the idea had merit and should be part of the conversation as Congress weighs how to address the expiration of 2017 tax law provisions slated for the end of 2025. Even Democrats were reluctant to dismiss the idea outright, though many questioned Trump’s sincerity.

“That should be on the table … when we handle the Tax Cuts and Jobs Act renewal next year,” Sen. John Cornyn, R-Texas, said, referring to the 2017 law. Cornyn, a member of the tax-writing Finance Committee, is vying to replace Sen. Mitch McConnell, R-Ky., as Republican leader next Congress.

Reactions from Democrats were mixed, but few seemed inclined to reject the idea out of hand.

“I’m always for workers getting a fair shake. Let’s see what is proposed,” Senate Finance Chairman Ron Wyden, D-Ore., said.

Trump first floated the idea earlier this month in Nevada, a battleground state heavily reliant on the service industry. Sen. Kevin Cramer, R-N.D., said Trump told senators that he got the idea from a waitress in Las Vegas, who told him “they are coming after my tips.”

“He would like to tell you that it was incredible research and policy discussion, but the secret is, he got it from a waitress,” Cramer said.

The idea was warmly received by some of the former president’s own employees: the caddies at Mar-a-Lago, who “hugged him when he got back,” Cramer said. He added that the waitress’ comments followed recent IRS guidance about additional forms that are needed to demonstrate what individuals owe the federal government.

House Appropriations Chairman Tom Cole, R-Okla., said the idea was well-received in the room when Trump addressed House Republicans.

“He said, ‘Hey, it’s pretty popular. We should try it out.’ And of course the whole place was laughing and broke out into applause,” Cole said. “But you know, it’s true. … Gifts aren’t a taxable item, so there’s considerable merit to that in my view.”

‘A hard look’

House Ways and Means Republicans said they were taking the idea seriously and would examine it as they prepare for next year’s tax cliff.

“It’s something that the committee is going to look at. We want to see the obviously the format that it takes, but I think it has a lot of appeal to, obviously, blue collar workers and people that are engaged in the service industry. We’re going to give it a hard look,” said Ways and Means member Darin LaHood, R-Ill. “I think there’s a lot of support in the conference and on the committee for it.”

Committee member Brad Wenstrup said he was sympathetic to the idea, though the Ohio Republican is retiring and won’t be around to vote on next year’s bill.

“As someone who waited tables for nine years, sounds pretty good to me,” Wenstrup said. “There’s probably plenty of room for debate on it, for sure. But it’s an interesting issue, and it deserves conversation.”

Other Ways and Means Republicans didn’t dismiss the idea, but noted that costs would have to be taken into account. Fully extending the expiring provisions would cost $4 trillion over the next decade, not counting debt service costs, according to the Joint Committee on Taxation.

“That’s a brand new concept. That’s something that we need to look into. You know, obviously, we have $4 trillion in expiring tax credits,” said Rep. Brian Fitzpatrick, R-Pa., who is leading committee Republicans’ “Working Families” tax team charged with reviewing expiring individual tax provisions.

‘Election-year ploy’

House Democrats questioned Trump’s sincerity, but some were open to further examining the possibility of exempting tips from income tax.

“I would take his tax proposals more seriously, if we didn’t have evidence of his true priorities. 2017 tax law is evidence of his true priorities, not his rhetoric, but what he does when given the opportunity to take action,” said Ways and Means member Dan Kildee, D-Mich. “He didn’t care about tipped workers, he cared about billionaires.”

Still, Kildee said he was open to a bigger discussion of the idea.

“If what we’re talking about is giving more tax relief to working people, the method we use to get there, I’m open to conversation on that,” he said. “When it comes to tax policy, we do not have a tax code that requires the wealthiest and well-connected to pay their fair share. That’s got to be our first priority.”

Ways and Means Democrat Lloyd Doggett of Texas dismissed Trump’s proposal as an “election-year ploy.” Setting that aside, exempting tips from taxation probably isn’t the best place to start to make the tax code fairer, he added.

“I don’t think that’s the place to begin. We need to look at the overall tax structure. We have a tax structure that has major corporations paying lower rates than a teacher or nurse,” Doggett said. “But beginning to exclude certain kinds of income from taxation, more loopholes and changes, probably not where I would begin.”

Workers’ tips are currently subject to income tax as well as payroll taxes that finance Social Security and Medicare. Employers reported about $38 billion in tip income to the IRS for 2018, according to agency statistics.

Critics argue that exempting tips from taxes could also result in workers being paid more in untaxed tips and less in taxed wages, resulting in an even bigger budget hole and making the major entitlement programs worse off.

But it’s a powerful political argument that hard-working restaurant, hotel and other tipped employees should get a break. It’s one that Trump is seeking to use to his advantage in a key swing state as well as GOP Senate contender Sam Brown, who is running a close race against incumbent Nevada Democrat Jacky Rosen — herself a former Caesars Palace cocktail waitress.

If Trump thought his proposal would gain favor with the influential Las Vegas-based Culinary Workers Union Local 226, however, he was wrong.

“Relief is definitely needed for tip earners, but Nevada workers are smart enough to know the difference between real solutions and wild campaign promises from a convicted felon,” Ted Pappageorge, the union’s secretary-treasurer, said in a statement Sunday.

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