Harris surprised Democratic lawmakers and progressive activists by supporting a proposal first proposed by former President Trump to make tips for service and hospitality workers tax-free. Democrats had previously criticized the idea as “bullshit” and a vote-gathering “ploy.”
Harris’ support for the plan is seen as an effort to aggressively rally in Nevada, a key battleground state for service workers, and to negate any advantage Trump may have had by first proposing the plan when he met with Republican lawmakers on Capitol Hill in June.
But leading Democrats and progressive activists have raised serious concerns about the proposal’s proposed exemption from taxation on tip income, fearing it would exclude many low- and middle-income workers who qualify for the tax break even though they don’t work for tips.
Policy experts also question whether such a proposal could be drafted without significantly altering economic behavior that could impose a much larger burden on the federal government than the current projections that would add $100 billion to $200 billion to the national debt over the next decade.
Another criticism from the left is that employers could use untaxed tips as an excuse for not raising base wages, potentially encouraging some companies to be more proactive in collecting tips from customers in exchange for raising employees’ hourly wages.
“It was unexpected,” said one Senate Democratic leader, “I didn’t expect her to bring up the tipped wage issue. I didn’t think it was a serious proposal from Trump, and it’s not a serious proposal now.”
Democratic leaders on the Senate Finance and House Ways and Means Committees, which have primary jurisdiction over tax policy, criticized the proposal when Trump first floated it at a meeting with Republican lawmakers in June.
Trump told Republican senators that he got the idea from a waitress he met.
Senate Finance Committee Chairman Ron Wyden, D-Ore., called Trump’s idea to repeal the tip tax a “false proposal” and predicted it would be quashed by other Trump policies that would make goods more expensive, such as tariffs.
Rep. Lloyd Doggett (D-Texas), the ranking member of the Ways and Means Committee, called the proposal to exempt tips from the tax an “election-year ploy.”
White House Economic Council Director Lael Brainard declined to comment when Trump raised the idea of eliminating the tip tax in June.
“What I can say is President Biden has been fighting for real solutions that actually address workers’ just wage demands, and we think that’s going to be much more effective,” she told The Associated Press in mid-June.
Senate Democratic leadership and Sen. Debbie Stabenow (R-Mich.), a member of the Finance Committee, said in June that they didn’t think Trump’s proposal was serious and questioned whether it would go far enough to help low-wage workers.
A senior Senate Democratic aide said the idea had not been seriously discussed in the Senate until President Trump introduced it in June.
Steven Rosenthal, a senior fellow at the Tax Policy Center, a joint venture between the Urban Institute and the Brookings Institution, said it would be very difficult to draft a bill to exempt tip income from tax in a way that would prevent people from taking unfair advantage of it.
“I don’t know how to exclude plumbers or maids. Are they service workers? If they’re employees… will employers now be asked to pay their employees more in tips?” he asked. “There are already too many people who ask for tips… What will we see? A grocery store teller asking for a tip? A plumber? Where do we draw the line?”
Rosenthal said there are no differences between Trump’s and Harris’ plans, but cautioned that it’s hard to tell because neither candidate has released many details about their proposals.
“Trump proposed eliminating the tip tax in June, but the left has generally criticized that proposal. So it’s unlikely that Harris would make a similar proposal. [proposal]”I think it’s going to take people off guard,” he said.
“I try to be clear about balls and strikes, and to me, both Trump and Harris’ ‘no tip tax’ are very bad ideas,” he said.
To fight back against the criticism, the Harris campaign urged The Hill to contact former Nevada Gov. Steve Sisolak, a Democrat, and labor unions that support the idea.
Sisolak could not be reached for comment, but Nevada’s two Democratic senators support a proposal to eliminate taxes on tip income.
Sens. Jacky Rosen (D-Nev.) and Catherine Cortez Masto (D-Nev.), who are both facing tough re-election battles, announced their support for the “tip tax ban” bill last month.
The proposal also has the backing of Nevada’s powerful Culinary Union, the state’s largest organization of working women.
Ted Papageorge, secretary-treasurer of the chefs union, said exempting tips from the tax “will provide relief to hospitality workers.”
White House press secretary Karine Jean-Pierre said Monday that Biden would “absolutely” sign the bill to repeal the tax on tipped wages if it reached his desk.
But Ms. Harris’s surprising support for one of President Trump’s signature tax proposals underscored the uncertainty many Democrats and progressive activists have about where she stands on key economic issues.
Democrats have expected for weeks that Harris would largely mirror Biden’s economic and tax policies, but her campaign has released little information about her policy ideas, leaving many political allies to guess where she might stand on key issues if elected president.
With President Trump’s landmark 2017 Tax Cuts and Jobs Act set to expire at the end of 2025, tax reform is expected to be a top priority for the new Congress next year, but some Democrats are concerned that Harris does not have a clear economic platform separate from Biden.
Bob Borosaj, co-executive director of the Campaign for America’s Future, said progressives were surprised by Harris’ unexpected embrace of Trump’s ideas.
“When Trump did it, most people thought it was a stupid idea,” he said.
“I think she just supported it to get it off the agenda. I don’t think it’s anything serious,” he added.
Borosaj said he and other progressives are focused on fighting to raise the so-called subminimum wage, the hourly wage that restaurant servers, college students and others make, which is below the legal minimum wage that non-tipped workers make.
“The real issue is the subminimum wage and whether to raise the subminimum wage and overcome the opposition of the restaurant industry. She’s in favor of raising the subminimum wage and she’s in favor of raising the minimum wage itself,” he said.
In some states, tipped minimum wage workers earn just $2.13 an hour, while the federal minimum wage is currently $7.25 an hour.
Vorosaj said it was “unclear” whether Harris would continue Biden’s economic and tax policies.
“We won’t really know until she announces her policy platforms, which she hasn’t announced yet,” he said, but noted that Harris’ campaign has promised to provide more details about her policy positions soon.
Ahead of the 2020 Democratic presidential primary, Harris ran as a bold progressive, signing onto Sen. Bernie Sanders’ (I-VT) Medicare for All legislation in 2019 and announcing her support for eliminating the Senate filibuster to enact a comprehensive Green New Deal to transform the U.S. economy to a green energy one. She has since backed away from these ambitious proposals.
