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The campaign promise of President Donald Trump to eliminate federal taxes on tips is advancing steadily in the United States Congress and gaining support both among legislators and in key sectors of the economy.
The measure, which aims to alleviate the tax burden on workers in the service sector, was included this week in the tax cut package approved by the House of Representatives and received unexpected unanimous support in the Senate.
The core of the proposal is a tax deduction of up to $25,000 that exempts reported tips on the W-2 form from federal income tax, as long as the worker earns less than $160,000 annually.
However, payroll taxes, both state and local, will still apply. The provision, if approved, will expire in four years.
The measure has the support of the public, legislators from both parties, and employers, especially in sectors such as hospitality and catering.
The National Restaurant Association described the proposal as "reasonable legislation" that could enhance the earnings of thousands of employees and make hiring easier.
But not everything is support. Critics warn that the exemption would mainly benefit workers who already exceed the income tax threshold, excluding those who need it the most.
"Most low-income workers will not benefit because they no longer pay income taxes," explained Michael Lynn, an expert in behavioral economics at Cornell University.
The Culinary Union of Nevada, a traditional Democratic ally, has also endorsed the initiative, thanking Senators Catherine Cortez Masto and Jacky Rosen for promoting the measure alongside the Republicans.
Meanwhile, groups like One Fair Wage insist that this measure is merely a superficial fix and that the true focus should be on raising the minimum wage and eliminating the differentiated base wages for workers who receive tips.
If it becomes law, this exemption could mean an average savings of $1,800 for certain workers, but it would also increase the federal deficit by up to $120 billion over a decade if it becomes permanent.
Frequently Asked Questions About Trump's "Tax-Free Tips" Proposal
What does Trump's proposal for "tax-free tips" consist of?
Trump's proposal aims to eliminate federal taxes on tips, allowing a tax deduction of up to $25,000 for workers earning less than $160,000 a year. This measure exempts reported tips from federal income tax, although payroll, state, and local taxes will still apply. The proposal has support from both lawmakers and key economic sectors, although it faces criticism for not benefiting low-income workers who no longer pay income taxes.
What are the most notable benefits and criticisms of this measure?
The main benefit is the tax relief for workers in the service sector, especially in hospitality and restaurants, making hiring easier and increasing the earnings of these employees. However, critics point out that low-income workers will not benefit, as they do not pay income taxes, and the measure could increase the federal deficit by $120 billion if it becomes permanent. Groups like One Fair Wage advocate for a focus on raising the minimum wage instead of providing tax exemptions.
How does this proposal impact the economy of the United States?
The proposal could provide an average savings of $1,800 to certain workers, potentially improving their disposable income. However, it is also estimated that it would increase the federal deficit by up to $120 billion over a decade if it becomes permanent, raising concerns about its fiscal sustainability. Such measures are part of a broader fiscal package aimed at reducing taxes and increasing spending in strategic sectors like defense.
What do the political sectors think about this measure?
The proposal has gained surprising support, even among Democratic lawmakers like former Vice President Kamala Harris, who had previously advocated for measures to increase oversight of tips. On the other hand, some critics within the Democratic Party and groups like One Fair Wage believe that this measure is a superficial fix. The initiative is part of a broader legislative package that includes severe cuts to social programs like Medicaid, which has prompted opposition from progressive sectors.
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