Tangle - No Tax On Tips

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Starting point is 00:00:29 From Searchlight Pictures comes A Real Pain, one of the most moving and funny films of the year. Written and directed by Oscar-nominated Jesse Eisenberg and starring Eisenberg and Emmy Award winner Kieran Culkin, A Real Pain is a comedy about mismatched cousins who reunite for a tour through Poland to honor their beloved grandmother. The adventure takes a turn when the pair's old tensions resurface against the backdrop of their family history. A Real Pain was one of the

Starting point is 00:00:54 buzziest titles at Sundance Film Festival this year, garnering rave reviews and acclaim from both critics and audiences alike. See A Real Pain only in theaters November 15th. Based on Charles Yu's award-winning book, Interior Chinatown follows the story of Willis Wu, a background character trapped in a police procedural

Starting point is 00:01:11 who dreams about a world beyond Chinatown. When he inadvertently becomes a witness to a crime, Willis begins to unravel a criminal web, his family's buried history,

Starting point is 00:01:21 and what it feels like to be in the spotlight. Interior Chinatown is streaming November 19th, only on Disney+. From executive producer Isaac Saul, this is Tangle. Good morning, good afternoon, and good evening, and welcome to the Tangle Podcast, the place where we get views from across the political spectrum, some independent thinking, and a little bit of my take.

Starting point is 00:01:59 I'm your host, Isaac Saul, and on today's episode, we're going to be talking about the no tax on tips policy, which is being proposed by pretty much everybody now. Originally a Trump idea, I'd say. So we're going to jump in and explain what's happening there and why. Before we do, though, we do have two small but notable corrections, actually, from yesterday's podcast. yesterday's podcast. First, in the introduction to yesterday's issue, we referred to Tim Walz's position as Command Sergeant Major in the National Guard, and we called it the highest rank for enlisted soldiers in the military. We used and linked to a source that was correct. While a Command Sergeant Major is the most senior enlisted member of a color-bearing army unit, like a battalion or

Starting point is 00:02:45 higher. The sergeant major of the army is the most senior enlisted soldier in the army. We did not properly vet the source we used, and that source misled us. So we apologize for the error. Second, and again, this is kind of small but significant. In my take, I referred to Walls' former battalion leader, John Kolb. John Kolb was indeed the former battalion commander of Walls' National Guard unit, but he took over a few months after Walls' retirement. Somewhere in our editing process, we restructured the sentence to make it sound cleaner, but it actually made it inaccurate since Kolb was never Walls' direct battalion leader. And I missed this one after our edits, so I apologize for that error. Anyway, that means this is our 112th and 113th correction in Tangle's 262-week history and our

Starting point is 00:03:37 first correction since July 22nd. We track corrections and place them at the top of the podcast in order to maximize transparency with our listeners. All right, with that out of the way, I'm going to pass it over to John for our main story today, and I'll be back with my take. Thanks, Isaac, and welcome, everybody. Here are your quick hits for today. Thanks, Isaac, and welcome, everybody. Here are your quick hits for today. First up, former President Donald Trump was interviewed by Elon Musk on the X platform last night for roughly two hours after the interview was delayed by technical issues. Trump, who has been endorsed by Musk, has also resumed posting on the platform.

Starting point is 00:04:25 Separately, Trump plans to sue the Justice Department for $100 million in damages for the raid on his Florida home in 2022. Number two, Ukraine says it has seized hundreds of square miles of Russian territory after its incursion into the southwestern Kursk Oblast. Number three, a New York judge ruled that Robert F. Kennedy Jr. cannot appear on the state's ballot because he falsely claimed New York residency. Number four, Secretary of Defense Lloyd Austin ordered a guided missile submarine to the Middle East and accelerated the arrival of a strike group ahead of the anticipated Iranian attack on Israel. Separately, the FBI launched an investigation

Starting point is 00:04:56 into efforts by Iran to infiltrate the Trump campaign. At number five, the FDA rejected approval of MDMA, commonly known as ecstasy, for treatment of PTSD. The agency called for a new study to address significant limitations in data on the treatment's effectiveness. All right, and now on to our main story, which is no tax on tips. Former President Trump and Vice President Harris don't agree on much, but one thing they now agree on is getting rid of tax on tips. Both former President Donald Trump and Vice President Kamala Harris have pledged to eliminate taxes on tipped wages for service workers.

