Will ‘no tax on tips’ make tipping culture even more taxing for Americans?
A bipartisan group of lawmakers led by Sen. Ted Cruz, R-Texas, introduced a bill to do away with taxes on tipped income. The legislation comes as Americans are already tipping less as prices rise, along with tipping fatigue.
Cruz and his cosponsors promised this bill would offer financial relief for those who need it most.
“American workers in many industries rely on tipped wages to make ends meet,” Cruz said in a statement. “I’m introducing my bipartisan No Tax on Tips Act — legislation I authored to fulfill President Trump’s promise to end the wrongful practice of taxing voluntary tips. I’ve long believed the GOP should be the party of bartenders, of waiters and waitresses, and this bill is an important step to ensure we are addressing the economic needs of working Americans.”
When these proposals first came forward last year, the right-of-center Tax Foundation cast doubt on the impact of removing taxes on tips. Noting only 2.5% of the workforce are tipped employees, “the policy would leave the vast majority of low- and middle-income earners out of the loop,” the Tax Foundation said.
“The proposal would make more employees and businesses interested in moving from full wages to a tip-based payment approach,” the Tax Foundation added.
Americans are already tipping less
The average tip at a full-service restaurant fell to 19.3% in the third quarter of 2024, according to data provided to Straight Arrow News by Toast, which handles restaurant payment systems.
The current tip rate is the lowest recorded since at least 2018, according to Toast’s data. Full-service tips peaked at 19.9% in the first quarter of 2021. Tips at quick-service restaurants fell to 15.9% in 2024, also a seven-year low.
Aside from rising prices, so-called “tipping culture” is also taking its toll. A survey from Bankrate in June 2024 found 59% of Americans have a negative view of at least one aspect of tipping.
Thirty-five percent of respondents said tipping culture as a whole has gotten out of control. Meanwhile, 34% said they get annoyed with pre-entered tip screens at places like coffee shops and fast-casual restaurants. A further 11% said they are confused about whom and how much they should tip.
It starts in Nevada
When Trump declared his plan to stop taxing tipped income, the location of that announcement was no coincidence. Nevada has the highest concentration of tipped workers in the U.S. There are roughly 350,000 hospitality workers in the state, many of whom rely on tips.
Both Democratic cosponsors of Cruz’s legislation are from Nevada: Sens. Jacky Rosen and Catherine Cortez Masto.
“Nevada’s service and hospitality workers are the backbone of our economy, and they deserve financial relief at a time when they are getting squeezed by rising costs,” Rosen said in a statement. “This bipartisan bill will ensure tipped workers in Nevada can keep more of their hard-earned money.”
Ted Cruz introduces ‘No Tax on Tips’ bill echoing Trump campaign promise
Sen. Ted Cruz, R-Texas, introduced a bill Thursday, Jan. 16, that would make one of President-elect Donald Trump’s major policy proposals a reality: the No Tax on Tips Act. Cruz reintroduced a bill similar to the one he proposed last July.
This time, however, the bill has the support of Nevada’s two Democratic senators, making it a bipartisan proposal.
While the bill would change the federal tax code to allow people to claim a 100% deduction on income collected via tips from federal income tax, it would not exempt the money from being factored into other taxes, such as the payroll tax that gets withheld from workers’ paychecks.
Cruz said that “this bill is an important step to ensure we are addressing the economic needs of working Americans.”
But while Republicans, many Democrats and labor unions support the idea, economists aren’t sure it will have a positive effect.
One issue is that not many workers earn tips. Additionally, many of those who do don’t make enough to pay any federal income tax.
An analysis last summer by the Yale Budget Lab found that only 2.5% of American workers are in jobs where they earn tips. And that more than a third of tipped workers had incomes low enough to avoid paying any income tax.
Economists also raise questions about the fairness of promoting tip-based jobs like serving and bartending over other similar-paying jobs that don’t collect tips.
Conservative economist and former Republican-appointed Congressional Budget Office Director Douglas Holtz-Eakin criticized the proposals when they first gained traction. He wrote, “There is no particular reason to treat one kind of labor income differently than another,” and that “It is not an effective way to promote work.”
