Business owners couldn’t believe their ears. Within days, both presidential candidates endorsed a policy that would solve one of their biggest headaches and cost them nothing.
When former President Donald Trump and Vice President Kamala Harris proposed eliminating taxes on tips, they saw an easy way to give their employees a well-deserved raise. Happiness spoke to several business owners whose staff earn a portion of their wages in tips, all of whom welcomed the initiative on the grounds that it would benefit their employees.
“I may be a unicorn here, but I’m all about my employees making as much money as they can and improving their livelihoods and their families’ lives,” said Carl Soboczynski, founder and president of Table 301 Restaurant Group, which owns five restaurants in Greenville, South Carolina
Chris Stevens, who handles public relations for his wife Maria’s Boston-based tour company, Boston Hidden Gems, said they are excited about what this could mean for their guides, who he says make between 20% and 30% from his remuneration in the form of tips. “We would love it for our employees as it would mean more money in their pocket,” he said.
At Sobocinski’s restaurants, most of the waiters’ income comes from tips. Soboczynski and his CFO, Richard Vogt, ran the numbers and estimated that servers could save an average of 16% to 19% in taxes if the policy becomes law. At his restaurants, the average waiter, who makes about $48,000 a year, $41,000 of which is tips, would save $6,600 in taxes, he said Happiness. Meanwhile, the top-paid servers, who make $81,000 a year, with $69,000 in tips, would take home an additional $13,000 a year, according to Vogt’s calculations.
While the policy proposal was intended to benefit workers, it would also benefit businesses themselves, according to Keith Hall, a labor economist at George Mason University’s Mercatus Center. “Everything that affects the taxation of workers is shared by both the worker and the employer,” Hall said
Business owners could offer higher real wages without incurring additional costs, a proposition that is particularly attractive in the restaurant business, where margins are razor thin.
“For me, as a business owner, it’s a win-win,” said David Viana, co-owner and executive chef of Heirloom Kitchen, a restaurant in Old Bridge, New Jersey.
As a result, business owners may be incentivized to tip more than their employees pay, according to Hall. Both because that’s what employees would want; and because in doing so they will reduce their own wages and the payroll tax that businesses have to pay.
Viana, Soboczynski and Stevens said they don’t plan to change how they compensate their employees, but acknowledged that tips will become much more attractive. However, they stressed the importance of increasing take-home pay for their workers amid the rising cost of living crisis.
Restaurants “are the last bastion for middle-income people in this country,” Viana said. “In my opinion, the living wage is going the way of the dodo.”
Eliminating tip taxes would help make an industry known for being graying more attractive, Viana added. “It’s another way for an industry that has a bad reputation in a lot of ways — with how we’ve treated our staff and not being able to provide them with health care and things like that — to put more money in individual people’s pockets. “
Stevens, the tour operator, saw one scenario where the policy could backfire: People saw it as an excuse to tip less. “The point of tips, from the customer’s point of view, is usually to support the particular person or group you are tipping; if you, as a customer, can spend less but still keep them the same amount, why not do just that?,” he said.