Republicans in at least five states have proposed eliminating state income taxes on tips, echoing a policy idea first floated by former President Donald Trump in June.
The GOP lawmakers behind bills in Michigan, New York, Ohio and Oregon and an amendment in California say they want service industry workers such as waiters and baristas to be able to keep every penny they receive from appreciative customers.
“With high costs crushing Oregon workers, it’s more important than ever to support policies that put money back in the pockets of those who need it most,” Oregon Sen. Dick Anderson (R) said in a statement announcing plans to file a bill next session that would exempt tips from state income tax.
Nationally, there’s bipartisan support for the tax break. Ending federal income taxes on tips may be the only thing on which Trump and Vice President Kamala Harris agree. Both Republican and Democratic members of Congress have filed bills that would create such a tax break.
But economists and tax policy experts have panned the idea, saying ending taxes on tips would not help the lowest-income workers and could nudge some affluent professionals to start reclassifying income as tips.
“It’s tough to think of the policy problem it’s solving,” said Richard Auxier, a principal policy associate at the Urban-Brookings Tax Policy Center, a joint venture between two Washington, D.C., think tanks.
Only about 2.5% of workers earn tips, according to Yale University’s Budget Lab, a nonpartisan research center. Thirty-seven percent of those workers earn so little they do not owe federal income tax and therefore would not benefit from an income tax exemption.
Most state-level proposals so far have been filed by Republicans in legislatures dominated by Democrats.
To some tax policy analysts, that suggests the bills are mostly meant to score political points.
“Generally speaking, they come across more as messaging bills than serious policy proposals,” said Jared Walczak, vice president of state projects at the Tax Foundation, a D.C.-based free market think tank. “Republicans seem less eager to push them where they might have the votes to pass them.”
California Senate Democrats immediately blocked a GOP attempt last month to tack language eliminating taxes on tips onto an unrelated drug policy bill. After Sen. Rosilicie Ochoa Bogh’s (R) floor amendment was voted down, her caucus sent out a press release blasting Democrats for declining to help hospitality and service workers.
“The negligence involved in a refusal to even debate a policy issue of this magnitude cannot be overstated,” Senate Minority Leader Brian Jones (R) said in a statement included in the release.
Ochoa Bogh has not yet decided if she will push for ending taxes on tips next session, her communications director Ivette Burch said in an email to Pluribus News. “The Senator is always looking for ways to help hard working Californians who need it the most,” Burch said.
Some blue-state Republicans say that they see an opportunity for bipartisan cooperation, however, given the national momentum behind the tax break.
Colorado Rep. Matt Soper (R) introduced a bill to eliminate taxes on tips in 2020, as an effort to help service workers during the Covid-19 pandemic. He told Pluribus News he still supports treating tips like gift income, which is not typically taxed.
“Now that there’s national attention on the issue, I think there could be an opportunity to bring the concept back,” Soper said.
But it could be difficult to get such a tax break passed next session, Soper said, when Colorado lawmakers must balance a tight budget. His 2020 bill, which would have allowed workers to deduct all tip income in 2021, would have cost the state an estimated $45.2 million to $59.4 million over two fiscal years.
“Any time you want to have a tax exemption, it needs to be done in a really good economic year,” Soper said.