While on the campaign trail, President Donald Trump made clear his desire for no federal income tax on tips and overtime pay, and in recent days has reiterated that goal. The proposal forms the focal point of the president’s tax policy agenda, which aims to improve the livelihoods of blue-collar and service workers across the U.S. Notably, the concept has garnered bipartisan support; on the campaign trail, former Vice President Kamala Harris also voiced her support for no tax on tips. Congress has recently been debating two bills that address these policies, one in the Senate and the other in the House of Representatives.
Despite interest from both sides of the aisle, debate over the effectiveness of such a change in tax policy remains.
In 2023, Alabama passed an income tax exemption on tips and overtime pay as part of the state’s response to the struggling post-pandemic labor market. Data has since indicated that the exemption resulted in increased personal earnings and labor supply. Other states, including Kentucky and North Carolina, are now considering similar bills in the hope of increasing consumption and, in turn, encouraging job creation.
U.S. residents have expressed significant bipartisan support for such exemptions. According to a 2023 Ipsos poll, about 73% support no taxes on tips. This support is perhaps reflective of a national desire to see workers in tip-based jobs keep more of their earnings.
As tipping culture...
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