This change will completely undercut labour efforts to increase minimum wages, since now working for less than minimum wage plus tips looks way more appealing if you don’t have a somewhat sophisticated understanding of economics.
It was already appealing. At least to a degree because the big open secret in the tipped industries is that you already don’t pay taxes on tips because a lot of times you are left to “self report” your tipped wages.
My parents ran a diner for 30 years. Very creative accountants. On average the staff was on the books for 2.50/hr plus tips. Pretty standard. Now in order to get the minimum wage exemption your staff still has to make minimum wage after tips and if they don’t you have to lift them up to make that. So if it was a slow week and they only made like 4 dollars in tips the business would have to make sure theirs wages were up to 6.75/hr (90s). This hardly ever happened. What did however happen was we and the employee would simply stop reporting tips when they got to that threshold of legality. I mean. Not the exact same threshold every time. You want to move that number around a bit to avoid the eyes of the IRS wondering how with tips you seemed to make exactly minimum wage every week. So we would adjust it to average somewhere between 7-9 an hour with tips.
Copy and paste. Across the country.
As a secondary effect of this real wage data for tipped employees is always a joke. There’s a reason the very people who make tips almost always vote AGAINST laws to make wait staff jobs minimum wage+tips because deep down they know that’s not really a raise as much as it is more taxes and less tips. (This recently failed in Massachusetts). So you end up with stats like- the average waitress only makes 23,000 a year. Which isn’t true. What is true is that the average waitress “reports” 23,000 a year. Plus another 20-30k (a lot of times more) in unreported tips. (Biden actually tried to close this loophole. Like an asshole).
So I’m for people already in the industry I don’t think this will make a huge dent. What it will do is create a lot of moral hazard.
“Oooh. No no no. See that’s not my wage for replacing your bathroom. My wage is only 5 dollars an hour. But the suggested tip is 30/hr for the work. *wink. Wink*”
How many “cash” tips are actually cash these days, though? My brother works in the service industry and reports his numbers accurately, because almost all of his tips are made through credit card payments that leave an audit trail.
And yeah they leave an audit trail. (This is what I said Biden hamfistedly tries to close this. And lost a lot of working poor because of it when he lowered the bank transfer threshold for audits to like a 600 dollar deposit yearly down from 10,000!!! Which was a kick in the teeth to service industry workers).
Personally I always liked the creative ways people avoid taxes when they’re poor.
This is more true today than in the past depending on the industry sure . A lot of restaurants though even with credit card tips will simply tip you out at the end of the night and leave the reporting up to you. (If they even have you on the books. At all. It’s very easy to employ someone who is on unemployment in the restaurant industry. You simply don’t “hire” them).
In my experience, every restaurant with an electronic POS system forces you to claim credit card tips at the end of the night, even though you’re self reporting, because there’s already record of them. So if I made $50 in credit card tips and $50 in cash tips, I had the option to report $100 but I couldn’t report less than $50. This was like 20 years ago, but I doubt people rely *less* on POS systems now with things like Square being so ubiquitous, so I assume it’s the same. I try to always tip in cash for this reason.
Yes and no. I have seen it both ways. Lots of people will do that because the POS will do it automatically for taxes so it’s integrated. But. And this is a big but. Keep in mind that there are still a lot of dive bars out there running on 20 year old tech. We might just not go to them.
Oh yeah I’ve also worked for dive bars that operated 100% under the table and had zero tech at all (it was the best). I’m just talking about the places with POS systems and those systems seem to be increasingly popular, even at mom and pop shops. There’s also the cashless trend (hate it) that many businesses are integrating mostly, I suspect, because they don’t have to worry about theft.
You may notice that I didn't get into the politics of this, because "should Democrats vote for a dumb, bad (but honestly not disastrous) thing that is popular?" is a complicated question. "Is this good policy?" is something that I can bite off in 1,000 words.
That transfer net change graph is interesting, but context free. How much are the transfers before/after? If the current transfer rate to the lowest bracket is 285% and it's reduced by 15% to 260%, it's still a lot being transferred (made up numbers here, don't have time to go find the source, which you didn't link to anyway.)
My dream is that we had a loophole free, flat tax code.
1. How much income did you make last year from all sources?
2. Subtract $37,600 (current poverty line for a family of five)
3. Multiply the remainder by 15%
4. Send that amount in (or have it withheld from your paycheck, should be simple and stable)
But that would effectively kill the Tax Lawyer and Accountant Full Employment Act, as well as the shenanigans of using tax code to send money to each parties' favored constituencies.
