This campaign season, both presidential candidates have proposed eliminating taxes on tips, a move that has garnered significant attention and bipartisan support. The idea, initially introduced by former President Trump and later adopted by Vice President Harris, aims to benefit service and hospitality workers who rely heavily on tips for their income.

Bartenders and servers, like Prince Chikata and Jordan Kolesani, expressed enthusiasm for the proposal, noting that tips can account for 80% or more of their earnings. Many believe that not taxing tips would allow them to keep more of their hard-earned money, which they view as a positive change.

However, experts caution that the proposal may not be as beneficial as it seems. According to economist Ernie Tedeschi, tipped workers represent only 2.5% of all employment in the U.S., and among low-wage workers, only 5% are tipped employees. Furthermore, many low-income workers already face minimal tax burdens, with over a third not owing any federal income tax at all. This raises questions about whether eliminating taxes on tips is the most effective way to provide relief.

Critics also highlight potential unintended consequences. For instance, the proposal could shift compensation burdens from employers to customers, potentially leading to lower wages for tipped workers. Additionally, there are concerns about the possibility of income being reclassified as tips to exploit the tax exemption, which could complicate tax enforcement.

New York restaurateur Amanda Cohen, who has eliminated tips in her establishment to pay higher wages, worries that the proposal could undermine her business model. She questions how to compete with restaurants that benefit from the tax-free status of tips.

Despite these concerns, the allure of a tax break for workers has made the proposal popular among candidates and constituents alike. As the campaign progresses, the implications of this policy will likely continue to be a topic of debate, with advocates and critics weighing the potential benefits against the risks of unintended consequences.