No Tax on Tips
Editor’s note: This is a lightly edited transcript of the accompanying video from professor Peter St. Onge.
Will Donald Trump end tax on tips? Will he go all the way and end tax on everything?
During the campaign, our 47th president made a big, beautiful series of promises about things he would exempt from the tyrannical income tax that preys upon our fair republic.
Trump started with “no tax on tips” in June, inspired by a “very smart waitress” he met dining in Las Vegas and subsequently introduced as the No Tax on Tips Act by Sen. Ted Cruz.
Happily, what happened in Vegas did not stay in Vegas, as Trump embarked upon a cascade of income tax exemptions, from overtime pay to Social Security, then first responders, and even America’s 16 million veterans.
Capping it all off with Trump’s musing on the “Joe Rogan Experience” podcast that we should just get rid of the whole stinkin’ income tax so the federal government lives off tariffs.
I’ve mentioned in previous videos how this would nearly double take-home pay and shrink the federal government—two for one!
Alas, politics is the art of the possible. Will any of it actually happen?
So the starting point is Trump’s clearest promise, no tax on tips. This is massively popular—Ipsos says three-quarters of Americans support it, even among Democrats.
That makes it the perfect gateway drug.
Right now, betting market Kalshi puts 63% odds on no tax on tips in the next two years. Poly markets puts 40% odds by April.
Now, no tax on tips is obviously great for the 4 million tipped workers, who on average make just $17.56 an hour—with tips.
They’d take home another $7,000 a year—a 30% raise.
This would, of course, increase the deficit, by about $10 billion per year according to the Tax Foundation, which allegedly is anti-tax but apparently spends its time attacking tax cuts.
Considering $10 billion is roughly one-17th of what we gave Ukraine, many Americans might feel blue-collar workers keeping their money is a better use of money than Ukraine’s meatgrinder.
The other criticism is it’s distortionary because it exempts tips, but still taxes hourly pay. The Tax Foundation conjures a dystopia where “accountants receive their income as voluntary tips.”
In other words, if you don’t like your accountant—or your cable provider—you don’t have to pay. Which sounds pretty awesome.
Moreover, as Ronald Reagan put it, “Like my grandchildren, I love all tax cuts.” They drain the federal beast. They encourage work and entrepreneurship. And, of course, they return stolen goods.
And if that taxless dystopia comes when prices are replaced by tips, sign me up.
So what’s next?
No tax on tips is great for blue-collar workers. But it’s great for everybody because it suggests broader tax cuts are also coming, with 40% odds by April.
Why? Because tax cuts are very easy to attack as handouts to the rich since they’re overwhelmingly paid by middle- and upper-earners. Today, the bottom half of earners pay precisely 2.3% of income taxes.
So you’d obviously pair a blue-collar tax cut like no tax on tips with across-the-board cuts.
That means across-the-board cuts could also be coming as soon as April.
That raises the odds—dare we dream—that Trump pulls a rabbit out of his hat and we skip the Biden recession altogether.
