Isn't it strange that both proposed the idea while in Nevada? Not really. It is called pandering or buying votes. Nevada has a larger percentage of its people working in the hospitality industry than anywhere else and Navada is a battleground state. If Tennessee was a battleground state, Harris and Trump might come to Nashville and propose removing taxes on earnings from income received from songwriter royalties. It would make about as much sense.
Much has been made over Kamala copying Trump's idea. I don't fault a person for adopting the idea of his opponent if it is a good idea. Cutting taxes on tips is a bad idea.
Under current law, tips are treated as ordinary income and subject to both federal income and payroll taxes. In many professions, tips are the major portion of a person's income. In addition to ending the taxing of tips, Harris said she would also raise the minimum wage. According to The Committee for a Responsible Federal Budget these two proposals together would add between $100 and $200 billion to the deficit over ten years.
This is an insane thing to propose at this time. We are headed for a financial cliff. Government Debt to GDP in the United States is at an all-time high of 126% and interest on the debt is exceeding the total defense budget and is almost as much as we spend on Medicare. Runaway inflation is a real possibility. Under current laws Social Security will exhaust its trust funds by 2034, and then benefits will be cut by 23%. I don't think benefits will really be cut. Congress will pay the money that was coming out of the trust fund out of the general fund, which means larger deficits and more borrowing.
I favor cutting taxes if the tax cuts are revenue neutral or if offset by reduction in government expenditures. Cutting taxes, especially targeted corporate taxes, may actually result in an increase in tax revenue. Money not taxed can be used for job creating expansion and new investments. Cutting personal tax rates or increasing tax credits may result in greater consumer spending which may be beneficial for the economy. However, that is not always the case. Just cutting taxes unless targeted and strategic leads to a reduction in tax revenue. With our massive national debt and looming Social Security crisis, we do not need to be cutting taxes, just for the sake of cutting taxes. Some conservatives have favored cutting taxes whenever they have the chance in order to "starve the beast." That doesn't work. When revenues fall short of covering expenditures, government does not cut expenses but simply borrows more money. The only way "starving the beast" works is if we had a requirement for a balanced budget.
If any of my liberal friends are reading this, their response will be to cut taxes on middle income and poor people and make the rich "pay their fair share." The rich already pay most of the income tax. Corporate taxes are a business expense, and taxes paid by corporations are actually indirectly paid by their consumers. I know many don't want to believe it, but raising tax rates, specially making them more progressive can actually raise less revenue and lead to a shrinking economy. Making the rich pay their "fair share" is not a solution to our financial problems. That is not to say that some tweaking of some taxes could not be beneficial, but soaking the rich is not a solution.
Not only would exempting tip income from taxation increases the speed at which we barrel toward the financial cliff, it would also be very difficult to enact and would encourage more tax cheating. Already tip income is notoriously under reported and tax evasion among people who earn their money from tips is rampant. If tip income is to become exempt from taxation, one would see a shift in how people charge for services. The actual charge for a service would drop and a large gratuity would become the norm. Millions of people would figure out a way to call their income "tips," and since employers must pay FICA on employees' income, employers would be motivated to help employees earn more tips and less wages.
Not only would this proposal to not tax tips be bad for America's fiscal health and difficult to enact, but it is also unfair. A lot of people get most of their income from tips. Some restaurant workers and certain entertainers make a lot of money and most of it is in tips. Why should the income of the waitress be except from taxation but not the income of the dishwasher, the cook, or the busboy? There are a lot of musicians playing in bands on lower Broadway playing for tips only. Is it fair that they be except from all income taxation and the person cleaning up the trash on lower Broad not be exempt?
Why stop at excepting tip income? A lot of people get a bonus at the end of the year if the company does well or if the owner is feeling generous. Is a bonus, not sort of like a tip? Maybe all bonuses should be exempt from taxation. And, what about commissioned salesmen, ...
Top Stories
Posts
No comments:
Post a Comment