Date: June 30, 2025
“No tax on tips” is a bit of populist rhetoric that was first proposed by Trump in the 2024 campaign season, and later picked up by Harris. After passing the Senate and House in different forms, it’s expected to become law as part of the “One Big Beautiful Act”.
At first glance, this seems like bad policy—it arbitrarily privileges waitstaff over cooks, dishwashers, and anyone who isn’t in the restaurant industry. But consider:
Around half of tips go unreported on tax filings. Widespread tax evasion is corrosive just as any other kind of social defection. Servers who are willing to lie have a leg up over the honest ones. “No tax on tips” at least puts everyone on an equal footing.
Mandatory “tips” (e.g. 18% service charges) aren’t considered tips under this policy. These fees are anti-consumer and often opaque: though California restaurants obtained a partial exemption from the state’s Honest Pricing Law, they frequently don’t abide by the weaker disclosure requirements. If tips aren't taxed, restaurants would have a strong incentive to switch to a tips-based system to lower their servers’ tax burden.
You have the freedom to claim this tax deduction for your own: simply tip ~20% less! Should the law pass, I plan to do this and encourage everyone else to do so as well.
So the net effect of this policy, assuming you adjust your tip size, is to punish tax cheats, discourage service fees, and put money back in your pocket. Sounds all right to me!
The only downside I see is the harm to restaurants with neither tipping nor service charges, but these are so rare as to be negligible. Oh, and of course there’s $10 billion added to the deficit (next to the $400 billion from the OBBA’s other provisions).