Vice President Kamala Harris has proposed killing the tip credit, an exemption that allows businesses to pay tipped employees less than minimum wage in base compensation, a move economists say could harm workers.
Harris’ official platform promises to “end sub-minimum wages for tipped workers,” a policy long pushed by left-of-center organizations like One Fair Wage as a means to reduce earning gaps among minority and female workers. Research, however, suggests that not only would eliminating the tip credit fail to reduce wage disparities, but it could also lead to fewer jobs, higher prices and reduced overall earnings. (RELATED: Trump Proposes Eliminating Taxes On Overtime Pay For Workers)
An August 2022 Employment Policies Institute (EPI) study conducted by University of California Irvine distinguished economics professor David Neumark and Maysen Yen, an economics graduate student at the same institution, found that a $1 increase to the tipped minimum wage could lead to a decrease of up to 5.6% in quarterly earnings for full-service restaurant employees. That same $1 increase would also reduce employment in the restaurant industry by 6.1%, according to the study.
Peter Earle, a senior economist at the American Institute for Economic Research told the Daily Caller News Foundation that the net effect the policy will have on total compensation for tipped workers depends on the industry they work in and the tipping habits of their customers. Earnings might be more consistent, Earle said, but tips will likely be lower “as customers may feel less inclined to tip generously knowing that employees are earning a full minimum wage.”
The findings in Neumark and Yen’s research have been replicated elsewhere, including in a 2013 study conducted by professors at Trinity and Miami University that uncovered similar findings. Washington, D.C., provides a real-world example of Neumark’s conclusions, as the city saw a decline of roughly 3,200 restaurant jobs shortly after it got rid of the tip credit in 2023, according to local media.
“Because inflation is still high and there are signs that the US economy is slowing, higher costs associated with employment could contribute to layoffs, reduced hours or in any case a shift toward automation,” Earle told the DCNF, speaking to how higher labor costs wrought by eliminating the tip credit could further impact workers. “Small businesses, for which labor costs are typically the largest part of their overhead, may try to absorb these costs by reducing or eliminating hiring plans and pushing current employees to work longer hours. And many businesses, large or small (particularly in service industries) will raise prices, despite the effect that doing so might have on consumer demand and overall sales.”
The Harris campaign’s policy platform fails to mention that federal law requires employers to make up the difference if tips fail to bring a worker’s weekly earnings to parity with the minimum wage.
Facade of Starbucks Coffee shop on a sunny day, San Francisco, California, August 20, 2024. (Photo by Smith Collection/Gado/Getty Images)
Neumark and Emma Wohl, another UC Irvine graduate student, collaborated on a September study for EPI which found increasing the minimum base wage for tipped workers wouldn’t actually reduce racial and gender disparities in wages and may actually widen them.
“Anti-tip credit organizations like One Fair Wage have crusaded against tipping in America for years, claiming that eliminating the tip credit will reduce discrimination and inequality in the industry,” EPI research director Rebekah Paxton said. “The data shows that’s simply not true. Lawmakers should listen to workers in the industry who say they prefer to keep the tipping system instead of following proposals that have no positive impacts.”
A survey conducted by Carnegie Mellon University adjunct professor Lloyd Corder found that 90% of tipped workers in Massachusetts, Ohio, Illinois, Rhode Island, Pennsylvania, New York, Connecticut and Maryland preferred the current system over an alternate system with higher base pay but more uncertain tips. Research published by Cornell University professor Michael Lynn in 2020 found that increasing base pay was correlated with lower tip percentages for employees.
Both Harris and former President Donald Trump have been attempting to court tipped workers, with Trump first proposing eliminating taxes on tips and the vice president later adopting that policy. The policy, however, would only benefit about 2.5% of workers and economists on both sides of the aisle are skeptical of it.
Roughly two-thirds of Americans, however, support Trump’s policy of not taxing tips, according to a poll conducted by Redfield & Wilton Strategies.
“Americans know Kamala Harris’ copycat proposal to eliminate tax on tips — a very popular policy announced by President Trump — was a ploy to get votes,” Republican National Committee spokesperson Taylor Rogers told the DCNF. “Since her first day in office, Kamalanomics has been hurting hardworking families who are unable to afford groceries, gas, and a roof over their head. There is only one candidate that voters trust to lower taxes, put money back in their pockets, make America wealthy again, and restore the American dream, and that candidate is President Donald J. Trump.”
The Harris campaign did not immediately respond to the DCNF’s request for comment.
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