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The Pizza Hut Subsidy
Published on Wednesday, October 4, 2000 in the Washington Post
The Pizza Hut Subsidy
by Seth Harris
Last Sunday, my wife and I took our 15-month-old son for dinner at a nearby diner in northern New Jersey. The waitress promptly brought a high-chair for my son and helped us put him in it. She suggested a few items on the menu and hurriedly produced my son's dinner, successfully warding off a brewing temper tantrum. We guessed that the waitress was a parent, too.

She was friendly and efficient throughout. During a slow moment, we chatted briefly. My wife and I had guessed correctly: The waitress is a single mom with three children. Her youngest child is just a few months older than my son. After my family and I finished eating, she and a busboy quickly cleared the table and cleaned up the mountain of food my son had dropped on the floor.

We decided to reward the waitress's efficiency and warm politesse with a generous tip. But neither the waitress nor the busboy got the tip, at least not all of it. Instead, because of a quirk in our nation's minimum-wage laws, a portion of the tip went to subsidize her employer.

Almost 1 1/2 million waiters and waitresses, along with hundreds of thousands more delivery people and other "tipped" employees, can be legally paid as little as $2.13 an hour. That's a few dimes an hour more than a garment worker in the Dominican Republic earns. The Fair Labor Standards Act allows restaurants and other employers to use your tips and mine to make up the difference between the subminimum wage for "tipped employees" and everyone else's $5.15 hourly minimum wage. In sum, these employers get a $3.02 subsidy out of our tips for every hour a waiter or waitress works.

Typically, opponents of minimum wage increases decry their supposed effects on small businesses. But Domino's Pizza, Denny's, and Bob's Big Boy can pay the same cut-rate wage to their waiters and waitresses as our New Jersey diner. They all can get a $3.02 subsidy every time a "tipped employee" works an hour--no questions asked.

As part of the package that would increase other workers' minimum wage, Speaker of the House Dennis Hastert has proposed freezing the federal minimum wage for "tipped employees" at its current level. If he succeeds, a decade will have passed without waiters and waitresses getting a raise in the federal minimum. During the past 20 years, this subminimum wage has risen a measly 12 cents.

Labor markets are tight, and wages have risen. The restaurant lobby could probably cite some places where waiters and waitresses get paid much more than the federal minimum. But then why should restaurants have a special provision in the law that guarantees them a subsidy they don't use or need? Because the average waiter or waitress earns just $6.13 an hour, counting tips. This subsidy program seems to be quite popular.

Yet more subsidies could flow to the restaurant industry. In the same legislative package, Hastert proposes to increase the deductibility of "business meals" from 50 percent to 80 percent. The principal beneficiaries of this subsidy might be high-priced lobbyists and corporate executives enjoying expense-account lunches, but a lot of restaurants will benefit from the increased business that results. The Republican leadership freely acknowledges that this and other special-interest tax breaks are the pound of flesh they will demand in return for a minimum wage increase.

Increasing the "tipped employees" subminimum wage means rising incomes and fewer subsidies financed by restaurant-going taxpayers. Waiters and waitresses would get a larger share of our tips and, perhaps, a firmer hold on the American dream. A full-time, year-round minimum wage worker earns only $10,800, not enough to lift a family of three out of poverty. A "tipped employee" earning the cut-rate minimum wage gets only $4,400 for a year of work, plus tips.

They may be students struggling to gain the skills they need to succeed in a knowledge-based economy. They may be new immigrants toiling to find a foothold in the middle class. Or, like the waitress who took such good care of my family last Sunday, they may be single mothers paying $13 for a package of diapers, scrambling to pay rent and trying to find affordable health insurance.

Given the choice, Congress should reward waiters and waitresses rather than subsidizing Pizza Hut further.

The writer is an associate professor of law at New York Law School and former counselor to the U.S. secretary of labor in the Clinton administration.

2000 The Washington Post Company


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