The graph is based on extending the TCJA which would keep current tax rates in effect, correct? There would be no change in taxes so the net effect would come 100% from changes to transfers.
EDIT: Unless the Urban Institute is using as its baseline that the TCJA would expire, and then re-adding in the effect of the extended TCJA, which would be misleading at best.
Well, all you need to do is build a time machine and dial it back to sometime before 1986 when H.R. 3838 - The Tax Reform Act of 1986 - went into effect, eliminating pretty much any personal loan interest other than mortgage interest as a deduction for those filing an itemized return. Until then, interest on car loans, credit card interest etc. had been deductible.
Why would you want to do that? Tax deductions are intended to encourage more of the thing (your dollar goes farther because it's tax free) - why would the government want to encourage more credit card / auto loan debt?
Here's a tip... Even if "Three quarters of Americans support no tax on tips", the Democrats - even with their unanimous support for the bill - will get absolutely no fucking credit for supporting working class people whatsoever, because #1, it was Donald Fucking Trump's idea in the public's mind and #2, the Ds burned their bridges to the working class decades ago with the ascendency of identity politics becoming their perceived brand and their subsequent apparent inability to shed that image in the face of the ascendency of the GOP's neo-fascist faux populist Trumpism horse shit.
Because, among other reasons, populism is always popular to a greater or lesser extent, no matter how it's branded. And then when you turn the King of Branding loose on an already spoiled, decadent and mostly brain-washed and / or brain-dead populace no longer able or willing to think for themselves, well, this is just the kind of lame, stupid horse shit you get.
Another tip... It is indeed "hard to say who will be made better and worse off by this change", and "generally, workers who are middle-class-or-better will benefit most" is probably the correct view. But just how the hell many *middle-class-or-better* workers are working for "tips" as a major part of their income? In the big scheme of things, not enough to stick in your eye and make you blink, I suspect, considering that the yearly take for a lower middle-class income earner is now pegged in the economic statistics to be something like $36K+ on average for a single individual.
So, this piece of legislative buffoonery was a no-win for the Ds from the jump. No credit if they do, and condemnation for them as elitist, anti-working-class people if they don't.
So, here's a tip for them... Get your shit together and get a new brand. Or get used to losing out to an asshole phony populist who's eating your lunch on every issue you could be winning on if you had half the messaging discipline of the dipshit party said phony now owns and controls.
And as to those whining that "tips are out of control", one final tip... Here's at least one aspect of your economic life that you have direct, unambiguous control over, since no one is holding a gun to your head to relieve your wallet of 20% or more of the tab for overpriced, mediocre food and drink accompanied by sullen, sub-par service. Or a lousy haircut. Or whatever. Man the fuck up and have the balls to tip appropriately when justified or even to unapologetically decline to tip when a tip is unwarranted by the service it is supposed to pay for or compliment.
But if you're willing to be inappropriately *extorted* by a custom in our social contract, that's on you.
"We have two parties and only two, One is the evil party and the other is the stupid party. I’m very proud to be a member of the stupid party. Occasionally, the two parties get together to do something that’s evil and stupid. That’s called bipartisanship."
You’re right about all of this. But I think there’s one more dimension to this policy that Dems have walked right into: The GOP led by Trump is working feverishly to undermine the whole premise that there should be taxes on income or that employers should be subject to regulations like those of the IRS — or that there should be social services.
So, either these dems are once again playing some supposed ‘long game’ to curry favor with voters in 2026 or they are just being stupid as they have been for the last 40+ years and either indifferent to or working against the interests of the very people we claim to want to represent. If I had to bet, I’d bet on the latter. It’s almost always the latter.
I think there’s a strong philosophical argument for eradicating an “income tax” and moving to a VAT.
I’ve always found an income tax fairly gauche. Taxing people for usage makes more sense than taxing them for producing.
Of course the caveat is all tax cults are stupid if they don’t come with spending cuts.
And we don’t even need “less stuff” the government could simply discover the concept of a bargain and stop using government funding as a way to pay 10-100x more for things in an effort to essentially funnel money to special interests ***cough labor unions cough***. The ugly truth is that government usually spends a lot more than it has to for nearly identical results for a whole lot of projects. No bid contracts, bullshit environmental studies done by some senators nephew’s firm etc.
But until the government figures out it’s allowed to give contracts to the lowest bidder sometimes any change is going to create bigger deficits and more inflation S the government just lets the money to make up the losses.
The argument against VAT or other consumption taxes is that they are more regressive than income taxes (especially when you set progressive income tax rates.) I don't agree that this is a show-stopper, but that's the argument.
