House Republicans stayed up all night to pass their multitrillion-dollar tax breaks package, with Speaker Mike Johnson defying the skeptics and unifying his ranks to muscle President Donald Trump's priority bill to approval Thursday.
President Donald Trump's "no tax on tips" pledge from his 2024 campaign is inching closer to reality.
The idea is firmly planted in the sprawling tax cuts package House Republicans passed and, in a surprise move, the Senate voted to unanimously approve the idea.
The proposal has widespread support from the public, lawmakers in both parties and employers who believe such a law will bring relief to the working class. Many critics say it would come with an enormous cost to the government while doing little to help the workers who need it most.
What's in the provision?
It would create a new tax deduction eliminating federal income taxes on tips for people working in jobs that traditionally receive them, as long as they make less than $160,000 in 2025. The Trump administration would publish a list of qualifying occupations within 90 days of the bill's signing.
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Only tips reported to the employer and noted on a worker's W-2, their end-of-year tax summary, would qualify. Payroll taxes, which pay for Social Security and Medicare, still would be collected along with state and local taxes.
If adopted, the proposed deduction is set to expire after four years. Congressional budget analysts project the provision would increase the deficit by $40 billion through 2028. The Committee for a Responsible Federal Budget, an advocacy group, projects the cost would be $120 billion over a decade if the tip exemption is made permanent.
What did Trump say?
Trump made the promise during a campaign stop in Las Vegas, where the service sector drives the economy, as part of his pitch to working-class voters struggling with rising costs. Segments of his base eagerly spread the word.
Trump later made similar pledges to eliminate taxes on other forms of income, including overtime wages and Social Security payments. Those ideas, along with a tax deduction for auto loan interest, also are included in the GOP's budget bill.
Nevada's Democratic senators and then-Vice President Kamala Harris, Trump's Democratic rival, and the influential Culinary Union later embraced "no tax on tips" -- with limits.
How could it affect workers?
Experts say a tax break would benefit some middle-income service workers but also could heighten inequities.
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"If your goal is to help the poorest service workers, this is probably not the way to do it," said Michael Lynn, a professor of services marketing at Cornell University whose research largely focuses on tipping and other consumer behavior.
About a third of tipped workers make too little to owe income taxes. Those workers won't see any savings, so its benefits will accrue to tipped workers with higher incomes, Lynn said.
"It's overlooking non-tipped workers who need the help just as badly, and it's giving the benefit predominantly to the least needy of the tipped workers," he said.
The median age for tipped workers is 31, a decade younger than the median non-tipped worker, and they tend to make lower wages, according to the Yale Budget Lab.
Among tipped workers who make enough to owe Uncle Sam, the average tax cut would be about $1,800, according to the Urban-Brookings Tax Policy Center.
The measure also would be complicated to enact.
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The National Restaurant Association is among industry groups that strongly back a "No Tax on Tips" provision.
"Eliminating taxes on tips would put cash back in the pocket of a significant number of workers in the restaurant and food service industry and could help restaurant operators recruit industry workforce," Sean Kennedy, executive vice president of public affairs for the association, said in January.
In Nevada, the Culinary Workers Union credited the state's two Democratic senators, Catherine Cortez Masto and Jacky Rosen, with working with Republicans to push forward the legislation -- and called on the House to "get this done for working families." The union represents about 60,000 casino and hotel workers in the state, including bartenders, food servers and cocktail servers who rely on tips.
Other groups representing workers criticized the legislation.
One Fair Wage, an advocacy group of nearly 300,000 service workers and more than 1,000 restaurant employers pushing to raise the minimum wage, said the measure would offer "moderate relief for some" but is part of a tax package that "just helps the richest while leaving the vast majority behind."
"For all the bipartisan celebration ... this bill is a distraction from the real fight," Saru Jayaraman, president of One Fair Wage, stated -- again stressing that it is time to raise the minimum wage. The nonprofit also calls for ending tip credits that allow lower base wages for tipped workers in many states.
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