Should a “No Tax on Tips” bill pass, restaurant owners may hope it stops efforts to end the practice of tipping by evening out the minimum wage. The federal minimum wage for tipped workers is more than 70% lower than for non-tipped workers.
IRS to send unclaimed stimulus checks to 1 million taxpayers
There’s good news for taxpayers who may have missed out on a stimulus check. The Internal Revenue Service is sending payments to people who overlooked a credit on their 2021 tax returns.
An internal review by the federal tax agency showed 1 million Americans failed to claim the recovery rebate credit.
People who missed one of the COVID-19 stimulus payments or had gotten less than the full amount were able to claim the credit but many didn’t.
Because of this, the IRS is issuing recovery rebate credits starting this month.
Those payments will arrive by direct deposit or check by the end of January at the latest.
The maximum payment is $1,400 per person, with the IRS estimating total payments to reach $2.4 billion.
Those who are eligible will get a letter in the mail.
The IRS said taxpayers who haven’t filed 2021 tax returns might be eligible as well but they face an April 15 deadline to file their returns to claim the credit.
Solar panels costing California residents, why energy bills increased in 2024
California’s solar panels are driving up electricity bills for residents while making power cheaper for customers in other states. The Golden State is producing more solar power than it can use, leading to significant energy waste and financial losses.
Over the past 12 months, California curtailed more than 3 million megawatt-hours of solar energy, enough to power over 500,000 homes for a year. This issue has grown as the state’s solar capacity increased about 20-fold over the last 11 years, with the amount of solar energy wasted in 2024 now more than doubling the total in 2021 and climbing eight times higher than in 2017.
Experts estimate the retail value of the curtailed energy in 2024 exceeds $1 billion. California’s sunny climate is ideal for solar energy production, but peak demand typically occurs at night, leaving a portion of what is generated in the daytime unused.
Industrial-scale batteries, which could store excess energy for later use, are costly, often twice as expensive as the solar panels themselves. Most current systems only store energy for four hours, which is insufficient to meet overnight demand.
This oversupply contributed to California’s electric rates being around twice the national average, as residents effectively pay for unused power. Since 2021, the state’s largest utility providers have raised rates by 51%, but the situation could be worse if California was not sending some of its surplus solar energy to other states.
Ultimately, out-of-state utilities benefit more from this arrangement than Californians. For example, Arizona’s largest public utility saved $69 million in 2023 by purchasing California’s excess solar energy, passing the savings on to customers through bill credits. Similarly, New Mexico’s largest utility saved $34 million in 2022 by buying surplus solar power from California.
California’s increasing solar energy production also caused the price of electricity sold out of state to plummet. Prices have dropped so low that they occasionally become negative, forcing solar plants to pay energy traders to take the power.
Despite these challenges, California Gov. Gavin Newsom said he plans to add another 70 gigawatts of industrial solar capacity by 2045. The plan requires enough solar panels to cover an area nearly half the size of Rhode Island. The initiative aims to make California’s electrical grid carbon-free over the next two decades, but experts warn that high curtailment rates could hinder this goal.
Newsom’s advisers are exploring solutions, including expanding industrial-scale battery storage to save excess solar power for high-demand periods, attempting to direct more of those renewable energy benefits towards the Californians who paid for it.
Trump’s transition team tussles over choice for top economic post
It’s the most important pick for President-elect Donald Trump’s economic agenda. Now it appears Trump is having second thoughts about his treasury secretary options.
The Treasury secretary acts as the president’s closest economic advisor and is fifth in the presidential line of succession. The person who holds this cabinet post will play a key role in helping Trump carry out his agendas on tax cuts and tariffs.
The president-elect’s search for a Treasury secretary is expanding this week after reports of infighting in Trump’s camp over the selection.
Howard Lutnick and Scott Bessent have been floated as the final two candidates but they are now joined by two more names, Marc Rowan and Kevin Warsh.
