Journalist says ‘no tax on tips’ helps restaurant owners, not workers — and Arizona proved it

It can be easy to forget in this time of hyper-partisan politics, but during last year’s presidential election, there was actually a significant economic policy that both sides agreed on.

It’s an idea that’s often referred to as “no tax on tips,” and both President Donald Trump and former Vice President Kamala Harris touted it as a way of appealing to working class voters who rely on gratuities as part of their income.

Now, in the wake of Trump’s spending bill, “no tax on tips” is no longer just an idea — it’s part of the tax code. But there are lingering questions about whether or not the policy is actually designed with worker interests in mind.

New Yorker writer Eyal Press explored those questions recently, using a debate at the Arizona Legislature as a case study. Press tells the story of a bizarre moment at the statehouse last fall, when lawmakers were debating a local version of the policy — a bill called the Tipped Worker Protection Act — implying that the goal of the bill was to protect workers.

Full conversation

EYAL PRESS: At the time, and this was in 2024, the state minimum wage in Arizona was $14.35. The minimum wage for tipped workers in the state was $11.35. And what this bill said was that restaurant owners can pay their workers, their tipped workers, $10.76 an hour. So it's like a wage cut. If you calculate it out for the full-time server over the course of a year, it's a $1,200 pay cut in base salary. So this was not something that seemed to be in the interests of workers.

SAM DINGMAN: Right. The plot thickened if we go back to this particular session because a group of people in, I believe it was green T-shirts that said Save Our Tips came forward purporting to be restaurant workers.

PRESS: Yeah, so Save Our Tips, these have to be restaurant workers. Who else wears such a shirt, right? But the ones who spoke came up one after another, and they all said, we want the Tipped Workers Protection Act. In other words, we want our base salary to be cut.

DINGMAN: And so this was confusing, as you were pointing out, and it was later discovered that these folks in the green T-shirts were not in fact the servers they were purporting to be.

PRESS: That's right. None of these workers were entry-level servers. They all had ties to the Arizona Restaurant Association, the very business lobby that has pushed this bill.

DINGMAN: Yes, it turned out that one of them was actually an assistant manager at Streets of New York Pizza. And that the owner of Streets of New York Pizza is a vice chair of the Arizona Restaurant Association's board. There was also somebody there who is the vice president of Snooze AM Eatery.

So the tipped Workers Protection Act ended up not passing. Woters in the election voted against it. And this is interesting, of course, in the context of the broader conversation that is happening about tips because of President Trump's no tax on tips proposal, which has now been enacted as part of the "One Big Beautiful Bill." Economists that you spoke to for your piece told you that as attractive as no tax on tips is as a kind of a slogan, it's actually, in the main, pretty bad for workers, right?

Todd Frank

PRESS: That's the view I heard. You know, almost 40% of all tipped workers don't actually earn enough to pay federal taxes. So the lowest paid ones are not actually benefitting from this. There will be a benefit for those who do better. We're talking about casino dealers or waiters at high-end fine dining establishments. But if you're designing a policy where the goal is equity and the goal is helping those who need it the most, this is not going to do it.

What could change things, many labor economists feel, is raising the minimum wage and eliminating or phasing out or lowering the very, very low sub-minimum wage that tipped workers get in so many states. And I should say Arizona, relatively speaking, is paying tipped workers a fairly decent base rate, although it's not the actual minimum wage. But there are 16 states in America where that base rate is $2.13 an hour.

DINGMAN: Yeah, well, and one of the other things that you point out in your piece is that a huge percentage of tipped workers actually rely on food stamps. Making it so that fewer of their fellow tipped workers are paying taxes, sort of in a dystopian sense, amounts to taking money out of their fellow workers' pockets.

PRESS: It's very striking. Tipped workers generally are more likely to fall below the poverty line than other private sector workers. In fact, I spent some time reporting in Denver, and in Denver, the Colorado Restaurant Association told me the average tipped worker made between $39 and $42 an hour. And if that's true, then you're talking about, you know, taking in $70,000 a year for those who work full time. Well, then I went to the Bureau of Labor Statistics, and they say the average salary of bartenders and servers in Denver is less than $40,000 a year.

DINGMAN: Was it your sense from your reporting on this piece that the support amongst members of the restaurant industry for the no tax on tips policy was a way of trying to blunt the broader popularity of initiatives to raise the minimum wage.

I should say the minimum wage did go up this year from $14.35 an hour to $14.70 an hour, but that's not the type of increase that advocates say is necessary.

PRESS: So I would say I had that impression more of the politicians who are pushing no taxes on tips. Just to look at Donald Trump in particular, he has touted this as — and that the White House has touted this — as a populist measure, a way to put money in the pockets of working people.

But have you heard them once say that we should raise the minimum wage and we should get rid of this outrageous $2.13 federal tipped minimum wage? I haven't heard it. It costs the owners of restaurant chains, the owners of golf resorts and hotels — and let's remember, President Trump is such an owner — it costs them nothing to eliminate taxes on tips. It would cost them something to pay people more.

DINGMAN: Yes, and lest we blame this all on Republicans, when President Biden was attempting to pass what was, I think, then called the Build Back Better Act, he tried to increase the federal minimum wage to $15 an hour as part of that legislation.

That was taken out by the Senate parliamentarian, I believe. But when Sen. Bernie Sanders then tried to pass that measure separately, there was a tremendous amount of backlash from Democratic lawmakers.

PRESS: That's correct, yep, and, and I actually spoke to Sanders's then legislative director, who said that when Sanders went ahead and said, “Let's let's have a vote on this bill, bring the minimum wage up, federal minimum wage up to $15 an hour, phase out the sub-minimum wage for tipped workers,” he said he got an absolute barrage of what he called four-letter word screaming stuff.

And this was his peers at Democratic Senate offices saying don't force us to take this terrible vote that will require us to cross the National Restaurant Association. Unfortunately, the Democratic Party is still a long way from really backing pro-worker measures that might expose Trump's policies as really pseudo-populism.