Business leaders couldn’t believe their ears: Within days, two presidential candidates were backing a policy that would solve one of their biggest pain points, without any cost.
When former President Donald Trump and Vice President Kamala Harris proposed eliminating the tip tax, they saw it as an easy way to give employees a well-deserved raise. Fortune spoke to several business owners whose employees earn a portion of their pay through tips, and all of them welcomed the proposal because it would benefit their employees.
“I might be a unicorn here, but I’m committed to helping my employees make as much money as possible and improving their lives and their family situations,” said Carl Sobocinski, founder and president of Table 301 Restaurant Group, which owns five restaurants in Greenville, South Carolina.
Chris Stevens, a spokesman for Boston Hidden Gems, the Boston-based tour-guiding company he runs with his wife, Maria, said he’s excited to see what the plan means for his tour guides, who estimate they earn 20 to 30 percent of their pay in tips. “It’s great for our employees because it means more money in their pockets,” he said.
At Sobocinski’s restaurants, servers make the majority of their income from tips. Sobocinski and CFO Richard Vogt crunched the numbers and estimated that, on average, servers could save 16 to 19 percent in taxes if the policy becomes law. The average server at his restaurants makes $48,000 a year, with $41,000 of that coming in tips, saving $6,600 in taxes, he told Fortune. Meanwhile, Vogt calculated that the highest-paid server would make $81,000 a year and get $69,000 in tips, plus another $13,000 take-home.
According to Keith Hall, a labor economist at the Marketas Center at George Mason University, the policy proposal is intended to benefit workers, but it would also benefit the companies themselves. “Anything that affects taxes on workers has a cost on both workers and employers,” Hall said.
It would allow employers to charge higher real wages without incurring additional costs — a particularly attractive proposition in the restaurant industry, where profit margins are razor-thin.
“To 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, Hall said, employers may be incentivized to allocate more of employees’ paychecks to tips because that’s what employees want, and because it reduces their own pay and the payroll taxes the company has to pay.
Viana, Sobocinski and Stevens all said they have no plans to change how they compensate workers — though they acknowledged that tipping will become much more attractive — but they all stressed the importance of boosting workers’ take-home pay during a crisis with the ongoing rise in the cost of living.
“Restaurants are the last middle-income job market in this country,” Viana said. “I believe minimum wage jobs are becoming extinct.”
Eliminating the tip tax would help make an industry known for its hard work more attractive, Viana added. “It’s another way to put more money in individuals’ pockets for an industry that has a bad reputation for a number of things, including how it treats staff and its failure to provide health insurance.”
Stevens, the tour guide, pointed to one scenario in which the policy could backfire: people seeing it as an excuse to tip less. “From a customer’s perspective, the purpose of tipping is generally to support the particular person or group you’re tipping for. If, as a customer, you can support the same amount by spending less, why wouldn’t you?” he said.
