So far the Trump team has proposed:
- No tax on tips.
- No tax on Social Security.
- Extend the 2017 corporate tax cut.
- Implement a $5,000 Child Tax Credit.
This would collectively blow the deficit to hell, raising it by something like $1 trillion per year. Does anyone care?
Maybe. It makes me wonder if Kamala Harris could benefit from some tough talk on the national debt. She's limited in what she could do thanks to the Democrats' "no tax increase under $400,000" pledge and by her dumb pander on taxing tips. Still, there are possibilities.
But would it help? Would it gain the trust of centrist fence-sitters who like the idea of fiscal discipline? I'm not sure either way.
The deficit is not a problem, it's a solution. Specifically, it's a solution to the problem of matching aggregate demand to supply capacity at full employment. If demand is insufficient to absorb supply then unemployment will result. If demand is excessive inflation will result. Matching demand and supply will usually require a moderate deficit condition on an ongoing basis to avoid chronic unnecessary unemployment.
Nicely put. The term "fiscal discipline" always makes my brain hurt. I'm not an economist, so I don't know all the jargon terms, but I do understand logic, and as an engineer I understand input/output balances.
The most egregious nonsense, which even Obama used, is the analogy of a nation to a household. When a household spends money, the money LEAVES the household. This is largely untrue when a nation "spends" money: the vast majority of it goes to domestic suppliers, manufacturers, contractors, and workers -- as INVESTMENTS, not fancy restaurant meals or video games. And thus the money DOES NOT LEAVE the "household."
As for borrowing, 77% of U.S. debt is held by U.S. citizens, domestic lenders, or other government bodies (like Social Security). So most of the debt is money we owe to OURSELVES. The remaining 23% is held by foreign investors, but only 3% of that is held by banks in the Great Bogeyman China.
So debt and deficits are way overblown as a concern. Yes, a lot of our revenue is used to pay interest on debt, but most of that interest goes to domestic bondholders, so the money stays here.
The only valid concern that I see is that government outlays, whether to service debt or to invest in infrastructure, social services, enforcement of regulations, etc. can squeeze money out of the private market. And the private markets are better than government at CERTAIN THINGS like building cars, growing food, etc. But most of government outlays are for things that private markets WILL NOT DO because they benefit the public rather than shareholders.
So that's my story.
Dumb pander? That dumb pander would really help the bottom rung of wage earners who wait on us. Is this a bad thing?
That bottom rung pays very little in income taxes, so any help would be minimal. If you really want to help them, raise the minimum wage and eliminate the sub-minimum wage. Or better still, eliminate the entire tip-based economy and just pay them what they're worth.
You're right, that would really help.
And raise the standard deduction which helps the cooks and dishwashers in the back as well as the bartenders and waiters.
The tip thing is good politics, a good applause line, but would have minimal impact on the deficit. If that's "pandering", so be it. Isn't most of politics "pandering" to one group of voters or the other?
Does it eliminate FICA taxes as well? For most low income folks that’s a bigger tax than income taxes. Of course if you do that all those tipped employees get a rude awakening down the line when they find they’ve contributed nothing to their Social Security accounts and therefore get little retirement income from it.
Like others say, end the stupid tipping culture and pay everyone a decent wage.
FICA is what most people in low income brackets pay. Income tax is minimal or nothing. Employers, I believe, do not pay FICA on tip income, so employees are stuck with both payer and payee side.
What we need is elimination of tipped minimum wage, and increase in minimum wage. That would really help lowest income food & hospitality workers.
Employers are supposed to pay FICA for tips. They get a tax credit for those payments. Do they do it? A lot of them probably don’t.
https://www.asuresoftware.com/blog/how-to-use-the-fica-tip-credit-to-avoid-employer-taxes-on-tips/
Yes. And paying ‘what they’re worth’ means ‘paying a living wage’. Anything less imposes an externality, a need for someone else to pay part of the cost of doing business (in this case, the cost of provisioning labor). This is an economic inefficiency; a distortion of the true costs of some goods and services. We don’t subsidize hospitality industries for their purchases of food, supplies or energy, so why should other taxpayers, or anyone else, subsidize their purchases of labor?
