Podcast Summary
Tipped Workers Taxes Elimination: While some politicians advocate for eliminating taxes on tips for tipped workers, economists and tax experts caution against it due to fairness concerns and potential for abuse, and suggest careful policy crafting to minimize negative consequences
The proposal to eliminate taxes on tips for certain workers, like servers and baristas, is a topic of debate. While some politicians, such as Donald Trump and Kamala Harris, have advocated for this policy, economists and tax experts, like Howard Gleckman, strongly oppose it. Their main concerns include fairness, as not all workers in the service industry would benefit equally, and potential for abuse, as some people might try to reclassify their income as tips to avoid paying taxes. Additionally, more than one-third of tipped workers already don't pay federal income taxes due to their low earnings. To minimize the negative consequences, the policy would need to be carefully crafted to prevent misuse.
Constitution as a living document: The Constitution, as a living document, has evolved with society and requires guard rails for economic policies to prevent them from going off track. Understanding the past and present is crucial to navigating the future and the value of reliable information and personal connections cannot be overstated.
Our founding document, the Constitution, is a living document that has evolved with our society. In this episode of The Indicator from Planet Money, Darren Woods and Waylon Long discuss the importance of putting guard rails in place for economic policies that may be at risk of going off track. They also highlight the significance of the Constitution's amendments and encourage listeners to explore the history behind them through the Throughline podcast from NPR. Additionally, the episode touches on various NPR podcasts, including Shortwave, which aims to provide clear and reliable information on health and technology. Shannon Lee, an esthetician, shares her personal connection to treating acne and the satisfaction she finds in helping her clients. The episode also features a light-hearted moment where the hosts discuss their contrasting opinions on the popular trend of pimple popping content on social media. Overall, this episode emphasizes the importance of understanding the past and present to navigate the future, and the value of reliable information and personal connections in various aspects of life.
Esthetician tips taxation: If tips for estheticians become tax-free, it could lead to changes in fee schedules and compensation structures in the industry, potentially impacting both workers and business owners significantly.
The proposal to make esthetician tips tax-free could significantly impact the income structure for both workers and business owners in the industry. According to Shannon, mid-range hourly wages for estheticians in New York are around $22, with a substantial portion of their earnings coming from tips. If tips were tax-free, this could potentially lead to changes in fee schedules and compensation structures. Historically, similar tax policies have influenced how people receive compensation. For instance, the Stabilization Act of 1942 froze wages but allowed for the growth of pension plans and insurance, leading to the widespread use of employer-sponsored health insurance in the US. Tax experts like Howard Gleckman express concerns that people will work to characterize their income in the lower-taxed form, potentially altering the compensation landscape once again.
Carried interest loophole: The carried interest loophole allows hedge fund managers to categorize their income as capital gains instead of ordinary income, resulting in significant tax savings, highlighting the complexity and potential for gaming of the tax system.
Tax policies can have unintended consequences when different forms of income are taxed differently. Using the example of hedge fund managers, they have found ways to categorize their income as capital gains rather than ordinary income, resulting in significant tax savings. This concept, known as the carried interest loophole, highlights the complexity and potential for gaming of the tax system. If taxes on tips were to be eliminated, minimizing unintended consequences could involve income limits or defining eligible industries. However, these measures may not be foolproof as individuals could potentially redefine their income or industry to fit the definition and gain the tax benefit. The challenge lies in creating effective guardrails to prevent such manipulation and ensure the intended benefits of tax policies are realized.
Tipped Minimum Wage: The current tipped minimum wage of $2.13 an hour is problematic due to potential fraud and limited IRS resources to verify occupations. Increasing the federal tipped minimum wage could be a potential solution.
The current system of compensating tipped workers through customer tips is problematic and potentially fraudulent due to the IRS's limited resources to verify occupations. Howard suggests increasing the federal tipped minimum wage as a potential solution to push back against this system. While some may find it surprising that the current tipped minimum wage is only $2.13 an hour, this is the reality for some states. European countries, where tipping culture is less prevalent, can provide a different experience for workers. Kamala Harris' proposal includes an increase in the minimum wage, but it's unclear if this includes the tipped minimum wage. Trump has not advocated for an increase in the minimum wage.
Taxes on tips: Bipartisan support for removing taxes on tips exists in the US, with bills introduced by politicians from both sides of the aisle. Nevada's status as a battleground state may also influence the outcome.
There's bipartisan support for a bill to remove taxes on tips in the US. Politicians from both sides of the aisle, including Republican Senator Ted Cruz and Democratic Representative Stephen Horsford, have introduced bills on this issue. With one in five workers in Nevada's leisure and hospitality industry being tipped workers, the state's status as a battleground state may also play a role. While not everyone may be in favor, the political dynamics suggest a real possibility that this change could happen. For more reflections on life and other topics, tune in to NPR's Wild Card podcast. And for exclusive podcast perks, consider subscribing to NPR Plus.