Nevada Democrat Seeks to Make Tips Tax-Free, Lift Tipped Wage

A Nevada Democrat plans to introduce legislation to treat tips as gifts and also raise the tipped worker wage, the latest sign of momentum in Congress to make tips tax-free amid a push from the presidential campaign.

Rep. Steven Horsford (D-Nev.) told reporters Tuesday he’s aiming to introduce a bill at the end of August or September, to both lift the minimum wage for tipped workers and eliminate the tax on tips.

The Democrat’s promise of legislation comes just days after Vice President Kamala Harris, the Democratic presidential nominee, endorsed the idea of ending taxes on tips during a rally in Las Vegas. Former President Donald Trump floated the proposal in June, and within weeks Republicans in Congress introduced legislation, even attracting Democrats as cosponsors.

Exempting tips from taxes is the latest play from both candidates to woo voters in Nevada, a crucial presidential battleground with some of the highest proportion of food service and accommodation workers in the country, industries where employees historically have relied on tips.

While the idea has attracted broad support in theory, Democrats including Harris want to also raise the federal minimum wage, now $7.25 an hour. Horsford’s legislation would eliminate the subminimum wage for tipped workers, a policy Republicans, business groups, and some Democrats oppose. Federal law lets businesses pay tipped workers as little as $2.13 per hour in base wages, as long as the base wages plus tips add up to the standard minimum wage.

“When we talk about tips and the tax on tips, it’s time that we treat tips like the gift that they are,” said Horsford, who was a member of the tax-writing House Ways and Means Committee last Congress. “What is clear to me in all of these discussions is that no tax on tips alone doesn’t solve the problem.”

Economists and tax experts across the political spectrum have poured cold water on exempting tips from tax, saying it would be easily abused, difficult to administer, and that low-wage workers pay little tax to begin with.

Horsford said he’s working with tax counsel on how to include guardrails in the bill to prevent abuse and concerns that workers may not get the same Social Security benefits. He also expects to have some cosponsors at the time of introduction.

Trump’s proposal to exempt tips from taxation would add between $150 billion to $250 billion to the federal budget deficit over 10 years, the nonpartisan Committee for a Responsible Federal Budget estimated in June.

The budget watchdog estimated the Harris proposal would add between $100 billion to $200 billion to the deficit over 10 years.

Such a policy would add to the cost of the expiring provisions from the 2017 tax law, which the Congressional Budget Office projects would cost $4.6 trillion over 10 years.

Horsford said he would “definitely explore requirements” for offsetting the legislation. He added that he’s been working with the powerful Nevada Culinary Workers Union Local 226, and said Harris had as well in the lead-up to her endorsement of the proposal.