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(CNN) — President Donald Trump took a victory lap in Las Vegas on Saturday, basking both in his presidential victory in Nevada last year and the rapid-pace action of his first week in office.
The advertised theme of Trump’s address to supporters was his pledge to eliminate taxes on tips. But, as is his practice, the president’s speech went far beyond tax policy, as he lambasted former President Joe Biden, bragged about stripping “woke crap” from the government, and promised the US would soon be a “substantially enlarged country.”
Twenty-five minutes into his speech, Trump arrived at its ostensible subject: the promise of eliminating taxes on tipped wages. He didn’t offer much new detail, but he did say he would begin working with lawmakers over the coming weeks to write new tax laws, including renewing the tax cuts he signed into law in 2017.
More detailed was his recounting of how the idea came to him in the first place. “A young waitress came up, and I said, ‘How are you doing?’ … And she said, ‘Not great, because they’re after me so viciously for tips,’” he recalled.
“‘Sir, you should have no tax on tips,’” she told him, in Trump’s telling. “That was about the amount of my consultation.”
The Culinary Workers Union Local 226 on Saturday welcomed Trump’s proposal, but said more must be done. The powerful union also wants the president to end the $2.13 subminimum wage for tipped workers that exists in certain states.
“Taking on both issues is critical to ensuring one job is enough for workers to support their families,” Secretary-Treasurer Ted Pappageorge said in a statement.
Costly campaign promise
Eliminating taxes on tips was a frequent Trump promise on the campaign trail last year, but the pledge would be pricy. And it comes at a time when congressional Republicans are committed to extending their 2017 Tax Cuts and Jobs Act, which could cost more than $4 trillion, while also promising to rein in the deficit.
It’s unclear whether Trump wants to eliminate both federal income and payroll taxes on tips, though he has indicated that he would jettison both. Payroll taxes fund Social Security and Medicare and total 15.3% of a worker’s salary, half of which is paid by employers.
While getting rid of both taxes would benefit many more people, it would also cost more money. Eliminating just income taxes on tips would cost $106 billion over 10 years, according to Republicans on the House Budget Committee, who are circulating a menu of options for what could be included in their bill to extend the 2017 tax cuts.
If both federal income and payroll taxes on tips were eliminated, it would lower federal revenue by $150 billion to $250 billion over a decade, according to the Committee for a Responsible Federal Budget, a government watchdog.
Plus, including payroll taxes would create problems for congressional Republicans, who want to pass their big tax package through a process known as reconciliation, which would allow them to approve legislation with only a majority of votes, rather than 60 votes. (There are 53 Republicans in the Senate.) Changes to payroll taxes cannot be included in a reconciliation bill.
Who would benefit
About 4 million people worked in tipped occupations in 2023, or about 2.5% of all employment, according to the Budget Lab at Yale University, a policy research center. Tips are not the dominant source of income for most of these folks.
Many of them would not benefit from eliminating federal income taxes on tips since they don’t earn enough to pay income tax, according to the center. Some 37% fell into this category in 2022.
Among tipped workers who pay federal income taxes, the average tax cut would be roughly $1,700 in 2026, the lab found.
But virtually all tipped workers would get some tax relief if Trump also gets rid of payroll taxes on tips, the Tax Policy Center found. Their taxes would fall by an average of about $2,100 in 2025.
However, these workers would then get smaller Social Security payments after they retire.
The-CNN-Wire
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