Howard Lutnick
Cantor Fitzgerald CEO Howard Lutnick is Trump’s transition co-chair and has had a big say in how Trump’s cabinet has shaped up so far. The two have known each other for decades and Lutnick fundraised for Trump during a critical part of the campaign. He’s also a big proponent of Trump’s tariff policies.
“Tariffs are an amazing tool by the president to use. They’re an amazing tool, but he understands, don’t tariff stuff we don’t make,” Lutnick said on CNBC. “If we don’t make it and you want to buy it, I don’t want to put the price up there. It’s pointless. But use tariffs to build in America. If we want to make it in America, tariff it, or if we’re competing with it, tariff it. But you gotta remember, we need to protect the American worker. Finally, someone’s going to protect the American worker.”
But will he get his desired post of Treasury secretary? The New York Times reports Lutnick has gotten on Trump’s nerves lately, with Trump privately expressing frustration that “Lutnick has been hanging around him too much and that he has been manipulating the transition process for his own ends.”
Would be interesting to hear more people weigh in on this for @realDonaldTrump to consider feedback.
My view fwiw is that Bessent is a business-as-usual choice, whereas @howardlutnick will actually enact change.
Lutnick does have the public backing of Elon Musk as a changemaker. Musk said another frontrunner, Scott Bessent, would be “business-as-usual,” which is “driving America bankrupt.”
Scott Bessent
“I’ve been in the investment business 35 years, and Donald Trump is the most sophisticated leader on economics that I’ve met,” Bessent told Fox Business.
Bessent is the founder and CEO of the hedge fund Key Square Group, an ex-Soros executive and a key economic adviser to Trump during the 2024 campaign.
Trump has said he is “a nice-looking guy” who is “one of the most brilliant men on Wall Street.”
Bessent is seen as a safe bet for markets. Investment manager Dan Loeb appeared to back Bessent as the better choice in an X post, indicating Lutnick would shake markets.
But the jockeying for Treasury secretary between these two was described in the Times “as a knife fight, with Mr. Lutnick as the primary aggressor.” Now, two more choices have entered the fray.
Marc Rowan
“I think this administration has a remarkable chance to really pivot the country, to take advantage of all the inherent positives that we have,” Apollo Global Management CEO Marc Rowan told Yahoo Finance.
Rowan is a new face in the race but does he want the job? According to The Wall Street Journal, Trump aides have reached out to the Wall Street billionaire to gauge his interest. The Times said Trump wants someone “big” for the role and has made clear he’s impressed with Rowan.
“Our financial situation is fixable,” Rowan said. “It is fixable in a way that is positive for the base that [the] President-elect has said that he wants to help. But it is not fixable by small amounts of tinkering. It is about wholesale change, and we as humans, we are sometimes scared of wholesale change.”
If the offer of Treasury secretary doesn’t entice Rowan to step into the public sector, there’s another candidate with whom Trump has more history.
Kevin Warsh
Trump once considered former Federal Reserve Governor Kevin Warsh as a potential Fed chair before choosing Jerome Powell, a choice Trump has long lamented.
“When times were tough, what did the Federal Reserve say? They went to Congress and said, ‘Please spend more.’ So they acted asymmetrically,” Warsh said of the Fed’s pandemic-recovery moves. “That’s the big mistake you can make. Well if you’re going to get into the fiscal business when you’re running these kinds of deficits at a time of relative peace and relative prosperity, you have to open your mouth the other way too. You cannot have fiscally responsible economic policy and irresponsible monetary policy. When one policy is irresponsible, so is the other, and that’s the fix we’re in, and we need to get out of it.”
Warsh will likely be interviewed for the Treasury post but has also been raised as someone who could potentially replace Powell as chair of the Federal Reserve when Powell’s seat is up in 2026.
According to reports, Trump is expected to invite potential Treasury picks to interview at Mar-a-Lago this week. But given Trump’s uncertainty over the role, there could be more names floated before the week is done.