Starting point is 00:05:44 Harris made that announcement this weekend in Las Vegas. Trump announced his plan to eliminate taxes on tipped wages for service workers. Harris made that announcement this weekend in Las Vegas. Trump announced his plan to eliminate taxes on tips back in June. On Saturday, Vice President Kamala Harris told a crowd in Nevada that she would eliminate taxes on worker tips if she becomes president, just two months after former President Donald Trump made the same proposal. Trump said he embraced the idea of no tax on tips after a Nevada waitress who served his table explained that the government was taking too much of her money. The proposal was then added to the GOP's 2024 platform. The Nevada's Culinary Union endorsed

Starting point is 00:06:15 Harris on Saturday shortly before she addressed 12,000 people and promised to raise the minimum wage and eliminate taxes on tips for service and hospitality workers. Trump responded on Truth Social, writing, This was a Trump idea. She has no ideas. She can only steal from me. Harris's campaign answered by saying that their plan would be distinct from Trump's. As president, she would work with Congress to craft a proposal that comes with an income limit and with strict requirements to prevent hedge fund managers and lawyers from structuring their compensation in ways to try to take advantage of the policy, an unnamed Harris campaign official told NPR. Vice President Harris would push for the proposal alongside an increase in the minimum wage. Senator Ted Cruz has already introduced a bill

Starting point is 00:07:00 exempting tips from federal income tax, which was endorsed by House Speaker Mike Johnson. Both of Nevada's Democratic senators also joined Cruz's bill, which was endorsed by several Democratic lawmakers. Neither Trump nor Harris has said whether their proposals would eliminate just the income tax or both the income and payroll taxes that service workers pay on tips. Those details are critical. Payroll taxes help fund Social Security and Medicare, and roughly two-thirds of restaurant workers make under the annual amount required for them to pay federal income taxes, meaning most tip earners already don't pay income tax on any of their wages. While the plan appears to be politically popular, many economists are more skeptical.

Starting point is 00:07:40 Some argue that the plan would be difficult to regulate or administer and would create unevenness across states. Workers who earn reduced minimum wage and mostly tips would be taxed less than those earning higher minimum wage and fewer tips, despite doing similar services for similar pay. The plan could also cost the federal government several hundred billion dollars over 10 years. Today, we're going to break down some of the arguments from the right and the left about the proposed plans, and then Isaac's take. We'll be right back after this quick break. Working in the trades is intense. It can be stressful and painful. Some guys use drugs and alcohol to cope. But when we ask for help, or we see someone struggling with addiction,

Starting point is 00:08:39 our silence speaks volumes. See how you can help, or get help, at Canada.ca slash ease the burden. A message from the Government of Canada. and starring Eisenberg and Emmy Award winner Kieran Culkin. A Real Pain is a comedy about mismatched cousins who reunite for a tour through Poland to honor their beloved grandmother. The adventure takes a turn when the pair's old tensions resurface against the backdrop of their family history. A Real Pain was one of the buzziest titles at Sundance Film Festival this year, garnering rave reviews and acclaim from both critics and audiences alike. See A Real Pain only in theaters November 15th. All right, first up, let's start with what the right is saying. The right is mixed on the proposal, with supporters arguing it is both politically savvy and economically sound.

