How A Proposal To End Taxes On Tips Upended The Presidential Election In Nevada

LAS VEGAS — When Jesse Law, chair of the Clark County Republican Party, took the microphone to address a room full of evangelical Christian volunteers before they hit the doors on a sizzling hot Saturday morning in late September, he made sure to cast the Republican message in faith-based terms.

He encouraged the volunteers, who are affiliated with the American Christian Caucus, to talk to voters about “really great solutions that are founded in the Bible and in Christianity.”

What solutions? Mainly, exempting workers’ tips from federal taxes.

“When I bring up Trump or Harris, everyone is automatically already forming opinions, some of them divined from media,” Law said. “If you just bring up tax on tips to any of the service workers, they know exactly what that is, and that value is what resonates and brings us together.”

In fact, the idea of “no tax on tips” has less to do with the Bible and more to do with former President Donald Trump’s attempts to bring Nevada into the Republican column for the first time since 2004. Trump shook up the race for the Battle Born State in June when he announced the proposal at a rally in Las Vegas, claiming he got the idea after speaking with a server at a Las Vegas hotel.

Although the proposal is national in scope, the idea has now become one of the issues defining the contest in Nevada, a swing state where over one in four private-sector workers are in the tip-fueled hospitality industry. Polls have shown Harris and Trump essentially tied in the state.

It’s been part of a string of bumper-sticker proposals to end specific types of taxes, including those on Social Security and on overtime, that Trump has trotted out to curry favor with voters — never mind the price tag, the difficulties with implementation, or the fact that Trump has a history of promising popularthings he subsequently fails to follow through on. 

Trump’s credibility on matters related to tips is especially dubious. As president, Trump’s Department of Labor proposed allowing employers to share tipped employees’ tips with non-tipped employees, prompting Congress to pass legislation explicitly forbidding employers from taking workers’ tips.

Still, Democrats needed to take Trump’s gambit seriously, not least because the Culinary Union Local 226, which represents 60,000 hospitality workers in Las Vegas and Reno, supported the idea.

Vice President Kamala Harris came out in favor of the proposal at her first Nevada rally in August. Her campaign — and the Culinary Union — see her more detailed position, including a commitment to preventing high-earning professionals and executives from using it to evade federal income taxes, as more credible, effective and comprehensive.

“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 Papageorge, secretary-treasurer of the Culinary Union, which has endorsed Harris, said at the time.

Trump has not exactly done anything to assuage these critics’ concerns. Indeed, he has not actually rolled out anything that could be considered a “plan” to exempt tips from federal taxes. It’s not clear, for example, whether he would exempt them from all federal taxes, which would include the payroll taxes that fund workers’ Social Security and Medicare benefits.

“You can’t just say ‘no taxes on tips,’ which is Trump’s way to try to buy votes,” Bethany Khan, a spokesperson for the Culinary Union, told HuffPost.

The Harris campaign also cites concerns by liberal policy experts about the ability of high earners to try to arrange to be compensated through some kind of voluntary “tipping”-style arrangement and thus evade taxation.

Harris, by contrast, is interested in limiting the tax exemption to service and hospitality workers making $75,000 a year or less.

“Trump’s taxes on tips policy is nothing more than another tax loophole to make his wealthy friends richer,” Amahree Archie, the Harris campaign’s Nevada press secretary said in a statement. “The choice couldn’t be clearer this election.”

To avoid encouraging employers to pay lower pre-tip wages, Harris would also tie passage of the tax exemption to the elimination of the subminimum wage for tipped workers. Currently just seven states require employers to pay tipped workers the same minimum wage as non-tipped workers. And 15 states require only the federal minimum of $2.13 an hour for tipped workers.

Harris plans to eliminate the subminimum wage for workers with disabilities as well.

“Vice President Harris’ New Way Forward will not only eliminate taxes on tips, but go further by raising the minimum wage and ending the sub-minimum wages for tipped workers and people with disabilities,” Archie said.

Rep. Steven Horsford, a Nevada Democrat who previously ran the Culinary Union’s Culinary Academy, announced in August he would be introducing the TIPS Act as a legislative model for Harris’ version of the no tax on tips idea. The bill, which does not yet have specific legislative language, would eliminate the subminimum wage for tipped workers and end taxes on tips, while ensuring high earners in traditionally untipped fields don’t exploit the new tax exemption.

For her part, Harris has not spelled out exactly how much she would raise the federal minimum wage for non-tipped workers, which is currently $7.25.