Why investors think a Kamala Harris victory leads to a weaker dollar
The U.S. dollar fell Tuesday, Nov. 5, as voters headed to the polls and investors hedged for a potential Kamala Harris victory. Investors think the dollar would weaken in a Harris economy and strengthen in a Donald Trump-led economy.
Citigroup strategists said a Trump victory could see the dollar rally 3%, whereas a Harris victory could see the dollar fall around 2%.
Why might the dollar rally on Trump’s plans?
Investors believe if Trump wins, his tax cuts and tariffs will push up inflation. Tax cuts would give consumers more disposable income in the near term, while tariffs will make goods more expensive. Both add to inflationary pressures.
If inflation rises, it’s more likely the Federal Reserve will be forced to keep rates higher. The Fed is currently in a rate-cutting cycle as inflation is near its 2% target. Its next rate cut decision comes two days after Election Day.
While the dollar has strengthened on the Trump trade, the euro, the Mexican peso and the Chinese yuan have weakened as those regions anticipate more tariffs in a Trump presidency.
Why might the dollar slip on Harris’ plans?
On the contrary, a Harris presidency could weaken the dollar. Traders would be unwinding those Trump bets and tariff concerns would go away. They’d be replaced by new concerns about the potential impact of higher taxes and more business regulations.
Analysts expect the greenback to give up gains made during the Trump trade, while currencies of major exporters to the U.S. could see a boost.
To learn more about what other assets fit into the Trump trade, click here.
IRS unveils new income tax brackets and deductions for 2025
The IRS has announced key tax changes for 2025, including adjustments to income tax brackets, standard deductions, and capital gains rates due to inflation. These updates will affect how much Americans pay in taxes when filing in 2026.
For income taxes, the top bracket remains at 37%, applying to single filers earning over $626,350 or married couples with income over $751,600.
The lowest rate, 10%, applies to incomes under $11,925 for individuals and under $23,850 for couples. Meanwhile, standard deductions will increase slightly, with single filers able to claim $15,000 and married couples deducting $30,000. Heads of households will see their deduction rise to $22,500.
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Capital gains tax rates will also be adjusted. Single filers with income up to $48,350 and married couples earning up to $96,700 will continue to qualify for the 0% rate on long-term capital gains.
Additionally, the Earned Income Tax Credit will increase to a maximum of $8,046 for those with three or more children. These changes are designed to provide relief for taxpayers as they face rising inflation.
Trump promises to end ‘double taxation’ on Americans abroad
Former President Donald Trump pledged to eliminate filing U.S. taxes for Americans living abroad as part of his 2024 campaign tax reform platform. The proposal aims to end what is often referred to as “double taxation” for expatriates, a move that could simplify tax obligations for over 4 million U.S. citizens overseas.
Currently, Americans living abroad must file income, estate and gift tax returns with the IRS, even if they pay taxes in another country. While some expatriates benefit from credits and exclusions, many still face complex and sometimes costly tax filings.
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Trump’s proposal, which would require congressional approval, has sparked debate, with critics arguing it could encourage tax avoidance by wealthier individuals relocating to low-tax countries.
Supporters believe it would reduce unnecessary paperwork and make life easier for ordinary Americans living overseas. A notable aspect of the current system is while it adds a lot of paperwork, it doesn’t necessarily add any additional financial burden. Expats currently get U.S. tax credits for taxes that they pay to foreign governments, and any income over $126,000 is exempt.
This promise is part of a broader series of tax cuts Trump is proposing, which also includes eliminating taxes on tipped wages, overtime, and Social Security benefits. Experts estimate the combined tax cuts could cost over $10 trillion over the next decade.
Harris and Trump both make national debt worse, ‘especially Trump’
Policies proposed by former President Donald Trump would add more than twice as much to the national debt as policies proposed by Vice President Kamala Harris, according to a bipartisan analysis by the Committee for a Responsible Federal Budget. The middle estimate for Harris’ plans is that they increase the debt by $3.5 trillion through 2035, whereas Trump’s middle estimate adds $7.5 trillion.