Starting point is 00:09:42 Some criticize Harris for co-opting the idea months after Trump. Others say extending the Trump tax cuts would be a smarter policy move. In National Review, Andy Puzder praised Trump's win-win tax proposal. Critics from the left and the right claim the proposal is a political ploy that would benefit few workers and reduce tax revenue. Without question, tax policy should be designed to increase tax revenue, not to accomplish political goals. But some policies, such as this one, could achieve both, Puzder said. Earning a paycheck can improve a person's, and particularly a young worker's, sense of self-worth. Earning tips enhances the experience because the rewards of the job are

Starting point is 00:10:20 directly tied to individual performance and received in real time, tangible proof that a worker has excelled at his job. No tax on tips can have the income-enhancing benefits of a minimum wage increase without the risks, such as reducing working hours, automation, and job displacement or business closures, which would result in fewer overall job opportunities. No tax on tips would also benefit employers, reducing the pressure on them to increase wages, as workers can earn an increase with every shift, and incentivizing employee performance, Poster wrote. No tax on tips is an innovative proposal that can increase benefits for low-wage workers while decreasing the costs of running and growing the businesses that employ them. In hot air, Jazz Shaw said, Kamala is copying Trump's platform now.

Starting point is 00:11:04 Harris broke form and actually did name a policy change that she would put in place if elected. To my great surprise, I found myself agreeing with her because it's a pretty good idea. But wait, it does sound kind of familiar. Where have we heard that before? Oh, right, that's Donald Trump that's been saying the same thing all along

Starting point is 00:11:23 and has been quick to point out that Harris is stealing his idea, Shaw wrote. Of course, any such change to the government's revenue collection system would have to originate in the House and be passed by Congress before the president could approve it. Also, while it's a popular idea and should certainly be considered, it's difficult to estimate how much of a real-world impact it would have. Calculating and collecting taxes on tips is notoriously difficult because, unlike bills that are processed at the register and produce receipts, tips have traditionally been offered in hand-to-hand fashion, with little or no documentation, Shaw said. Now, however, the no-tax-on-tips idea has been turned into a partisan

Starting point is 00:12:01 political football. Back when it was just Trump talking about it, a number of media outlets were disparaging the idea. Now that Kamala Harris is saying it, everyone's in love with the idea. In The Hill, Vance Gin called the proposal a costly illusion. Trump's proposal to exempt tips from federal income and payroll taxes might sound like a windfall for service workers, but it's a costly illusion

Starting point is 00:12:22 that undermines fair tax policy and economic efficiency. This plan, proposed as legislation by Senator Ted Cruz, designed to appeal to a crucial voter base, exacerbates inequities and distorts the tax system. There's a better way, Jen wrote. The core problem with exempting tips from taxes is that it narrows the tax base, leading to potential hikes in overall tax rates on tipped workers and everyone else to compensate for deficit spending. A broad tax base with lower rates is essential for minimizing economic distortions and spreading the tax burden fairly. This proposal picks tipped workers as winners over everyone else, incentivizing more tipped jobs and payments. Today, nearly every payment app prompts users for tips, a practice that could

Starting point is 00:13:05 proliferate further under such a tax exemption. This disrupts consumer behavior and distorts the labor market by officially boosting the attractiveness of tipped positions over other roles, regardless of the actual economic value they generate, Jin said. A more effective approach would be to make the individual income taxes from the 2017 Tax Cuts and Jobs Act permanent as they expire next year. Coupled with broadening the tax base and lowering tax rates, this would create a more efficient and equitable tax system. All right, that is it for what the right is saying, which brings us to what the left is saying.

Starting point is 00:13:51 The left is skeptical of the idea, suggesting tipping should be eliminated, not further institutionalized. Some question the strategy behind Harris adopting Trump's proposal. Others say it's smart politics from Trump, even if the policy itself is flawed. In Bloomberg, Alison Schrager wrote, Trump is totally wrong about tipping. Tipping is terrible. Almost no one likes it. And as it

Starting point is 00:14:11 has become more ubiquitous, it has also become even more unpopular. Undeterred by any of this, Donald Trump has an idea sure to make tip jars and in-app tip requests even more common. He said he would make tipped income tax-free, Schrager said. As a result, more pay would likely be defined as tipped income. Not only would that bring in less tax revenue at a time when it is sorely needed, it is also bad economics. There is no income justification to favor tipped income over regular income. If anything, it should be taxed more because it is not a good way to pay people. Tipping is now internalized as a cost of doing business. That means a quarter to a fifth of the restaurant revenues go directly to the server rather than to the business itself. Owners thus have less money

Starting point is 00:14:55 to allocate among staff based on the value of their skills or their scarcity in the labor market, the way it works in every other business. This creates a distortion in the service industry, Schrager wrote. The only way to end tipping is through tax policy change, and the policy is definitely not to encourage more tipping by giving it tax advantages. It's to make tip pooling the norm, or better yet, to phase out tipping entirely. In The American Prospect, David Dane called Harris' proposal a policy gimmick. No taxes on tips is generally a poor idea where there are other good ones available. It would somewhat unfairly segregate people who make the same income by virtue of how that income is technically collected.

