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tips
No Tax on Tips Is a Deceptive Ploy; Congress Should Raise the Minimum Wage Instead
Over the next 10 years, the Raise the Wage Act would have a total benefit to affected workers of $700 billion, compared with about $39 billion from “no tax on tips” in the House bill.
Jun 22, 2025
At President Donald Trump’s direction, Congress is considering proposals to exempt tips from taxable income.
After Trump floated this gimmick on the campaign trail, Republican and Democratic elected officials alike have embraced the idea. The House Republican budget bill (H.R. 1) includes a “no tax on tips” provision that gives the illusion of helping lower-income workers—while the rest of the legislation hands huge giveaways to the rich at the expense of the working class. The Senate recently passed a standalone version of no tax on tips that similarly provides the false impression of aiding workers while giving employers excuses to incentivize tipped work and keep base wages low.
In stark contrast to “no tax on tips,” which excludes workers with the lowest incomes, the largest benefits of the Raise the Wage Act would go to the lowest-paid workers.
If the Trump administration and its allies in Congress genuinely wanted to help tipped and lower-paid workers, there are far better options they could pursue, like raising the federal minimum wage. To illustrate this, we compare the estimated impact of no tax on tips with the Raise the Wage Act of 2025, a bill that would raise the federal minimum wage from $7.25 to $17 an hour by 2030 and gradually phase out the tipped minimum wage. Here is an overview of how the two plans compare.
How Many Workers Would Be Affected? How Long Would Benefits Last?
No tax on tips: Between 2.5 and 5.2 million tipped workers would receive an income tax deduction over the next four years, but benefits would end after 2028.
The Raise the Wage Act: Nearly 23 million workers, including 2.8 million tipped workers, would earn higher wages with no end date—meaning affected workers would continue to benefit indefinitely.
How Much Would These Workers Benefit Annually? How Would Benefits Differ Based on Income?
No tax on tips: Eligible tipped workers would receive an average annual tax cut of $1,700 for the four years it would be in effect. However, the benefits would heavily skew toward higher-income tipped workers. Among all tipped workers, the top 20% would receive an average tax cut of $5,768 while those in the bottom 20% would only get $74 on average. The average for the bottom quintile is small in large part because two-thirds of those workers have incomes so low that they do not pay federal income taxes and thus will not see any tax benefit.
The Raise the Wage Act: Affected workers who work year-round would receive an average wage increase of $3,200 per year. After taxes, the net pay increase would be marginally smaller but still significantly larger than what a worker would receive on average with a tax deduction on tips. In stark contrast to “no tax on tips,” which excludes workers with the lowest incomes, the largest benefits of the Raise the Wage Act would go to the lowest-paid workers.
Who Pays for These Benefits?
No tax on tips: The public writ large would pay. House Republican lawmakers are already proposing massive cuts to social programs, such as Medicaid and food stamps that benefit millions of people (including tipped workers), to offset foregone revenue from no tax on tips and large tax cuts for the rich. The Republican plan would also dramatically increase the federal debt, which could substantially raise borrowing costs for households and businesses in the future.
The Raise the Wage Act: Employers of low-wage workers would pay for these wage increases, absorbing the higher labor costs over time through a variety of channels. Importantly, the Raise the Wage Act not only increases the federal minimum wage but also phases out the tipped minimum wage, a system that has provided employers of tipped workers an enormous—and highly problematic—public subsidy for decades.
While no tax on tips would benefit only the small share of workers who receive tips as a portion of their compensation, the Raise the Wage Act would benefit all low-wage workers in the U.S., including 4.2 million people with incomes below the poverty line. Over the next 10 years, the Raise the Wage Act would have a total benefit to affected workers of $700 billion, compared with about $39 billion from “no tax on tips” in the House bill (see Figure A).