On the low end of the range, Harris adds nothing while Trump adds $1.45 trillion. On the high end, Harris’ proposals have the ability to add $8.1 trillion while Trump’s tops out at $15.15 trillion.
“The bottom line is that we are already adding tremendously to the national debt under current law, and both candidates would make that even worse, especially President Trump,” Marc Goldwein, senior vice president and senior policy director at CRFB, said.
The national debt today is nearly $35.7 trillion. It currently costs more than $1 trillion in interest payments to maintain the current debt load.
We don’t endorse a particular candidate and we didn’t go in this trying to come up with a particular outcome. This is just the math.
Marc Goldwein, Committee for a Responsible Federal Budget
Straight Arrow News interviewed CRFB’s Goldwein for more information about the group’s economic analysis of both candidates. The following has been edited for clarity. Watch the full interview in the video above.
Simone Del Rosario: Why should voters care about the debt?
Marc Goldwein: Look, debt is eating our income growth. Debt is what causes inflation, what causes high interest rates and what causes interest payments to now be the second largest government program, larger than defense, larger than Medicare, and leaving less room for us to invest in just about anything else.
Simone Del Rosario: Your middle estimates for both candidates show that Harris would add about $3.5 trillion to the debt over the next decade while Trump would add $7.5 trillion in debt. What are the policies that are specifically adding to the debt for these two different candidates?
Marc Goldwein: For Vice President Harris, it’s [the] extension of some parts of the tax cuts from 2017, it’s a very big child tax credit, and then it’s a bunch of spending on everything from paid leave to childcare to long-term care to preschool, partially paid for with taxes on the rich and on corporations.
For President Trump, it’s mostly just a lot of tax cuts. We have a full extension of the Tax Cuts and Jobs Act, getting rid of the cap on the SALT deduction, no taxes on tips, no taxes on overtime, no taxes on Social Security benefits. And then on top of that, deportations and higher spending on defense; again, partially offset, mainly with tariffs, but in neither case are those offsets covering the costs.
Simone Del Rosario: Do your tariff estimates also include that 60% tariff on China?
Marc Goldwein: We do. Our central estimate assumes that there’s a 10% universal tariff. It’s 60% on China, and in addition, there’s some retaliatory tariffs on a one-off basis. But the important thing with these tariffs is, if they work as intended, they will reduce trade, and so they don’t raise as much revenue as you might think, just taking 10% of all of our imports, for example.
Marc Goldwein: That’s right, the tariffs could pay for some of the tax cuts, but they’ll barely cover the no taxes on tips and no taxes on overtime. They aren’t going to cover the $8 trillion-plus of tax cuts that President Trump is proposing.
Simone Del Rosario: And then, on the other hand, Marc, there is no guarantee that a potential President Harris would get those tax hikes on the rich that she’s looking for.
Marc Goldwein: That’s right. Look, in both the cases, these are highly speculative, because we’re analyzing what they’re calling for, not what will actually happen. In the real world, these offsets are hard. It’s hard to get taxes on the rich, taxes on corporations, tariffs, lower drug prices. It’s also hard to get some of the spending. So these are not predictions of what will happen. These are estimates of what would happen if the candidate’s plans were enacted in full.
Simone Del Rosario: So what should voters do with this information?
Marc Goldwein: They should demand offsets. Look, a debt is just tax on future generations. It’s a huge burden in terms of slower income growth, higher interest rates, higher inflation. And we need the candidates to be paying for their promises, and if they can’t, we need those promises to be scaled way back.
Simone Del Rosario: What aren’t you hearing from the candidates that you wish you were hearing at this point in the race?
Marc Goldwein: Social Security is nine years from insolvency. I’m not hearing a plan from either candidate to prevent that 21% across-the-board cut that’s scheduled to happen under current law.
Simone Del Rosario: And peel back the curtain for me a little bit and just explain how you guys went about this analysis. I assume it took you a very long time to do so.