I'm pretty sure we are the only very tip oriented country and getting more so. Apparently it works to just pay employees in every other country. A tip elsewhere is rounding up to the next Euro if paying in cash.
Why should a server get most of their income income tax free when the people in the kitchen pay taxes on all of their probably lower incomes? Will Wall Streeters start calling their percentage a tip or adding "20% gratuity" to their charges instead of a fee?
By the way I am a National Park Service interpreter, otherwise known as a park ranger. Taking tips for a tour/presentation distorts how anyone and everyone does their job. The worst are "free" tours that take tips at the end. (There are free tours for example in York that do not take tips.) That's the entire income for the presenter for doing their job, and it completely distorts how they do it. Avoid.
If you want to lower taxes on poor people, the cut taxes on poor people. Do not create both unjust inequalities (two people, same income, very different taxes) and loopholes the size of Kansas that will take a book’s worth of tax code to close (ineffectually, most likely).
Are you new here? When have deficits ever mattered when Republicans want something?
Absolutely. Nobody cares about the deficit except deficit scolds who are the most unpopular GOP policy wonks. Deficit scolds are deployed against policies that help the lower and middle classes. Raise the tax on superwealthy and eliminate cap on Social Security tax--that's the way to reduce the deficit.
Kevin, don’t pretend to be fucking stupid. You surely know that practically nobody cares about the deficit. Republicans blow it up every time they’re in office and then use it as a cudgel against Democrats doing anything they want to do that costs any amount of money. And, aside from wonks like you and bipartisan fetishists, no Democrats care about the deficit either, unless they’re confusing it with inflation or jobs or anything else you know damn well has nothing to do with the deficit. Fears of the deficit are only used to keep Dems from spending more money on their priorities and making the programs they do manage to pass (like ACA) shittier than they need to be so that they’re “paid for.” Fuck the deficit, as Charlie Pierce often says over at Esquire. Let Republicans fix it if they care so much about it - they created most of it with their endless wars and tax cuts.
+1. The only time the GOP cares about the deficit is when a Democrat is in office and wants to do something to help not rich people. There is no reason whatsoever to run on decreasing the deficit.
Yes, I'm not sure where all these centrist voters who care about the deficit are. Don't think I've ever met one.
I find a lot of "independent" or centrist voters do claim to care deeply about the deficit, but one or two more follow-up questions later, it usually becomes clear that don't have a fucking clue in the world how anything works or what the implications of "just getting rid of " X or Y would actually be.
Is the amount of taxes paid on gratuities really significant? I haven't looked but I'd guess this is one of those things that is a rounding error on the federal budget.
I think it's more than rounding error, but probably not a budget-breaker, either. But whether we can afford it is not the real issue. Once we decide some workers' incomes shouldn't be taxed, where do we stop? How about teachers? They're important and underpaid. Why not eliminate taxes on teacher salaries? Or police officers and fire fighters. Etc. Etc. Etc. In no time at all everyone is going to be arguing that their income shouldn't be taxed. And unless you put a cap on it, pretty soon hedge fund managers will be making $100 million a year in tips.
Well, umm, how about if we decided some kinds of *income* should be taxed less than other kinds, or not at all?
Let's say we decided capital formation is important enough that gains on invested capital should get a break, and certain kinds of dividends connected to capital investment should get a break? Or maybe we think some kinds of investments should be encouraged by letting businesses depreciate them much faster than other kinds of assets? Or maybe we think risky investments should be encouraged by letting general partners take entity income as capital gains instead of regular income?
Not hard to guess that these are things we already do. And in theory I don't see any reason why we couldn't do the same thing with tipped income.
It would have to be very carefully defined and would for sure multiply the temptation to cheat or to verge into cheating, and would definitely multiply hot-shot tax lawyers' billable hours, yes, but I don't see how it opens the door to any kind of issue we don't already have, seeing that our existing tax law is so riddled with loopholes and special categories and exceptions.