As we at Economic Policy Institute and others have noted, no tax on tips is problematic for a variety of other reasons, aside from its paltry and poorly targeted benefits. The measure that passed in the House caps eligibility to workers in certain tipped occupations earning less than $160,000 in annual income. This will mitigate tax avoidance by the highest earners, but it does not fix other problems, including the fact that ending taxation of tips would likely expand employer use of tipped work—a system already rife with discrimination and worker abuse. No tax on tips would also undercut efforts to raise worker compensation while depleting tax revenue for public services. By subsidizing the use of tipping in the federal tax code, no tax on tips would further cement a system that lets employers off the hook from paying their workers a fair wage—in this case, forcing taxpayers to foot the bill. In contrast, the Raise the Wage Act gives workers a durable wage increase paid for by those who should be paying—their employers.
Beyond raising the minimum wage, there are several other effective and more equitable policies to support working families—including expanding the Earned Income Tax Credit and Child Tax Credit, providing workers with paid sick leave and paid family and medical leave, and supporting workers’ rights to form and join unions. But Trump and congressional Republicans, while claiming to support workers, have not pursued these policies. Instead, they have relentlessly attacked workers, and pushed an enormous tax cut for the wealthy—paid for by cutting essential social programs for low-income people and children and adding trillions to the public debt. As many as 16 million people would lose their health insurance under the House budget bill.
The Raise the Wage Act is by no means an outlier or a radical exercise in messaging—it’s cosponsored by majorities of House and Senate Democrats. If even a few Republicans were willing to support it, it could easily have the votes to pass. No tax on tips, on the other hand, remains a deceptive ploy that would provide few benefits to workers and fail to offset the harm the Republican budget bill would impose on millions of workers and families.
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The Tip Trick: How the Trump Budget Starves the Working Class
It takes programs that millions rely on—Medicaid, food assistance, student aid—and sacrifices them to fund tax breaks that primarily benefit those who already have the most. It’s a redistribution in reverse.
May 22, 2025
Imagine a woman in her late 20s, raising a young kid and working two jobs. On weekday mornings, she waits tables at a chain diner just off the highway. On weekends, she picks up banquet shifts at a hotel near the airport. Some weeks she hits 40 hours. Most weeks she doesn’t. Her schedule is built around whoever else calls off, whichever babysitter shows up, and how many tips she can pull in when customers don’t walk out on the check. She’s not lazy. She’s tired. She’s not failing. She’s just barely holding on.
She doesn’t ask for much—just enough to stay ahead of the next crisis. One sick day, one bounced check, one broken car door, and it all starts to unravel. Like nearly 60% of Americans, she’s living paycheck to paycheck. This isn’t some outlier story. It’s the American norm, life for millions of workers whose labor keeps the country running, even as their budgets can’t absorb a single emergency.
Last week, she saw a headline. The new House budget plan would eliminate federal income tax on tips. She read it twice. Finally, something for workers like her. Finally, a win.
This budget offers token relief while delivering sweeping cuts.
But what she didn’t see—what the headline didn’t say—is that while she might save a few hundred dollars come tax season, the same bill cuts the healthcare, food, and education programs that actually keep her afloat. It’s not a lifeline, it’s a tradeoff. And it’s a bad one.
Early Thursday morning, May 22, after days of internal negotiations and public brinkmanship, the House narrowly passed the “One Big Beautiful Bill,” a 1,100-page tax and spending package drafted with support from the Trump White House. Despite defections from within their own ranks, GOP leadership managed to push the bill through with no Democratic support and just enough Republican votes to avoid collapse. The measure now moves to the Senate, where further changes are likely, but the core architecture is intact.
The bill includes more than $3.8 trillion in tax cuts, most of which go to the wealthiest households and largest corporations. It makes permanent the 2017 Trump tax cuts, increases the estate tax exemption to $15 million per person, and expands loopholes for business income. According to the Institute on Taxation and Economic Policy, the top 1% of households would receive an average annual tax cut of approximately $79,000.
And the waitress? If she reports $10,000 in tips next year, she might see a refund boost of around $700. That’s her win. That’s what she gets.
But here’s what she could lose.
If her hours drop below 80 in a given month, and she can’t prove every one of them with pay stubs or employer forms, she could lose her Medicaid coverage. Under the latest version of the bill, these nationwide work requirements are no longer delayed until 2029. They’re scheduled to take effect as early as the end of next year. These requirements don’t just ask that you work. They ask that you document it, every month, without gaps. Miss a report, and your health insurance disappears. No phone call, no warning, just a closed file and an empty pharmacy counter.
