[President Donald Trump took a victory lap in Las Vegas on Saturday, celebrating his presidential victory and his first week in office. The advertised theme of his address to supporters was his pledge to eliminate taxes on tips, but the president’s speech went beyond tax policy, as he criticized former President Joe Biden, boasted about stripping “woke crap” from the government, and promised the US would soon be a “substantially enlarged country.”
Trump did not offer new details on eliminating taxes on tipped wages, but he did say he would begin working with lawmakers to write new tax laws, including renewing tax cuts he signed into law in 2017. He also shared a story about a young waitress who told him that tips should not be taxed, and he believed her.
The Culinary Workers Union Local 226 welcomed Trump’s proposal, but said more must be done, including ending the $2.13 subminimum wage for tipped workers that exists in certain states. Eliminating taxes on tips was a frequent Trump promise on the campaign trail, but it would be expensive and comes at a time when congressional Republicans are committed to extending their 2017 Tax Cuts and Jobs Act.
It is unclear whether Trump wants to eliminate both federal income and payroll taxes on tips, though he has indicated he would jettison both. Payroll taxes fund Social Security and Medicare and total 15.3% of a worker’s salary, half of which is paid by employers. Getting rid of both taxes would benefit more people, but would also cost more money.
The Committee for a Responsible Federal Budget estimated that eliminating both federal income and payroll taxes on tips would lower federal revenue by $150 billion to $250 billion over a decade. Changes to payroll taxes cannot be included in a reconciliation bill, which congressional Republicans want to use to pass their tax package. About 4 million people worked in tipped occupations in 2023, or about 2.5% of all employment. Tips are not the dominant source of income for most of these workers, and many would not benefit from eliminating federal income taxes on tips.
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