Presidential Election Odds: Federal Tax Exemption on Tips

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In an unusual point of agreement, former President Donald Trump and Vice President Kamala Harris have proposed eliminating federal taxes on workers’ tips. Although this idea might seem like a simple solution to improve the net income of millions of workers, fiscal policy experts warn that its implementation would be more complicated than it appears.

NEVADA: THE STATE WHERE BOTH RAISED THE ISSUE

Both candidates launched their proposals in Nevada, a state with a high concentration of workers who rely on tips. Trump announced on June 9, followed by Harris on August 10. Although both share the same goal, neither campaign team has clarified whether the exemption would apply only to income taxes, only to payroll taxes, or both. The latter is especially relevant, as payroll taxes fund essential programs like Social Security and Medicare.

This initially appeals to betting enthusiasts, and the Presidential Election odds are skyrocketing due to expectations and forecasts about each candidate’s ability to turn promises into feasible policies.

NOT AN EASY TOPIC FOR ANALYSTS

It is difficult to imagine this proposal becoming a reality, as it involves the potential fiscal impact and possible social implications.

Although some argue that exempting tips from taxes would help low-income workers, experts point out that there are more direct methods to support them, such as expanding the Earned Income Tax Credit or adjusting tax rates: in 2023, approximately 37% of workers who depended on tips already had incomes low enough not to pay federal income taxes, according to available data from Yale’s Budget Lab.

A COSTLY IDEA

Experts also say implementing this measure would be costly. The Committee for a Responsible Federal Budget, a nonpartisan organization, has indicated that exempting all tips from federal taxes would reduce government revenue by $150 to $250 billion between 2026 and 2035. This figure could increase if more people began declaring income as tips.

As the election approaches, the Presidential Election odds are under the watchful eye of bettors, who closely follow the analysis of how these economic proposals could influence voters.