The difference may be that most of those are aimed at groups with more people and/or people who either have or make more money. Offhand I don't see that as a big deal, but I'm willing to be persuaded otherwise.
I was going to mention something along those lines, but decided not to in the name of brevity. My argument is that you're completely correct, but that the solution would be to eliminate those tax breaks, not create more of them. Let's face it, whether you get a tax break of some kind has much more to do with your ability to pay lobbyists that it does to any actual benefit. The tax code is absolutely riddled with them, which just distorts normal business decisions. This is not to say that some don't have any actual benefit, but it's a mug's game to decide which are important enough. Everyone always thinks theirs is important.
Yeah, we really should do a major rewrite, like shaking the Etch-a-Sketch. But pigs will fly sooner, plus for every honest legislator on this, how many would be using it to rake in all the lobbyist lucre they could?
We'll get a little taste of that next year in the jockeying over expiration of the trump tax cuts, and with a lot of luck it might not be too much of a gagfest. That wouldn't be the smart bet, though.
I agree. What kind of larger economic benefit does not taxing tips bring? Are we suddenly going to get 10% better service at Applebees or something? And how would that benefit the economy as opposed to my individual dining experience? This is like pledging to exempt gambling winnings or something -- its a sop to a particular voter segment that brings only (possible) electoral benefits and nothing else.
As I noted below, this is really about allowing more employers to get out of having to pay payroll taxes.
One positive effect of making tips tax-free would be that service workers (or their employers) would no longer need to keep track of their tips for tax time. I've never worked for tips, but I imagine that is a royal pain in the ass that those workers would LOVE to be rid of.
With this anniversary of the Social Security Act, is there possibly a different approach to making the system permanently solvent beyond the usual cut benefits, increase the tax limit, raise the age to claim benefits and so on to which no one seems to ever agree? I readily admit I have no idea how to make this calculation or if it is even worth a try.
As a thought experiment, KISS:
• Add up the total income of Americans with no exceptions, like the gross income on the tax forms before credits and deductions (include tips just in case some rascally hedge fund or other clever folks figure out a way to pay themselves the federal minimum wage plus multi-million-or billion-dollar “gratuities”).
• Define the expenditure needs for Social Security for the next 50 or 75 years plus a reasonable reserve (say 10%).
• Compute the percentage of that total income needed to fully fund Social Security for the defined period, including a COLA more appropriate to seniors.
• Divide by two and split the amount to be collected between employees and employers as currently done.
With no real data or the ability to make these calculations, I suspect the required payments into the system would be lower than the current percentages for both employees and employers. If so, the system can be made solvent at a reduced cost to all but the most wealthy. If not, I apologize for foolishly asking someone who can see if this makes sense to waste some time on their computers or calculators.
Just eliminate the cap on SS tax. That solves the problem.
That solves the social security funding problem, but then there';s still the deficit.
The democrats need to ROLL BACK come tax cuts. This is NOT the same as raising "new" taxes. When we think about tax cuts the republicans make them temporary but how many have become permanent? Quite a few. So, I say make them all temporary as originally voted on, then eliminate them. Its NOT raising taxes at that point, its just eliminating a temporary tax break.
What Harris and Trump are doing are pandering for votes.
When are they gonna get serious about reworking the tax code?
There is no reason for Social Security to always show a positive balance. There is no good reason for it to have a separate budget in the first place (does the military have its own budget and dedicated taxes?), but if its balance actually went negative it would not be "insolvent" or "bankrupt". The federal government as a whole is over $35 trillion in debt (over $2 billion of which is owed to SS) and it is not considered insolvent. Insolvency occurs when debts can't be serviced or repaid.
The whole debate about SS in politics and the media is artificial.
skept.....
The last few budget proposals included some cuts. Giving anyone a chance to cut Soc Sec by including it in the regular budget process would give Republicans the opening they need to cut SS as they see fit.
I'm not ready to do that.
Given the state of the GOP why couldn't they eliminate Soc Sec in its entirety? They want to eliminate the Dept of education - what would stop them from cutting Social security the same way?