Starting point is 00:15:35 It invites gaming of the system, where real estate and stockbrokers, lawyers, or even hedge fund managers can recharacterize their income as tips and get a huge tax break, Dan said. It would nullify efforts to improve reporting compliance on tips, and if this affected payroll as well as income taxes, which businesses would certainly push for on the employer side as well, it could catastrophically reduce what tipped workers pay into and get out of Social Security. Of course, endorsing an end to the sub-minimum wage wouldn't have offered much to the culinary union in Nevada because they've already secured that. So Harris's team made a move to co-opt an idea from Trump, who responded with his usual fury. That's a reasonable political

Starting point is 00:16:15 maneuver, but as a policy idea, it kind of stinks, Dayan wrote. This demonstrates an instinct for gimmickry over what might actually work well. Harris said earlier Saturday that she would roll out a policy platform focused on the economy and lowering costs this coming week. We do need to understand what she would do in office, but I hope it gets better than the faux populism endorsed by restaurant trade groups. In The Atlantic, David A. Graham said Trump has somehow stumbled into a very likable policy idea. No taxes on tips has not inspired a great deal of elite attention, but maybe it should. Some 4 million people work for tips

Starting point is 00:16:50 and the idea could make a big difference in their lives. It is also a notable electoral ploy in Nevada, a key swing state that Republicans keep losing, a pithy slogan and a campaign otherwise lacking any, and the sort of signature Trump gambit that tends to fracture existing political coalitions, Graham wrote. In other words, it's a typically Trumpian move, completely detached from expert opinion on the left or the right, but with an intuitive appeal and political edge. Customers tend to hate tipping, or at least feel uncomfortable about it. But Trump would take

Starting point is 00:17:20 things in the opposite direction, shoring up tipping's role in the economy. In doing so, he could unite tipped workers in the service industry with wealthy small business owners and small government conservatives, Graham said. Even if it seems questionable, who wants to be on the record voting against cutting taxes for waiters and cabbies? This makes no taxes on tips a little like the build the wall of 2024. It might not actually be smart policy, but it sure sounds good on the trail. All right, let's head over to Isaac for his take. So I really want to love this policy proposal.

Starting point is 00:18:06 First of all, kudos to Donald Trump and the Republican Party for making it a part of their platform. No tax on tips is not a new policy in the sense that they were the first ones to think of it. But it is novel in the sense that it hasn't been debated seriously in a long time. Trump brought it back to the national conversation. It was broadly popular, especially in the swing state of Nevada, so Harris co-opted it. Now we have a popular policy proposal and a bill in the Senate that also has bipartisan support. That's great. It's also nice because it's a policy position genuinely aimed at the working class. Broadly speaking, the Democratic Party used to

Starting point is 00:18:45 make the working class a major priority in their policymaking, but in recent years has prioritized highly educated, well-off suburbanites and urbanites. Broadly speaking, the Republican Party used to focus on friendly tax policies for business owners and corporations while putting the working class second, but in recent years has done a lot more talking about the working class while still having very friendly policies for corporations and business owners. Democrats getting back to their roots and Republicans backing up that talk

Starting point is 00:19:13 is something I'm genuinely happy about. The upside is obvious. If you're a service industry worker who makes a lot of money on tips, you'll pay less in taxes. This will increase your take on pay, which will put more money in your pocket, which will help you'll pay less in taxes. This will increase your take-on pay, which will put more money in your pocket, which will help you. That's pretty straightforward. However, this plan

Starting point is 00:19:30 has a lot of downsides that are drowned out by the allure of a bigger paycheck. Perhaps most notably, it will discourage employers and federal or state governments from raising the base wage for tipped employees. Right now, the federal minimum wage for tipped employees is $2.13 per hour, and it has been that way since 1991. A policy that works against raising this rate could very easily harm workers in the long term. Also, tax exemptions differ across state. So, service workers doing the same job in one state could pay more taxes than workers doing the same job in another state if they make a smaller proportion of their money through tips. This policy is likely to cost the federal government hundreds of billions of dollars in lost revenue.