Marc Goldwein: We went painstakingly through both candidates websites, through their platforms, through their speeches. We talked to the campaign staff, we looked at news articles, and we tried to discern what are official campaign policies, how do we interpret them, and how much do they cost? And each step of the way, we need to make a lot of choices, which is why we have a low-cost estimate and a high-cost estimate reflecting the range of possibilities, along with our central estimate.
I have to give credit to [my] amazing staff that put many, many, many hours into this over the last year, estimating every last policy, including policies that didn’t even make it to the finish line because they were rejected or because they were policies from the Biden campaign that didn’t make it over to the Harris campaign. But it’s an incredible amount of work and I recommend you checking out the report at CRFB.org. It’s pretty lengthy, but we have a short summary at the front that I think gives all the most important details.
Simone Del Rosario: Here at Straight Arrow News, we’re about unbiased, straight facts. We like to bring nonpartisan information to people so that they can decide for themselves as they get ready to vote in this upcoming election. How should people interpret these findings? Are they at all partisan?
Marc Goldwein: Look, we don’t endorse a particular candidate and we didn’t go in this trying to come up with a particular outcome. This is just the math. We looked at the candidate’s plans and this is what we think they would add to the debt.
You then need to weigh that against the benefits of whatever the candidates are offering. So one voter might say, sure they add a trillion dollars to the debt, but it’s for this very important policy; or sure they balance the budget, neither of them do, but let’s say they did, but they do in this awful way.
So fiscal policy, how much they add to the debt, should be just one consideration among many. I happen to think it’s a pretty darn important one because our debt is headed to the largest share of the economy it’s ever been. We’re heading to record levels of debt and I do fear we have a debt crisis on the horizon if we don’t do something.
But you need to vote based on what matters most to you, and this information is just meant to inform your decision, not to dictate it.
Simone Del Rosario: I want to thank you and your team for your analysis. We rely on you guys often to get the straight facts when it comes to how these policies impact our debt and our country. So thank you so much, Marc.
Tack on one more to Trump’s tax-cut pledges: No tax on overtime pay
Former President Donald Trump said on Thursday, Sept. 12, he would add another tax cut to his agenda if elected to the White House in November. This time, the Republican nominee pledged to eliminate taxes on overtime pay.
“The people who work overtime are among the hardest-working citizens in our country, and for too long, no one in Washington has been looking out for them,” Trump said during an event in Tucson, Arizona. “Those are the people that really work. They’re police officers, nurses, factory workers, construction workers, truck drivers and machine operators.”
For its part, the Harris campaign called the proposal a ploy to win over voters reliant on overtime income.
“He is desperate and scrambling and saying whatever it takes to try to trick people into voting for him,” Harris campaign spokesperson Joseph Costell said in a statement.
Before the former president suggested he would slash taxes on overtime, Harris claimed he had “blocked overtime benefits from millions of workers” while he was in the White House.
Under former President Barack Obama, the Labor Department proposed raising the threshold for overtime exemption to $47,476 from $23,660, which would have made millions more workers eligible for overtime pay. The Trump administration was able to change it to $35,568, short of what Democrats were hoping for.
Under President Joe Biden, the overtime threshold was raised to $43,888 in 2024 and starting Jan. 1, 2025, it increases to $58,656, meaning anyone making less than that must make overtime pay after 40 hours of work.
It is unclear at this time how much revenue the government brings in on overtime pay each year. But there has been plenty of analysis on his other proposals.
Extending the Trump tax cuts for the next 10 years would add $4.6 trillion to the national deficit, according to the nonpartisan Congressional Budget Office. Ending taxes on Social Security benefits would add between $1.6 trillion and $1.8 trillion through 2035, according to the bipartisan Committee for a Responsible Federal Budget. And no taxes on tips would reduce federal revenues by between $150 billion and $250 billion over 10 years, according to CRFB estimates.
Trump has previously said his tariffs would pay for his tax cuts. The CRFB has estimated that a 10% across-the-board tariff would raise $2.5 trillion over 10 years, while a 60% tariff on Chinese goods would, on its face, generate $2.4 trillion, but over time, would produce far less revenue or even lose revenue once trade behavior changes due to the massive penalties of trade with China.
