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Former President Donald Trump and Vice President Kamala Harris agree on one thing, at least: Both say they want to eliminate federal taxes on workers’ tips.
But experts say there’s a reason Congress hasn’t made such a change already. It would be complicated, not to mention enormously costly to the federal government, to enact. It would encourage many higher-paid workers to restructure their compensation to classify some of it as “tips” and thereby avoid taxes. And, in the end, it likely wouldn’t help millions of low-income workers.
“There’s no way that it wouldn’t be a mess,” said James Hines Jr., a professor of law and economics and the research director of the Office of Tax Policy Research at the University of Michigan’s Ross School of Business.
Both candidates unveiled their plans in Nevada, a state with one of the highest concentrations of tipped service workers in the country. Trump announced a proposal to exclude tips from federal taxes on June 9. Harris announced a similar proposal on Aug. 10.
Details have been sparse. Neither candidate’s team has said whether it would exempt tips only from income taxes, only from payroll taxes, or both. The payroll tax funds Social Security and Medicare.
Harris’s campaign has said she would work with Congress to draft a proposal that would include an income limit and other provisions to prevent abuses by wealthy individuals who might seek to structure their compensation to classify certain fees as tips.
Her campaign said these requirements, which it did not specify, would be intended “to prevent hedge fund managers and lawyers from structuring their compensation in ways to try to take advantage of the policy.” Trump’s campaign has not said whether its proposal would include any such requirements.
Even so, Hines suggested that millions of workers — not just wealthy ones — would seek to change their compensation to include tips, and could even do so legally. For example, he said, a company might set up a separate entity that would reward its employees with tips instead of year-end bonuses.
“You will have taxpayers pushing their attorneys to try to characterize their wage and salary income as tips,” Hines said. “And some would be successful, inevitably, because it’s impossible to write foolproof rules that will cover every situation.”
Republican supporters of Trump argue that Hines’ concerns are overblown. Darin Miller, a spokesman for Sen. Ted Cruz of Texas, said the Internal Revenue Service has a precise definition for tips and contended that reclassifying wages would be considered fraud.
Miller noted that some Democrats have signed on to co-sponsor a bill Cruz introduced in June that would exempt tips from federal income taxes. A bill exempting tips from payroll and income taxes has also been introduced in the House.
Though supporters say the measures are designed to help low-wage workers, many experts say that making tips tax-free would provide only limited help to those workers.
The Budget Lab at Yale, a non-partisan policy research center, estimates that there were 4 million U.S. workers in tipped occupations in 2023. That amounted to about 2.5% of all employees, including restaurant servers and beauticians.
Tipped workers tend to be younger, with an average age of 31, and of lower income. The Budget Lab said the median weekly pay for tipped workers in 2023 was $538, compared with roughly $1,000 for non-tipped workers.
As a result, many tipped workers already bear a lower income-tax burden. In 2022, 37% of tipped workers had incomes low enough that they paid no federal income tax at all, The Budget Lab said.
“If the issue is you’re concerned about low-income taxpayers, there are a lot better ways to address that problem, like expanding the Earned Income Tax Credit or changing tax rates or changing deductions,” Hines said.
In her speech in Nevada, Harris also called for raising the federal minimum wage. (The platform on Trump’s campaign site doesn’t mention the minimum wage.)
Changing federal tax policy on tips would also be costly. The Committee for a Responsible Federal Budget, a non-partisan group, estimates that exempting all tip income from federal income and payroll taxes would reduce revenue by $150 billion to $250 billion between 2026 and 2035. It said that the amount could rise significantly if the policy changed behavior and more people declared tip income.
Whether Trump or Harris wins the presidential election, tax policy will be high on Congress’ agenda in 2025. That’s because Trump-era tax cuts passed in 2017, are set to expire. But Hines said he thinks Congress will be in no hurry to add “vast amounts of complexity” to the tax code.
“A presidential candidate can say whatever they want, but it’s the House and Senate that have to do it,” he said.
'GETTING A CLOSE LOOK'
Home Depot has slashed its outlook for sales, citing weaker spending from consumers at a time of high interest rates. The US home hardware retailer said comparable sales would fall by 3 to 4 percent this year. It had previously forecast a 1 percent decline. The cut in sales guidance comes as US consumers show signs of strain after years of inflation. Interest rates have risen in response, increasing the cost of financing home purchases and repairs. “During the quarter, higher interest rates and greater macroeconomic uncertainty pressured consumer demand more broadly, resulting in weaker spend across home improvement projects,” said Ted Decker, chief executive. Home Depot’s sales totaled $43.2bn in the second quarter that ended in late July, the company said on Tuesday, up 0.6 percent year on year. Comparable sales, which cover stores open for at least a year, declined 3.3 percent in the quarter. Net profit was $4.6bn, beating estimates but 2.1 percent lower than the same quarter a year ago, as costs rose.
