Back in 1982, Republicans and the Reagan administration determined that they needed to raise taxes on average working people to pay for part of the massive tax break they were giving billionaires (they dropped the top income tax bracket from 74% to 28%).
Reagan imposed income taxes on elderly people on their Social Security income, ended the tax deductibility of interest on car loans and credit cards, and ended the tax deduction on two-income households.
But one of the most truculent ways Reagan went after average working people to fund his tax cuts for billionaires was to sign legislation and issue new rules requiring the IRS to more aggressively require employers to track and report tips earned by their employees, and tightening penalties on tipped workers who’d failed to report their tip income.
Speaking last month in Nevada — the state with the highest percentage of tipped workers in the nation — Donald Trump proposed eliminating taxes on tips altogether. Not to be outdone, Kamala Harris has also endorsed the idea. But there are big differences between the two.
Harris has said that she wants legislation implementing the tax cut to only apply to the people we traditionally think of when we think of tips: waiters, maids, caddies, and other service-industry customer-contact workers.
Trump, on the other hand, has refused to limit his no-tax-on-tips proposal to such workers, opening up the possibility that big banks, insurance companies, hedge funds, and other companies that traditionally have paid year-end bonuses — sometimes in the millions or even hundreds of millions of dollars — could simply reclassify their bonuses as tax-free tips.
Adding to the confusion should Trump’s plan go into place, the Supreme Court earlier this year expanded the definition of tips when they ruled that if politicians or judges are paid bribes, but the payments are made after the politician or judge does the requested favor, they’re no longer bribes but, instead, merely tips.
Bribes, in other words, could soon become income-tax-free-tips if Trump’s plan were implemented.
All of this fits in well with the 53-year plan kicked off by Lewis Powell in 1971 with his infamous Memo to the US Chamber of Commerce proposing a series of ways that wealthy people and corporations can corrupt the US government. (David Sirota lays it out in detail with his new podcast series from levernews.com called “The Master Plan.”)
One possible concern with either plan is the impact on Social Security retirement income if workers who earn most or even much of their income from tips no longer pay payroll taxes. Those both fund Social Security and determine, over the top earning years of a person’s lifetime, how much they get every month after they turn 67 years old (Reagan raised the retirement age from 65 to 67), so cutting the tax could also cut retirement benefits.
While neither candidate has directly addressed this, several legislative proposals would eliminate the income tax on tips but keep the payroll/FICA tax intact to avoid just this outcome.
While this is a relatively minor issue in a campaign where Trump is proposing allowing police to run murderously wild for “one day” and demonizing Black legal immigrants, it does — at least so far — highlight one difference between the campaigns.
Trump, who pays his own senior employees bonuses, will almost certainly not tighten up the definitions of a tip, while Harris has already said she wants to limit the benefit to actual service workers.
Will tips to servers and Uber drivers be tax free? Will multimillionaire bankers’ and real estate moguls’ bonuses be reclassified as tips to avoid taxation? Or will Congress forget the whole thing after the election?
Stay tuned…
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