Former president Donald Trump, who has offered little details surrounding his planned economic policies for a possible second presidency, has made headlines by announcing his proposal to eliminate federal tax on tips for service workers. The proposal is aimed at securing working-class voters despite tipped workers making up only 2.5 percent of all employment. Of these, 12.6 percent are teens ineligible to vote and 37 percent had incomes low enough they faced no federal income tax.
This policy has sparked enthusiasm and criticism. Vice President Kamala Harris has even endorsed the idea.
As Senate Republicans swiftly introduce related legislation, it’s crucial to examine the broader implications, particularly in the wake of the Supreme Court ruling in Snyder v. United States.
During a June campaign stop in Nevada, Trump unveiled this proposal, which he has since made a central part of his platform. Some Republican senators have introduced the “No Tax on Tips Act.” The legislation would allow taxpayers to claim a 100 percent deduction for tipped wages, if passed.
The proposal could result in a significant loss of federal revenue — which the Committee for a Responsible Budget estimated to be between $150 billion and $250 billion over the next decade. The Congressional Budget Office estimates that these cuts if extended past 2025 would cost nearly $4 trillion between 2025 and 2035. This comes on the heels of Trump’s tax cuts from his first administration, which reduced the corporate tax rate from 35 percent to 21 percent, with an additional 20 percent cut promised.
Supporters argue the act provides much-needed relief to service workers who rely on tips for a significant part of their income. However, critics from both sides of the aisle question the effectiveness and fairness of the proposal. The Wall Street Journal’s editorial board and experts from the Urban Institute and Brookings Institution’s Tax Policy Center contend that the proposal could ultimately harm many workers and slow efforts to raise the minimum wage.
To understand the potential legal ramifications of Trump’s proposal, it’s crucial to look back at the Supreme Court ruling in Snyder v. United States. In the June ruling, the court addressed the issue of tax exemptions and the federal taxation system itself. The case concerned the legality of paying government officials “gratuities” or “tips” under federal bribery law and whether “section 666 criminalizes gratuities … payments in recognition of actions the official has already taken or committed to take, without any quid pro quo agreement in those actions.”
In the 6-3 opinion, the court remanded the case to the lower court, which held that section 666 “prohibits bribes to state and local officials but does not make it illegal for those officials to accept gratuities for their past actions.”
Harkening former Justice Anthony M. Kennedy’s Citizens United ruling in his majority opinion, Justice Brett Kavanaugh drew the conclusion that bribes and gratuities are not the same thing:
“Bribes are payments made or agreed to before an official act in order to influence the official with respect to that future official act. … (Gratuities) are typically payments made to an official after an official act as a token of appreciation.”
As Justice Ketanji Brown Jackson explained in her dissent, for the purposes of public corruption, there is simply no distinction between a bribe and a gratuity: “Because reading (section) 666 to prohibit gratuities — just as it always has — poses no genuine threat to common gift giving but does honor Congress’s intent to punish rewards corruptly accepted by government officials in ways that are functionally indistinguishable from taking a bribe.
As the “No Tax on Tips Act” does not affect a large enough segment of Americans to provide a sizeable electoral effect and also fails to address the many factors the act could have on the economy, could the act really be in direct response to these newly legalized “bribes”?
While the act appears to be a straightforward benefit for service workers, the effect is far-reaching, with its potential to create a large loss of federal revenue and worsen wage stagnation. Most important, with the Snyder v. United States ruling, questions arise about the act’s intent and potential for far-reaching legal ramifications. As lawmakers and the public scrutinize this proposal, we must weigh the immediate benefits against the long-term consequences on our nation’s ethical governance.
