Nevada can be seen as a city-state, with Las Vegas as its focal point.
Out of the 3.1 million residents in this arid region, 2.9 million reside in the Las Vegas metropolitan area.
The primary industry here is hospitality, encompassing food and drink, gaming, transportation, and the spectacular shows for which the city is renowned.
Sports are also emerging in prominence; a short distance from where I am writing, construction crews are busy building stands for the upcoming Formula One race scheduled for late November.
Last year, this city-state of Las Vegas drew in over 36 million visitors who came to indulge in food, drinks, and entertainment.
This influx necessitated a robust workforce of service workers, who greatly benefit from tips.
Furthermore, with Nevada being a swing state in this election, what better way to sway it in your favor (and secure its six electoral college votes) than by making a policy appeal to the service industry voters that dominate the voter rolls here?
Recently, Donald Trump spoke at a Turning Point Action campaign rally at the Thomas & Mack Center in Las Vegas.
The policy proposal being championed is “no tax on tips.”
This catchy and appealing tagline could potentially tip the scales for Donald Trump in this state, a concept he introduced over the summer.
In fact, it gained such traction that Kamala Harris felt compelled to present her own plan to eliminate income tax on tips shortly thereafter. Not doing so could have significantly jeopardized her position.
As a local hotelier in Las Vegas, Trump’s stature is reinforced by the towering Trump tower with its gold-tinted glass overlooking the Strip. This bolsters his credibility in a state Joe Biden won by a narrow margin of just 33,000 votes in the previous election (while Trump improved his vote share compared to his 2016 loss to Hillary Clinton).
But is it a feasible strategy to provide a tax advantage to one category of workers over another?
We ventured into the suburbs and visited the Bagel Cafe, a delightful fusion of a New York deli and Mediterranean patisserie, serving generous portions. There is typically a 45-minute wait for tables on weekends, and it operates around the clock, baking bread fresh on-site.
The wait staff expressed enthusiasm for the idea of exempting their tip income from taxes.
Ariana shared, “I think there should be no taxes on tips. Often, when tips are taxed, the amount is more than what you expect.”
She continued, “Most of my tips go toward gas, or I give them to my parents to help with bills or groceries.”
“For me, it’s a significant part of my income.”
Karla, another server, added, “I believe that’s an incredible proposal. It would really help reduce the tax burden on our daily tips. We rely on tips significantly, and as a server, I work four days a week relying heavily on my tips.”
With both Trump and Harris championing the same initiative, would it sway her vote toward either candidate?
“I’m not sure, honestly, but it’s a good idea, and it doesn’t change my perspective,” Karla replied.
In downtown Las Vegas, artists are painting a mural of Kamala Harris with the words “WE VOTE WE WIN.”
Co-owners Hugo Requelme and Pablo Lemus are more skeptical about the proposal—however, they understand the tipping landscape, having started their journey in the service industry as servers two decades ago.
“On the surface, it sounds beneficial, but in practice, implementing it is uncertain, especially in a city like Las Vegas with a multitude of restaurants,” Hugo stated.
“Our business is driven by tips, so I’m unclear how this would pan out—how to transition everyone currently taxed on tips to an exemption. It feels like a substantial challenge.”
I inquired if such a change would impact their business operations.
“I don’t think it would. The primary beneficiaries would be the servers. For us, I don’t foresee adjustments in pricing or cost structures,” Hugo explained.
Pablo concurred: “As Hugo mentioned, the benefits would mainly extend to the employees, not the business itself. It could incentivize employees by boosting their income at the end of the day.”
A prevalent argument against the tipping culture in the U.S. is the demand for a higher minimum wage from employers (which currently stands at $7 an hour) to lessen dependency on tips.
However, in a country grappling with recent inflationary pressures, Pablo asserted, “Higher wages could impact our business, particularly amidst inflation and rising costs. We can only raise prices so much without pricing ourselves out of the market.”
Hugo noted that when Trump first proposed the plan, many customers began writing “no tax on tips” on their bills, a trend encouraged by the Trump campaign. It was evidently a popular proposal, albeit one with the potential to become less appealing since Harris echoed the same stance.