Make it a block grant program?
Fixing SS is easy from raising the cap among other things.
But you are correct, the debate is artificial
There isn't really (much of ) a tax on social security now. It seems the up-to-85% of benefits that may be taxed above defined income thresholds ends up being mostly a surtax on non-social-security income. That income should be sur-taxed. Folks living just on social security don't pay taxes on it. So I guess you could say Kamala is telling centrist, above low-middle-income retirees, here's a hand-out just for you.
Once upon a time Rs *said* they cared, and that trained generations of centrists and center-rightists, and even some center-leftists, that deficits in the national fisc and long-term debt are things to be concerned about.
That was before Dick Cheney's famous dictum, "Reagan proved that deficits don't matter," granted Rs complete absolution for all the budget-busting they wanted to do. And since then-- before then in individual cases, but as a matter of party policy from then on-- deficit hawkery has been nothing more than a tactical cudgel to be brought down on D heads at election time. I think Stuart Stevens has even said as much.
Some people probably are old-fashioned enough to care about long-run fiscal trends; I am, personally, but I know I'm a fossil in that respect. By now most people have been so steeped in R cynicism on this that there's probably no traction to be gained, except maybe by speaking in the most general terms to convey some hint of prudence. But I think she should avoid getting too aggressive about volunteering to be yet another D who cleans up after the elephants yet again.
Michigan is about to run an interesting experiment on tipped workers.
https://www.mlive.com/news/2024/08/customers-and-workers-will-pay-the-price-of-cutting-tipped-wages-michigan-restaurant-owners-say.html
Under the new regulations, the lower wage for tipped workers would increase from $3.93 to about $6 next year, and it would be eventually eliminated altogether by 2029.
Anyway, I cared about the deficit when President Clinton had us on a pace to actually reduce the debt with budget surpluses. Those were the days. Americans made a different choice so… there you go.
The restaurants' argument here is weird. They already have to guarantee that tipped workers make at least minimum wage. They claim tipped workers make substantially more than minimum wage. The law is merely forcing them to be upfront with their customers about the actual cost of the meal and service. And yet they are arguing that doing so would somehow be a hardship and lose them business even though consumers are already covering the costs of paying those workers.
The surpluses in the Clinton administration were not due to any magical operations by Clinton himself or even to the small tax increases that were passed. They were due mainly to the huge stock-market bubble and the capital-gains taxes from it. The real economy was good so there were no stimulus expenses.
Also the end of the cold war, which happened when the USSR collapsed from within, not by any special action of Reagan, Clinton or any other President, allowed real military expenses to decline for a time.
How much tax do we actually collect on tips?
do you tip in cash?
No.
Nobody cares about the deficit. Its only used as a tool to disguise policy preferences.
Yes.
Interesting thought experiment about flipping the script.
Republicans like to demonize sections of governance so they can either turn it over to "private enterprise" so their friends can take a big cut off the top or run it into the ground and claim gov't isn't working. Harping on the deficit is just another way to do that. Trumpists will complain about the "money going to Ukraine" instead of helping Americans. When you point out that most of that is going to pay workers in America to make stuff we send to Ukraine, i.e. it's creating American jobs, they get flummoxed.
A lot of people have noted lately about how just about every service encounter now asks you if you want to "tip". Employers do this because they can attract/retain employees by goosing their minimum wage pay a bit ("with tips, you'll really be making more like $20/hr, not 15!), but not having to pay payroll taxes on it. I doubt many tipped workers ever declare that income anyway unless they receive it in their monthly paychecks or something. But if you raise the minimum wage, employers pitch a fit because those wages are taxed. If they can pass the "pay raise" directly on to the customer, hey, win-win!
So what this tax free tip thing is really about is giving employers ever more incentive to go nuts with this "tip for every goddamn last thing" and avoid having to pay a competitive base wage.
Yes the distortions because of tipping already would only get worse if tips are not income taxed with new dodges invented. I don't get why Harris pandered.
