Policy experts are against the idea of Trump and Harris wanting no taxes on tips.

• Both former President Donald Trump and Vice President Kamala Harris are in favor of abolishing taxes on tips, but policy experts have already voiced their opposition to the idea.
• Approximately 2.5% of U.S. employment consisted of 4 million workers in tipped occupations, as estimated by The Budget Lab at Yale University in 2023.
• Experts warn that if the plan is enacted, it may encounter administrative obstacles and be expensive.

Both former President Donald Trump and Vice President Kamala Harris are in favor of abolishing taxes on tips, but policy experts have already voiced their opposition to the idea.

At a rally in Las Vegas on Saturday, Harris voiced her support for tax-free tips, which she had previously expressed in a similar manner to Trump, who made the suggestion at a rally in a service economy hotbed two months prior.

The hospitality sector in Nevada accounts for approximately one-quarter of the workforce, as per the June employment data.

At her rally, Harris pledged to continue fighting for working families as president, including raising the minimum wage and abolishing taxes on tips for service and hospitality workers.

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Approximately 2.5% of U.S. employment consisted of 4 million workers in tipped occupations, as estimated by The Budget Lab at Yale University in 2023.

In 2022, a report found that 37% of tipped workers, who are generally lower-income individuals, were not subject to federal income tax because they made less than their standard deduction and did not owe federal income taxes.

According to Garrett Watson, senior policy analyst and modeling manager at the Tax Foundation, not taxing tips is a "narrowly targeted tax exemption."

Congress has bipartisan support for a bill introduced in July in the Senate and House.

No tax on tips 'fails every score'

Although Harris and Trump back the idea of no tax on tips, experts have raised worries about potential future strategies.

According to Steve Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center, experts take into account equity, efficiency, and revenue when evaluating policies. He stated, "The striking aspect of this proposal is that it falls short in every metric for tax policy."

Experts warn that if the idea is implemented, it could encounter administrative obstacles and potential misuse, such as employees attempting to categorize their wages as gratuities to evade taxes.

A campaign official stated that if elected, Harris would collaborate with Congress to pass a law that includes an income cap and restrictions to prevent hedge fund managers and lawyers from manipulating their compensation to exploit the policy.

Trump's campaign did not respond to CNBC's request for comment.

Rosenthal argued that not taxing tips could create a fairness issue for low-income workers who do not receive tips.

"Why is someone who receives a mixed compensation of tips and wages better off after taxes than someone who only gets wages?" he asked.

The cost of no tax on tips

The idea has been met with criticism regarding its cost, especially in light of the federal budget deficit.

At the rally on Saturday, Harris advocated for eliminating taxes on tips and raising the minimum wage. This could potentially lead to a deficit of $100 billion to $200 billion over a decade if the minimum wage were to increase from $7.25 to $15 per hour, as estimated by the Committee for a Responsible Federal Budget.

The plans of Harris and Trump may include an exemption from payroll taxes or federal income taxes, which could affect revenue.

Watson from the Tax Foundation stated that the cost could be higher due to behavioral assumptions and avoidance questions.