Never said it was perfect. Just that it makes more philosophical sense.
Obviously overreach is expected. Especially when the electorate has about an 80 IQ and routinely votes in imbeciles.
An income tax inherently implies that government owns your wages and only releases part of them to you and that they reserve the right to change that amount. I think that creates a lot of moral hazard. (Ie allowing politicians to “sweeten the pot” by literally having a lever that they can pull and people “get” more money).
I really don't understand this republican fever dream to destroy our economic system. Cripple the IRS so it collects less taxes? Those taxes pay for "stuff."
There's this romantic dream to return to the Gilded Age but that Age was grueling for 95% of the population.
Random, yes, but maintaining chaos, separation, sending up a few smoke signals to get people yakking about some dipshit thing that can be pointed at as an accomplishment, etc., etc.
If there's such a thing as a randomly generated conspiracy, I think it's kinda like that. Arendt talked/wrote about something like this, but I'm too lazy to look it up.
Thinking on it...I guess it does sound like dumb people doin' random stuff.
The world needs diversity, equity, and inclusion in its conspiracies. We need to make the world safe for deliberately created conspiracies, not just random acts.
If you just assume some first principles like "government = bad" or, for the tech crowd, "disruption = good" then it follows that "making things worse = making things better."
Minor point, Maurer, but there is no minimum income requirement to qualify for EITC. So reducing what is accounted as taxable income doesn’t make programs specifically like EITC less available.
"we’re creating an incentive to move all work to tipped work, which is more volatile and makes it harder to win pay increases"
I've wondered why the positive-sounding "no tax on tips" was so poorly received by people better informed on the topic than me, and I think this is the explanation I was looking for.
This isn’t about the working poor at all. The president works for tips, and he doesn’t want to pay taxes on them.
QOTD
This change will completely undercut labour efforts to increase minimum wages, since now working for less than minimum wage plus tips looks way more appealing if you don’t have a somewhat sophisticated understanding of economics.
It was already appealing. At least to a degree because the big open secret in the tipped industries is that you already don’t pay taxes on tips because a lot of times you are left to “self report” your tipped wages.
My parents ran a diner for 30 years. Very creative accountants. On average the staff was on the books for 2.50/hr plus tips. Pretty standard. Now in order to get the minimum wage exemption your staff still has to make minimum wage after tips and if they don’t you have to lift them up to make that. So if it was a slow week and they only made like 4 dollars in tips the business would have to make sure theirs wages were up to 6.75/hr (90s). This hardly ever happened. What did however happen was we and the employee would simply stop reporting tips when they got to that threshold of legality. I mean. Not the exact same threshold every time. You want to move that number around a bit to avoid the eyes of the IRS wondering how with tips you seemed to make exactly minimum wage every week. So we would adjust it to average somewhere between 7-9 an hour with tips.
Copy and paste. Across the country.
As a secondary effect of this real wage data for tipped employees is always a joke. There’s a reason the very people who make tips almost always vote AGAINST laws to make wait staff jobs minimum wage+tips because deep down they know that’s not really a raise as much as it is more taxes and less tips. (This recently failed in Massachusetts). So you end up with stats like- the average waitress only makes 23,000 a year. Which isn’t true. What is true is that the average waitress “reports” 23,000 a year. Plus another 20-30k (a lot of times more) in unreported tips. (Biden actually tried to close this loophole. Like an asshole).
So I’m for people already in the industry I don’t think this will make a huge dent. What it will do is create a lot of moral hazard.
“Oooh. No no no. See that’s not my wage for replacing your bathroom. My wage is only 5 dollars an hour. But the suggested tip is 30/hr for the work. *wink. Wink*”
How many “cash” tips are actually cash these days, though? My brother works in the service industry and reports his numbers accurately, because almost all of his tips are made through credit card payments that leave an audit trail.
And yeah they leave an audit trail. (This is what I said Biden hamfistedly tries to close this. And lost a lot of working poor because of it when he lowered the bank transfer threshold for audits to like a 600 dollar deposit yearly down from 10,000!!! Which was a kick in the teeth to service industry workers).
Personally I always liked the creative ways people avoid taxes when they’re poor.
Me too.
This is more true today than in the past depending on the industry sure . A lot of restaurants though even with credit card tips will simply tip you out at the end of the night and leave the reporting up to you. (If they even have you on the books. At all. It’s very easy to employ someone who is on unemployment in the restaurant industry. You simply don’t “hire” them).