The students — most with gray hair, some with canes, all at least in their 60s — couldn’t believe what they were hearing.
“Oh, my God,” whispered a retired college professor.
“Does it come with viruses?” wondered a bewildered woman scribbling notes in the second row.
A 79-year-old in a black-and-white floral shirt then asked the question on many minds: “How do you know if it is fake or not?”
This is how older adults — many of whom lived through the advent of refrigeration, the transition from radio to television, and the invention of the Internet — are grappling with artificial intelligence: taking a class. Sitting in a classroom in an airy senior center in a Chicago suburb, the dozen students were learning about the latest — and possibly greatest — technological leap in their lives.
And they are not alone. Across the country, scores of such classes have sprung up to teach seniors about AI’s ability to transform their lives and the threats the technology poses.
“I saw ice boxes turn into refrigerators, that is how long I have been around,” said Barbara Winston, 89, who paid to attend the class put on at the North Shore Senior Center in Northfield. “And I think this is probably the greatest technical revolution that I will see in my lifetime.”
Older adults find themselves in a unique moment with technology. Artificial intelligence offers significant benefits for seniors, from the ability to curb loneliness to making it easier for them to get to medical appointments.
But it also has drawbacks that are uniquely threatening to this older group of Americans: A series of studies have found that senior citizens are more susceptible to both scams perpetrated using artificial intelligence and believing the types of misinformation that are being supercharged by the technology. Experts are particularly concerned about the role deepfakes and other AI-produced misinformation could play in politics.
Winston left the class to start her own AI journey, even if others remained skeptical. When she got home, the retired professor downloaded books on the technology, researched the platforms she wanted to use from her kitchen table, and eventually queried ChatGPT about how to treat a personal medical ailment.
“This is the beginning of my education,” she said, her floral cup of coffee nearby. “I’m not worried about protecting myself. I’m too old to worry about that.”
Classes like these aim to familiarize aging early adopters with the myriad ways the technology could better their lives but also encourage skepticism about how artificial intelligence can distort the truth.
Balanced skepticism, say experts on the technology, is critical for seniors who plan to interact with AI.
“It’s tricky,” said Michael Gershbein, the instructor of the class in Northfield. “Overall, the suspicion that is there on the part of seniors is good but I don’t want them to become paralyzed from their fears and not be willing to do anything online.”
The questions in his class outside Chicago ranged from the absurd to the practical to the academic. Why are so many new shoes no longer including shoelaces? Can AI create a multiday itinerary for a visit to Charleston, South Carolina? What are the geopolitical implications of artificial intelligence?
Gershbein, who teaches classes on a range of technological topics, said interest in AI has ballooned in the last nine months. The 52-year-old teaches an AI course once or twice a week, he said, and aims to create a “safe space where (seniors) can come in and we can discuss all the issues they may be hearing bits and pieces of but we can put it all together and they can ask questions.”
During a 90-minute-long session on a June Thursday, Gershbein discussed deepfakes — videos that use generative AI to make it appear someone said something they did not. When he played a few deepfakes, the seniors sat agog. They could not believe how real the fakes seemed. There are widespread concerns that such videos could be used to trick voters, especially seniors.
The threats to seniors go beyond politics, however, and range from basic misinformation on social media sites to scams that use voice-cloning technology to trick them. An AARP report published last year that Americans over 60 lose $28.3 billion annually to financial extortion schemes, some assisted by AI.
Experts from the National Council on Aging, an organization established in 1950 to advocate for seniors, said classes on AI at senior centers have increased in recent years and are at the forefront of digital literacy efforts.
“There’s a myth out there that older adults don’t use technology. We know that that’s not true,” said Dianne Stone, associate director at the National Council on Aging who ran a senior center in Connecticut for over two decades. Such courses, she said, are meant to foster a “healthy skepticism” in what the technology can do, arming older Americans with the knowledge “that not everything you hear is true, it’s good to get the information, but you have to kind of sort it out for yourself.”
Striking that balance, said Siwei Lyu, a University at Buffalo professor, can be difficult, and classes tend to either promote AI’s benefits or focus on its dangers.
“We need this kind of education for seniors, but the approach we take has to be very balanced and well-designed,” said Lyu, who has lectured to seniors and other groups.
Seniors who have taken such AI classes said they came away with a clear understanding of AI’s benefits and pitfalls.
“It’s only as good as the people who program it, and the users need to understand that. You really have to question it,” said Linda Chipko, a 70-year-old who attended an AI class in June in suburban Atlanta.
Chipko said she took the class because she wanted to “understand” AI, but on her way out said, “It’s not for me.”
Others have even embraced it. Ruth Schneiderman, 77, used AI to help illustrate a children’s book she was writing, and that experience sparked her interest in taking the Northfield class to learn more about the technology.
“My mother lived until she was 90,” Schneiderman said, “and I learned from her if you want to survive in this world, you have to adjust to the change otherwise you are left behind.”