Starting point is 00:20:14 It also narrows the tax base. That always means other people are going to pay higher taxes to make up for the shortfall. And have you noticed how you were asked to tip on everything these days? Do you find that slightly annoying to be asked to tip even after buying something that requires little to no service? Well, that would be a lot more common because more jobs would magically become tip wage jobs. Is that really a trade-off we all want to accept to just potentially benefit workers in tipped occupations who make up just 2.5% of all workers? And finally, there is a reason so many labor leaders do not want this proposal enacted.

Starting point is 00:20:51 They know it could be used against them. Does this mean the no tax on tips is a policy idea doomed to fail? Actually, no. I think there is a world where this policy gets implemented, employers lower wages thinking workers will make it up on tips, and then workers do make it up on tips and end up with a slightly higher take-home pay. That outcome is completely plausible. But when I look at this policy critically, it's easy to see that there's something gimmicky about it

Starting point is 00:21:18 that could blow it up. Trump Republicans get an A-plus for considering a policy that is centered on broadly helping service workers. Harris gets a B for copying the right person's homework. But this policy on the merits is a hard C, with a lot of risk, a lot of unanswered questions, and a lot of reasons for workers to be skeptical. We'll be right back after this quick break. Many Canadians are finding it hard to focus with mortgage payments on their minds. If you're struggling with your payments, speak to your bank. The earlier they understand your situation, the more options and relief measures could be available to you.

Starting point is 00:22:11 Learn more at Canada.ca slash ItPaysToKnow. A message from the Government of Canada. From Searchlight Pictures comes A Real Pain, one of the most moving and funny films of the year. Written and directed by Oscar-nominated Jesse Eisenberg and starring Eisenberg and Emmy Award winner Kieran Culkin, A Real Pain is a comedy about mismatched cousins who reunite for a tour through Poland to honor their beloved grandmother. The adventure takes a turn when the pair's old tensions resurface against the backdrop of their family history. A Real Pain was one of the buzziest titles at Sundance Film Festival this year, garnering rave reviews and acclaim

Starting point is 00:22:47 from both critics and audiences alike. See A Real Pain only in theaters November 15th. The flu remains a serious disease. Last season, over 102,000 influenza cases have been reported across Canada, which is nearly double the historic average of 52,000 cases. What can you do this flu season?

Starting point is 00:23:04 Talk to your pharmacist or doctor about getting a flu shot. Consider FluCellVax Quad and help protect yourself from the flu. It's the first cell-based flu vaccine authorized in Canada for ages 6 months and older, and it may be available for free in your province. Side effects and allergic reactions can occur, and 100% protection is not guaranteed. Learn more at FluCcellvax.ca. All right, that is it for my take, which brings us to your questions answered. This one is from Rick in Albany, New York. Rick said, in yesterday's poll results from the August 8th edition, you said that 64% of readers called the Khalif decision fair,

Starting point is 00:23:47 which is misleading because most of those people also said that the IOC should review its rules. In the past, you said that Tangle doesn't pool results, but today you did. Why the change? This seems incredibly biased to me. Okay, so you got a lot right here. Yes, we said that 64% of readers called the IOC's decision to allow Algerian boxer Amani Khalif to compete in the women's division fair. Yes, 24% of respondents called the decision totally fair, while 40% said the decision was fair,

Starting point is 00:24:17 but that the IOC should review its rules. Yes, ever since we started to accompany our survey results with visualizations, we've made the choice not to pull results when we summarize them. That is, we had been summarizing the most common response only. Yes, you and other readers have pushed back against this policy. We review and revise our policies all the time, and we changed our minds on this one. We actually made the change when we summarized our survey about Vice President Kamala Harris choosing Minnesota Governor Tim Walz as her running mate. In that poll, 32.3% of readers said they support the decision, compared to 30.3% who said they strongly support it. Under our existing policy, we would have said that 32% said they support the decision, even though 65% answered in support.