In my experience, every restaurant with an electronic POS system forces you to claim credit card tips at the end of the night, even though you’re self reporting, because there’s already record of them. So if I made $50 in credit card tips and $50 in cash tips, I had the option to report $100 but I couldn’t report less than $50. This was like 20 years ago, but I doubt people rely *less* on POS systems now with things like Square being so ubiquitous, so I assume it’s the same. I try to always tip in cash for this reason.
Yes and no. I have seen it both ways. Lots of people will do that because the POS will do it automatically for taxes so it’s integrated. But. And this is a big but. Keep in mind that there are still a lot of dive bars out there running on 20 year old tech. We might just not go to them.
Oh yeah I’ve also worked for dive bars that operated 100% under the table and had zero tech at all (it was the best). I’m just talking about the places with POS systems and those systems seem to be increasingly popular, even at mom and pop shops. There’s also the cashless trend (hate it) that many businesses are integrating mostly, I suspect, because they don’t have to worry about theft.
there were no taxes at all on tips before the Reagan administration. The world didn’t fall apart. Might as well go back to that system now.
“Three quarters of Americans support no tax on tips.”
Hey, at least the Democrats are backing something popular.
You may notice that I didn't get into the politics of this, because "should Democrats vote for a dumb, bad (but honestly not disastrous) thing that is popular?" is a complicated question. "Is this good policy?" is something that I can bite off in 1,000 words.
My friend’s barber is cutting his price for haircuts to $1, while requiring a $50 tip.
No Tax on Temple Fades.
And democrats will still. Even after this. Fight to make them earn minimum wage on top of tips.
That transfer net change graph is interesting, but context free. How much are the transfers before/after? If the current transfer rate to the lowest bracket is 285% and it's reduced by 15% to 260%, it's still a lot being transferred (made up numbers here, don't have time to go find the source, which you didn't link to anyway.)
My dream is that we had a loophole free, flat tax code.
1. How much income did you make last year from all sources?
2. Subtract $37,600 (current poverty line for a family of five)
3. Multiply the remainder by 15%
4. Send that amount in (or have it withheld from your paycheck, should be simple and stable)
But that would effectively kill the Tax Lawyer and Accountant Full Employment Act, as well as the shenanigans of using tax code to send money to each parties' favored constituencies.
The graph isn't just transfers -- it's percent change in income AFTER taxes and transfers.
The graph is based on extending the TCJA which would keep current tax rates in effect, correct? There would be no change in taxes so the net effect would come 100% from changes to transfers.
EDIT: Unless the Urban Institute is using as its baseline that the TCJA would expire, and then re-adding in the effect of the extended TCJA, which would be misleading at best.
How about deducting credit card/auto loan interest??
Well, all you need to do is build a time machine and dial it back to sometime before 1986 when H.R. 3838 - The Tax Reform Act of 1986 - went into effect, eliminating pretty much any personal loan interest other than mortgage interest as a deduction for those filing an itemized return. Until then, interest on car loans, credit card interest etc. had been deductible.
Why would you want to do that? Tax deductions are intended to encourage more of the thing (your dollar goes farther because it's tax free) - why would the government want to encourage more credit card / auto loan debt?
Here's a tip... Even if "Three quarters of Americans support no tax on tips", the Democrats - even with their unanimous support for the bill - will get absolutely no fucking credit for supporting working class people whatsoever, because #1, it was Donald Fucking Trump's idea in the public's mind and #2, the Ds burned their bridges to the working class decades ago with the ascendency of identity politics becoming their perceived brand and their subsequent apparent inability to shed that image in the face of the ascendency of the GOP's neo-fascist faux populist Trumpism horse shit.
Because, among other reasons, populism is always popular to a greater or lesser extent, no matter how it's branded. And then when you turn the King of Branding loose on an already spoiled, decadent and mostly brain-washed and / or brain-dead populace no longer able or willing to think for themselves, well, this is just the kind of lame, stupid horse shit you get.
Another tip... It is indeed "hard to say who will be made better and worse off by this change", and "generally, workers who are middle-class-or-better will benefit most" is probably the correct view. But just how the hell many *middle-class-or-better* workers are working for "tips" as a major part of their income? In the big scheme of things, not enough to stick in your eye and make you blink, I suspect, considering that the yearly take for a lower middle-class income earner is now pegged in the economic statistics to be something like $36K+ on average for a single individual.
So, this piece of legislative buffoonery was a no-win for the Ds from the jump. No credit if they do, and condemnation for them as elitist, anti-working-class people if they don't.
So, here's a tip for them... Get your shit together and get a new brand. Or get used to losing out to an asshole phony populist who's eating your lunch on every issue you could be winning on if you had half the messaging discipline of the dipshit party said phony now owns and controls.