Whenever the budget deficit monster comes up in a conversation, I always say: "Look, the vast bulk of government spending goes to two things: bombs (i.e. defense) and grandma's medicine (Medicare, Medicaid, etc.). Not foreign aid. Not free stuff for migrants. Not 'waste and fraud'. It's those two things. Which do we slash to bring down spending?" The subject usually gets changed pretty quick.
Then we can move on to which taxes to raise to start filling things in on the other end.
One of these things is not like the others. Tipping and SS taxes are not the same magnitude as 2017 tax cut. Tax credits for children of the non-wealthy seems like a good idea, even to this fiscal conservative. The Trump tax cut for millionaire real estate developers seems like a good thing to eliminate, however.
Republicans care about the deficit... when they can use deficit talk to block Democratic plans for social welfare or infrastructure spending. Otherwise, no, no one cares about the deficit.
Likewise, Democrats care about the deficit when they can talk about Republicans cutting taxes on the rich.
OK, dumb question: How many workers accurately report their tips and pay taxes on them? Seems like that would have to be the basis for any discussion about how much it would cost to leave this income untaxed...
That's an excellent question. I work on the assumption that almost all cash tips go unreported, or at least under-reported, but maybe that's false, and unfair to the honesty of a lot of hard-working men and women. But most of the tips I leave are on my credit card, which presumably generates an electronic paper trail. Does that result in accurate reporting? I don't know. Presumably economists somewhere have studied it. (Google didn't help when I looked.)
I can't think of a dumber thing to do than campaign on lowering the deficit. No one gives a damn, no one's talking about it, why bring it up? "Dumb pander" to centrist fence-sitters (which is what it would be) is no way to beat Trump. I say: hell, no!
I think tips paid by credit card are reported to the IRS, so tipped employees have likely seen their ability to hide tips dwindle in recent years.
The whole system is probably full of fraud. Workers don't accurately report tips to their employer, and employers make up tip numbers to get their employees up to minimum wage so they don't have to pay the surcharge.
It's K Street
Add the top rung to the ranks of minimal contributors, thanks to tax loopholes purchased from the best congress money can buy. That leaves the tax bracket which ends up paying most, as believers of GOP’s slam "Tax & Spend Liberals".
So if you read only Jabberwocking you'd have NO IDEA that Harris issued her own (equally stupid) "no tax on tips" proposal.
https://www.crfb.org/blogs/kamala-harris-plan-exempt-tips-taxes-and-raise-minimum-wage
Look guys, it's not that I'm pro-Trump, it's that I am anti-stupidity and anti-lies.
And it disappoints when Kevin, frequently even-handed and fair, refuses to point out the stupidities and lies on his own side, even when they EXACTLY MATCH those on the other side.
You do realize he said the following in this post, " by her dumb pander on taxing tips." So he is assuming, maybe wrongly, that most readers already know about it.
"it's not that I'm pro-Trump"
Yes you are.
As Krugman would point out, we should stop paying attention to centrist fence sitters. As long as inflation isn't rising, increasing the debt doesn't matter. Meanwhile, the Trump tax cuts are due to expire, and if people don't like the debt, we can raise tax rates on corporations, income over $400,000, and long term capital gains.
The huge increase in the national debt bugs me. The top 1% have diverted about $2.5 Trillion per year in personal income from the bottom 90% of households to themselves. Even if you are in the 95 percentile, you're getting a lower share of the nation's personal income than your peers did in 1970.
At the same time the very rich have hacked the tax code so that they pay a much lower effective tax rate than the much less rich top 1% of the 1950s paid.
Then, to add insult to injury, we pay interest to the rich to borrow money from them instead of taxing them. $20 T x 5% = $ 1 T in interest on government bonds which makes that larger than the Defense budget.
Corporations spend less on R&D and investment when taxes are lower, These are expenditures that may result in much greater profits in the future...but no bean counter is going to go for that when he can cash in today.
My desire is that we tax large corporations heavily and we tax the rich until there is no one with a fortune of more than a few hundred million dollars.
(Oh, we could look rationally at defense spending and trim a few hundred billion there.)