Tax This

The flutter over eliminating taxes on tips for wait staff, hospitality workers, etc. seems to overlook the fact that such a policy could result in higher, not lower taxes, on not a few of the targeted beneficiaries of the scheme. The reason is this nutty thing in the tax code called the Earned Income Tax Credit (EITC). There are other wrinkles in play but I’m too lazy to scope all of them out. The EITC part is simple enough, and it’s a big program.

Income that is not taxable may not be reportable as taxable income either. The EITC supplements taxable wages (including tips) up to about $20K for workers with children, so unless the change in the law accounts for this (making the whole thing more complicated, and it’s already a mess), less reportable income could mean a lower credit and higher net taxes. For workers doing better than that, the change could be a tax cut, and bully for them. From personal experience (not mine, a relative), bartenders and waiters in the posher establishments can make quite a bit more than $20K a year.

More broadly, the Harris-Walz campaign tailing Trump on this betrays a vacuity on policy that I’ve worried about regarding Kamala since 2019. I suppose if it makes the difference in Nevada it’s worth it. I’m not thrilled to see Obama and Clinton economic bigwigs filtering into the Harris campaign. The people they need are Jared Bernstein and Heather Boushey on Biden’s Council of Economic Advisers. I don’t look forward to Obama 2.0, except in comparison to you-know-who.

The other reservation is that everybody can think of an exception, known in technical terms as a “tax preference,” that greases somebody’s palm, and new ones open the door to additional cuts. Social Security benefits have been mentioned, which would be swell for yours truly but (whispering for the bugs recording me) “it would be wrong.” Lower taxes reduce the possibilities for public spending, a lot more of which could be beneficial.

The way to go on taxes is the broadest definition of income, the fewest exceptions, to make possible the lowest possible tax rates (still graduated). Even more generally, my pet peeve about tax politics is the Left congenitally overstates the importance of taxes for reducing inequality, as opposed to public spending.

The EITC has become a target on the Left because it is thought of as “means-tested,” rather than universal, like the so-called Universal Basic Income (UBI). The UBI is a pipe-dream that will never happen, and attacks on the EITC, which benefits millions of low-wage workers, are not well-considered. Hey, Social Security is means-tested too. Want to kill that? You would have lots of noxious company.