States, Congress Need to Hop Off the ‘No Tax on Tips’ Bandwagon

TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Foundation’s Abir Mandal explains why Congress shouldn’t create carveouts for tipped workers in the tax code and why states would be wise to abandon similar proposals.

Political popularity isn’t always a reliable gauge of sound policy—and that’s certainly true of President Donald Trump’s idea to eliminate taxes on tips, bonuses, and overtime pay.

Members of Congress are debating these campaign promises as they work on tax legislation. But across the country, we’re also seeing state policymakers embrace this idea. In 12 states—ranging from Alabama to New Jersey—lawmakers have introduced bills that, in one way or another, embrace the “no tax on tips” agenda.

Politically speaking, it makes sense why these proposals have taken off. Polls have shown that 73% of Americans across party lines support eliminating taxes on tips. But what’s popular isn’t always what’s sound.