If she misses work because her kid’s school is closed or a sitter falls through, she might lose Supplemental Nutrition Assistance Program (SNAP) benefits too, especially if she doesn’t fill out the right paperwork on time or fails to meet a new state threshold. The revised bill raises the age limit for mandatory work compliance and eliminates long-standing exemptions for parents. The moment her child turns seven, she’s treated like someone with no caregiving responsibilities at all. And for the first time in decades, states will be required to help fund those benefits. If they can’t, or choose not to, those benefits could disappear.
If she tries to go back to school to finish the associate’s degree she started, she may no longer qualify for a Pell Grant. The bill raises the minimum course load for a full award from 12 credits to 15, more than a full-time load at most colleges. For a working mother juggling jobs, that’s not just a higher bar, it’s a locked gate. She’d have to choose between working more hours to afford tuition or taking more classes she can’t pay for to receive aid. Either way, she loses.
And that’s the pattern. Across the board, this budget offers token relief while delivering sweeping cuts. It takes programs that millions rely on—Medicaid, food assistance, student aid—and sacrifices them to fund tax breaks that primarily benefit those who already have the most. It’s a redistribution in reverse. It shifts risk downward and wealth upward. It wraps itself in the language of freedom and choice, while quietly dismantling the systems that offer working people a shot at stability.
This isn’t a misunderstanding of how poverty works. It’s a bet that most people won’t notice until it’s too late. It counts on workers like her being too busy, too tired, or too stressed to read the fine print. It counts on the headlines focusing on the tip exemption, not the Medicaid paperwork that knocks her off coverage. Not the missed deadline that shuts off SNAP. Not the registration block that forces her to drop out of community college. It makes the punishment quiet and the payoff loud.
We know who this helps. And we know who it hurts.
As of late 2024, approximately 78.5 million Americans were enrolled in Medicaid or CHIP. In fiscal year 2023, 42.1 million participated in SNAP each month, and school meal programs served more than 4.6 billion lunches. The majority who rely on these services are children, seniors, and working families. By contrast, according to the Yale Budget Lab, fewer than 2.5% of U.S. households would benefit from the tip tax exemption, and only about 5% of low- and moderate-wage workers are employed in traditionally tipped occupations. And even among them, the average gain won’t cover a single unexpected car repair. The math doesn’t work. The logic doesn’t hold. But the politics do.
Because the waitress at the diner won’t get a press release when her SNAP balance goes to zero. She won’t get a spotlight when her kid’s lunch bill doubles or when she finds herself sitting in the ER without coverage. She’ll just keep showing up. Keep working. Keep holding the line with less and less help.
And that $700 refund?
It won’t pay for the inhaler when her daughter’s asthma flares up. It won’t buy a month of groceries when benefits are cut. It won’t fix the brake line on the car that barely starts. It won’t cover tuition when she’s one semester away from finishing a degree. It won’t save her when the safety net snaps under her feet.
No matter how “beautiful” they say the bill is, it won’t hold her life together when everything else is falling apart.
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On Taxes, a Sharp Campaign Contrast Between Harris and Trump
The Harris campaign seems eager to tax the rich and corporations while Trump vows to preserve and expand tax cuts for the wealthiest and says little about how to pay for that.
Sep 09, 2024
As U.S. Vice President Kamala Harris and former President Donald Trump get ready to debate for the first time this week, what can we expect from their campaigns in terms of taxes?
Harris endorses multiple proposals to generate revenue from the richest people and the biggest corporations and deliver a middle-class tax cut—with the former paying for the latter. Trump would cut some middle-class taxes but promotes a new tariff tax on imports that would hike the price of nearly everything Americans purchase and, doubling down on past practice, he’d slash taxes for millionaires and corporations. He hasn’t identified a single business or billionaire that should pay more.