Starting point is 00:25:02 That's when we realized that our critical readers were right. The policy, as it existed, was producing some misleading descriptions. So, moving forward, you'll notice that we'll sometimes be pooling survey results in our reader surveys. Thank you all for writing in with your feedback. As always, we might not always take your suggestions, but sometimes we just need a little more time and thought before we do. All right, that is it for your questions answered. I'm going to send it back to John for the rest of the pod and I'll be back here tomorrow. Have a good one.

Starting point is 00:25:30 Peace. Thanks, Isaac. Here's your under the radar story for today, folks. The Biden administration has frozen a controversial program that allowed tens of thousands of migrants from Cuba, Haiti, Nicaragua, and Venezuela to fly or travel directly to the U.S. The Department of Homeland Security said it is pausing the program after an internal report showed significant amounts of fraud.

Starting point is 00:25:56 Previously, the program had allowed 30,000 migrants who met certain conditions to come to the U.S. legally from those countries under parole. The migrants had to prove identifying information for a sponsor, but the internal report showed a handful of social security numbers, addresses, and phone numbers were used hundreds of times. Fox News has this story, and there's a link in today's episode description. All right, next up is our numbers section. The approximate number of U.S. workers in tipped occupations in 2023 is 4 million, roughly 2.5% of all employees, according to an analysis from the Budget Lab.

Starting point is 00:26:35 The approximate percentage of workers earning between $17.66 and $25 an hour who were in tipped occupations in 2023 is 2%. The median weekly wage for tipped occupations in 2023 is $538, compared to $1,000 for non-tipped workers. The percentage of tipped workers who paid no federal income tax in 2022 is 37%. The percentage of U.S. voters who do not believe tips given to service workers should be taxed is 67%, according to an August 2024 poll from Newsweek, Redfield, and Wilton. The percentage of Gen Xers, Millennials, and Gen Zers, respectively, who do not believe tips given to service workers should be taxed is 74%, 70%, and 59%. The decrease in the percentage of Americans who say they tip their servers at sit-down restaurants between 2021 and 2024 is 8%, according to a Bloomberg analysis. And the median weekly wages for front-of-house employees and back-of-house employees,

Starting point is 00:27:34 respectively, at casual fine dining restaurants is $673 and $402, according to a 2014 study from Cornell University and Ohio State. And last but not least, our Have a Nice Day story. Sofia Furio, a military veteran who struggles with PTSD, has found a useful tool in her healing journey, Lego sets. Furio has described working on the sets as an activity that grounds her and enables her to work through difficulties, while also providing a way to work with others. She is not alone in this discovery.

Starting point is 00:28:10 A number of individuals battling difficulties ranging from PTSD to childhood trauma have benefited from working with Legos. Dr. Jay Watts, a clinical psychologist and psychotherapist, said that while Lego sets won't entirely heal the trauma, said that while Lego sets won't entirely heal the trauma, working with them allows us both to let our imaginations run riot and to engage in precision that demands qualities akin to mindfulness. The Canary has this story, and there's a link in today's episode description. All right, everybody, that is it for today's episode. As always, if you'd like to support our work, please go to retangle.com and sign up for a membership.

Starting point is 00:28:44 We'll be right back here tomorrow. For Isaac and the rest of the crew, this is John Law signing off. Have a great day, y'all. Peace. Our podcast is written by me, Isaac Saul, and edited and engineered by Duke Thomas. Our script is edited by Ari Weitzman, Will Kabak, Bailey Saul, and Sean Brady. The logo for our podcast was made by Magdalena Vakova, who is also our social media manager.

Starting point is 00:29:07 The music for the podcast was produced by Diet75. And if you're looking for more from Tangle, please go check out our website at readtangle.com. That's readtangle.com. Bye.

Tangle - No Tax On Tips

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