On the southern side of Vegas, we visited Restaurant Lindo Michoacan, a family-owned enterprise with five Mexican restaurants within the Las Vegas area.
The staff here eagerly strive for tips, breaking into song multiple times to celebrate customer birthdays, complete with guitars, tambourines, and sombreros.
Bartender Leonarda voiced his strong approval of the proposal and its originator: “I believe Trump should be elected; he aims to eliminate taxes on tips, which is fair since we often leave with half our paycheck due to taxes.”
Despite Kamala Harris also endorsing the no tax on tips initiative, I asked Leonarda why he wouldn’t consider voting for her.
“I don’t know. I feel like Trump has always been pragmatic and genuinely supportive of us,” he replied.
His coworker Maybelline expressed a more ambivalent view: “There are pros and cons to both parties. Trump emphasizes tax relief on tips, while Kamala advocates for healthcare. It’s a tough choice; the debate is ongoing.”
This dynamic may illuminate why the Democrats are increasingly concerned about Latino voting patterns, especially among young men, who appear to be leaning toward Trump at higher rates than other segments of the community.
Such trends might clarify why Democrats have ramped up their criticism against a comedian at one of Trump’s rallies for making disparaging jokes about Puerto Ricans.
On the other hand, the economic feasibility of exempting tips from taxation raises questions. Estimates indicate that such a policy could cost the government between $100 billion and $250 billion over a span of ten years. Moreover, it would primarily benefit the tiny fraction of low-wage workers who earn tips, potentially leaving many others at a disadvantage.
The Harvard University Budget Lab has calculated that approximately 4 million workers were employed in tipped occupations in 2023, making up about 2.5% of the total workforce.
“Surprisingly, this proportion doesn’t increase notably when focusing on low-wage jobs. Among those in the bottom half of hourly wages—earning less than $25 per hour—less than 4% were in tipped positions.”
Both candidates have been aggressively expanding their spending promises during the campaign—Trump at about double the rate of Harris, as reported by “The Economist”—against the backdrop of the U.S. potentially facing a significant fiscal cliff next year when the Trump-era tax cuts are set to expire, triggering a contentious congressional battle over taxes in the year to come.
Moreover, the pressing issue of the U.S. budget deficit and federal debt looms large.
According to the Tax Foundation, a think tank, “exempting tips from federal income taxes could amount to a loss of $100 billion over a decade,” while the Committee for a Responsible Federal Budget (CRFB) estimates that an exemption for income and payroll tax could cost between $150 billion to $250 billion over the same period. This would worsen the already significant challenges of offsetting tax cut extensions and might exacerbate the unsustainable trajectory of national debt and deficit.”
Another think tank, the Bipartisan Policy Center, explored the potential unintended consequences of not treating tips as taxable income: “For instance, would workers not currently engaged in tipped jobs be motivated to transition to roles that earn tips just to minimize their income tax burden? (For example, a fast-food employee might opt to become a waiter.)”
“Additionally, could businesses not currently offering a tip option introduce one to leverage the appeal of ‘no taxes on tips?’ (For instance, a grocery store could begin providing a tip jar for cashiers or add a tipping feature to digital payment screens, potentially lowering base wages or wage increases to compensate.)”
And then there’s the Wall Street angle—would the brightest financial minds find ways to claim that they received a multiple-million-dollar tip as a nontaxable bonus?
Back at Lindo Michoacan, one birthday celebrant, serenaded by the enthusiastic staff, took a more realistic stance on the no tax on tips policy.
Richard LaVerne, a hospitality industry veteran in Las Vegas, summarized, “I see this as more of a publicity stunt than a serious proposition. Both candidates are aware that if she wins, the Republicans in Congress will block it out of spite, and vice versa. So while it sounds appealing, it’s just political maneuvering—they likely won’t follow through.”
Though this wouldn’t mark the first unrealized political commitment, in a city built on chance, it’s a gamble worth taking for Trump—and a comparable risk for Harris—to determine if their odds hold in this vital swing state.
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