(The Center Square) – A group of Ohio economists believe exempting tips from income taxes would help mostly high-income tipped workers rather than lower-income employees.
A recent survey by Columbus-based analytical group Scioto Analysis showed 11 of 16 economists around the state said eliminating incoming taxes on tips – an idea presented by former President Donald Trump and later by Vice President Kamala Harris – would improve the well-being of tipped workers.
However, many said it wouldn’t make a difference for the majority of tipped workers, who currently don’t make enough money to pay taxes.
“Low-income tipped workers are not paying much, if any, income tax,” said Bob Gitter, an economist at Ohio Wesleyan University. “The benefits will be for higher income tipped workers, e.g. servers at higher priced restaurants.”
Curtis Reynolds, from Kent State University, agreed.
“I am not sure that this will really help at all,” he said. “Some tips may not be declared on taxes in the first place (so exempting them does not help) and this may just slow wage growth if employers view this as an increase in total compensation.”
Harris and Trump continue to push the plan at campaign stops throughout the country, particularly in the battleground states of Michigan, Wisconsin, Pennsylvania and North Carolina, where polls continue to show a tight race.
The survey also showed 11 of 16 economists disagreed that exempting tips from taxes would lift more people out of poverty than raising the tipped minimum wage to the non-tipped minimum wage.
“The number of tipped workers in Ohio who are both in poverty and pay income taxes is vanishingly small,” said Will Georgic, of Ohio Wesleyan University. “Exempting tips from income taxes will do very little to pull people out of poverty. Roughly doubling the tipped minimum wage to coincide with the overall statewide minimum wage will be much more effective at reducing poverty in a partial equilibrium sense. However, the ultimate effect will depend on how much of this increase in labor costs for employers is passed on to consumers and on the own-price elasticity of services provided by tipped workers.”