Regardless, enacting a minimum wage hike, let alone eliminating the subminimum wages that are fiercely defended by restaurant lobbying groups, is a long shot. When President Joe Biden tried to include the $15 minimum wage in his American Rescue Plan Act in 2021, the Senate parliamentarian said it could not be in a budget reconciliation bill, and was thus vulnerable to a filibuster. Since Democrats lacked the votes to break a filibuster, the proposal got shelved.

Perhaps because of the unlikelihood that such a bill would become law, or perhaps because it would draw attention to an issue where Trump has a clear advantage, Harris has not made “no tax on tips” a major theme of her campaigning in Nevada. She did not mention the proposal during a late September rally in Las Vegas, or a televised, Las Vegas-based town hall with Latino voters last week.

The Harris campaign has mentioned the “no tax on tips” proposal in at least a handful of digital ads, according to Meta’s digital ad archive, but it has not been a major focus of their paid communications. Trump has mentioned the proposal more frequently in advertising, and regularly highlights the proposal on billboards in swing states.

For their part, Republicans see an opportunity to undermine Democrats’ brand as a champion for Nevada workers, including the state’s Latino residents, among whom Harris is struggling to get the level of support Biden received in 2020.

The issue of “no tax on tips” resonates strongly with the state’s Latino voters, according to a Noble Predictive Insights poll conducted in September. About two-thirds of the poll’s Latino respondents said the two candidates’ “no tax on tips” proposals made them more likely to vote, compared with 38% of non-Hispanic, white Nevada voters. In the poll, 50% of Latino voters said they trust Trump to deal with the issue, compared with 38% who trust Harris.

“He’s sincere about it. People in town know it,” Law told HuffPost.

Democrats are hoping to offset some of Trump’s advantage on the issue by undercutting the only concrete proposal put forward by a Republican, Texas Sen. Ted Cruz’s No Tax on Tips Act.

The bill, which Cruz introduced in June, specified that tips would be exempt from federal income taxes — not other federal levies. It also does not include any earnings restrictions or other measures to crack down on potential abuse of the bill to evade taxes.

A July analysis by the Center for American Progress (CAP), a think tank aligned with the Democratic Party, pointed out Cruz’s bill would do far less for people on the lower end of the earnings spectrum than restoring the American Rescue Plan Act’s temporary increases to the Child Tax Credit and Earned Income Tax Credit, since low-income people are already exempt from federal income taxes.

And due to the bill’s absence of explicit “guardrails” for preventing exploitation by high earners, CAP depicted a scenario where a married couple with $1 million in earnings would save $180,000 by finding a way to designate half of their earnings as tips.

Darin Miller, a spokesperson for Cruz, rebutted the think tank’s analysis on X at the time, noting that the Internal Revenue Service already forbids people from designating involuntary compensation as “tip” income.

“Reclassifying non-tip income as tips has a name: tax fraud,” Miller wrote.

Not so fast, says Brendan Duke, CAP’s senior director for economic policy and author of the July analysis panning Cruz’s plan.

Duke sketched out some ways in which high earners could still find a way to earn their keep through a kind of upscale tipping system. For example, corporate lawyers might charge clients a lower hourly fee while making clear they expect a large tip at the end of a project. If a tip is too small, a client might not be able to retain that lawyer’s services going forward, but the arrangement would still be voluntary.

“This gets pretty complicated pretty fast,” Duke told HuffPost. “No tax on tips creates a very, very large benefit to receiving income through tips.”

An analysis by experts at New York University’s nonpartisan Tax Law Center that came out Thursday reaches a similar conclusion, noting how some hedge fund managers and other investment professionals have found a way to escape the top marginal income tax rate of 37% in favor of the top long-term capital gains rate of 20%.

“The tax savings that such professionals could achieve by recharacterizing their income as ‘tip’ is even more enticing as it would reduce the tax rate on that income to zero,” write the Tax Law Center’s Mike Kaercher and Chye-Ching Huang.

One difficulty for Democrats and policy experts trying to steer the next president closer to a Harris/Horsford-style proposal is that Cruz’s bill almost immediately picked up the support of Nevada Sens. Catherine Cortez Masto and Jacky Rosen, both of whom are Democrats. The Culinary Union praised Cortez Masto and Rosen, at the time, for “joining bipartisan legislation to provide relief to hospitality workers in Nevada.”

Now the union is more keen to praise Horsford’s proposal, which came out after Cruz’s bill.

Nevada “banned the subminimum wage and we think it’s time for the rest of the country to follow,” Khan said. “That’s the taxes and tips conversation, because the union’s been making sure workers are front and center.”