And as to those whining that "tips are out of control", one final tip... Here's at least one aspect of your economic life that you have direct, unambiguous control over, since no one is holding a gun to your head to relieve your wallet of 20% or more of the tab for overpriced, mediocre food and drink accompanied by sullen, sub-par service. Or a lousy haircut. Or whatever. Man the fuck up and have the balls to tip appropriately when justified or even to unapologetically decline to tip when a tip is unwarranted by the service it is supposed to pay for or compliment.
But if you're willing to be inappropriately *extorted* by a custom in our social contract, that's on you.
"We have two parties and only two, One is the evil party and the other is the stupid party. I’m very proud to be a member of the stupid party. Occasionally, the two parties get together to do something that’s evil and stupid. That’s called bipartisanship."
M Stanton Evans
You’re right about all of this. But I think there’s one more dimension to this policy that Dems have walked right into: The GOP led by Trump is working feverishly to undermine the whole premise that there should be taxes on income or that employers should be subject to regulations like those of the IRS — or that there should be social services.
So, either these dems are once again playing some supposed ‘long game’ to curry favor with voters in 2026 or they are just being stupid as they have been for the last 40+ years and either indifferent to or working against the interests of the very people we claim to want to represent. If I had to bet, I’d bet on the latter. It’s almost always the latter.
I think there’s a strong philosophical argument for eradicating an “income tax” and moving to a VAT.
I’ve always found an income tax fairly gauche. Taxing people for usage makes more sense than taxing them for producing.
Of course the caveat is all tax cults are stupid if they don’t come with spending cuts.
And we don’t even need “less stuff” the government could simply discover the concept of a bargain and stop using government funding as a way to pay 10-100x more for things in an effort to essentially funnel money to special interests ***cough labor unions cough***. The ugly truth is that government usually spends a lot more than it has to for nearly identical results for a whole lot of projects. No bid contracts, bullshit environmental studies done by some senators nephew’s firm etc.
But until the government figures out it’s allowed to give contracts to the lowest bidder sometimes any change is going to create bigger deficits and more inflation S the government just lets the money to make up the losses.
The argument against VAT or other consumption taxes is that they are more regressive than income taxes (especially when you set progressive income tax rates.) I don't agree that this is a show-stopper, but that's the argument.
Never said it was perfect. Just that it makes more philosophical sense.
Obviously overreach is expected. Especially when the electorate has about an 80 IQ and routinely votes in imbeciles.
An income tax inherently implies that government owns your wages and only releases part of them to you and that they reserve the right to change that amount. I think that creates a lot of moral hazard. (Ie allowing politicians to “sweeten the pot” by literally having a lever that they can pull and people “get” more money).
Oh, exactly - I for one am tired of the interest-free loan to the government out of every paycheck.
So the question on everyone’s mind: how do I convert my wage or salary based compensation to tips?
Great rant with some quality dunks, thank you for the rage laughs.
I really don't understand this republican fever dream to destroy our economic system. Cripple the IRS so it collects less taxes? Those taxes pay for "stuff."
There's this romantic dream to return to the Gilded Age but that Age was grueling for 95% of the population.
I just don't see the endgame.....
Yes, I would assume that there is no endgame. It's just dumb people doin' random stuff.
Random, yes, but maintaining chaos, separation, sending up a few smoke signals to get people yakking about some dipshit thing that can be pointed at as an accomplishment, etc., etc.
If there's such a thing as a randomly generated conspiracy, I think it's kinda like that. Arendt talked/wrote about something like this, but I'm too lazy to look it up.
Thinking on it...I guess it does sound like dumb people doin' random stuff.
I’m no conspiracy theorist, but I find the idea of a “randomly created conspiracy” significantly more plausible than deliberately created ones.
The world needs diversity, equity, and inclusion in its conspiracies. We need to make the world safe for deliberately created conspiracies, not just random acts.
If you just assume some first principles like "government = bad" or, for the tech crowd, "disruption = good" then it follows that "making things worse = making things better."
There isn't one.
"...and prostitutes for not sprinting for the door the minute you said “Teletubbies”.
This feels like a personal experience.
Minor point, Maurer, but there is no minimum income requirement to qualify for EITC. So reducing what is accounted as taxable income doesn’t make programs specifically like EITC less available.
This is democracy! Isn’t it great!
"we’re creating an incentive to move all work to tipped work, which is more volatile and makes it harder to win pay increases"
I've wondered why the positive-sounding "no tax on tips" was so poorly received by people better informed on the topic than me, and I think this is the explanation I was looking for.