When Trump and congressional Republicans passed the 2017 tax law, they made massive tax cuts for corporations permanent but set the individual cuts, which were heavily skewed to the extremely wealthy, to expire at the end of 2025. This means taxes are on next year’s policy agenda in a way that rarely comes along. The approaches articulated by the campaigns would pull the nation in profoundly different directions.
Trump Proposals
Trump says he would again slash corporate tax rates, keep all corporate cuts from the 2017 tax law, extend 2017’s expiring cuts for everyone including the uber-wealthy, and impose large tariffs that fall on everyone who spends money on anything.
Trump’s tariff tax proposals—60% tariff taxes on imports from China and 20% on all other imports—would cost the typical American household over $2,600 a year according to economist Kim Clausing. Earlier analysis of a previously-discussed 10 percent worldwide tariff tax shows an increase in inflation resulting from the plan, which would also generate $2.8 trillion in revenue over the next decade, raised from consumers.
Much of that revenue would go to corporations. When lawmakers cut the corporate rate from 35% to 21% in 2017, corporate tax payments plummeted, and huge, profitable corporations continued to pay far below the statutory rate. We’d see this on steroids if Trump slashed the corporate rate to 15%. Such cuts increase income and racial inequality and send a massive windfall—40 cents of every dollar—to foreign investors.
The law that the Trump administration passed in 2017 delivered enormous tax cuts to those in the top 1%, a narrow sliver of well-off people with income over $800,000 a year. These individual cuts for the rich expire in 2025, but the Trump campaign wants to make them permanent, sending almost two-thirds of that money to the richest fifth of Americans. This would cost more than $280 billion in 2026 alone, slashing revenue that could otherwise provide tax cuts for middle-income Americans, reduce the national debt, or fund childcare, healthcare, or infrastructure.
Republican Vice Presidential candidate J.D. Vance has mentioned more than doubling the Child Tax Credit but has provided few details and Trump has not signed on.
Harris Proposals
Harris backs most of the revenue raisers and middle class tax cuts laid out in President Joe Biden’s 2025 budget. The revenue components raise nearly $5 trillion over a decade, entirely from wealthy people and corporations, reducing inequality, both economic and racial, and generating funds for things the American people need.
Harris plans to boost revenue from corporations by raising the corporate rate, increasing the corporate minimum tax, increasing the stock buyback tax, and reining in corporate offshore tax avoidance. She’d better tax the wealthy by allowing expiration of the parts of the 2017 tax law that exclusively help those making more than $400,000. For those who make over $1 million a year, Harris would eliminate tax breaks on capital gains and dividends. For incomes exceeding $100 million a year, she’d tax currently exempt investment income that many billionaire CEOs receive. These provisions would do much to reform a tax code that most Americans say raises too little from corporations and the wealthy.
Harris would fully extend temporary tax cuts from the 2017 tax law for people earning less than $400,000 and try a new down-payment assistance program for some first-time homebuyers. She’d also expand the Child Tax Credit to $6,000 for newborns, $3,600 for children up to age five, and $3,000 for older children. This is one of the best and most well-proven ways to cut poverty, reduce inequality, and help middle-class families.
Tip Gimmick
Both campaigns support eliminating taxes on tips. This could encourage wealthy professionals to reclassify fees as tips and there are better ways to help workers—raising the minimum wage, eliminating the paltry $2.13 sub-minimum wage, and increasing the Earned Income Tax Credit. Harris would limit her exemption to workers earning less than $75,000—an improvement Trump leaves out—but this doesn’t redeem a fundamentally flawed proposal.
In Sum
Campaign proposals reveal two very different paths. The Harris campaign seems eager to tax the rich and corporations, cut taxes for middle-income taxpayers, reduce poverty, reduce inequality, and raise revenue for public spending. Trump vows to preserve and expand tax cuts for the wealthiest people and corporations and says little about how to pay for that beyond a tariff that raises much less than Harris’ plans and falls on consumers. His proposals would inevitably force cuts to important public programs or run up the national debt.
The entire tax code is up for debate in 2025. Our system asks far too little of wealthy people and corporations. Americans should listen closely to both campaigns and push for policies that raise more from those most able to pay, give tax cuts to those who most need them, and generate resources to invest in public priorities.
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