Ending Taxes on Tips Is Controversial Even Though Trump and Harris Both Want It
Vice President Kamala Harris and former President Donald Trump have both endorsed a policy to eliminate federal taxes on tips, a rare instance of agreement between the two campaigns as they aim to sway a critical bloc of voters.
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00:00No tax on tips. Do we like that?
00:04And eliminate taxes on tips for service and hospitality workers.
00:10In the United States, the federal income tax taxes all income from whatever source derived.
00:17That's how the code reads. And the system and the courts have wrestled for a long time with
00:24what counts as income. Tips have always counted as income. Of course, Congress could change the
00:32law and provide an exception for tips. And they could do it in a way that is somehow tied to the
00:41rest of your income. Here's the difficulty. To start with, if we have an exclusion for tips,
00:48then we have to distinguish tips from other forms of compensation. And that's extremely difficult to
00:55do. And so we would need rules to try to distinguish it. It's possible to draft rules.
01:03Would it be a mess? Yes. Presidential campaigns are not great for addressing these central problems
01:10because, of course, the answer has to be painful. Either you cut spending or you raise taxes,
01:17neither of which is popular. We've taxed tips for a long, long time. Congress has known all
01:23about this. They've not chosen to change it. And one possibility is no matter who wins,
01:31they don't change it. But I guess we'll find out.