By Paul Stam

The RNC and DNC platforms each call for “no tax on tips.” This policy proposal was made specifically to crowds in Nevada. Was that because Nevada is a battleground state? Was that because the Las Vegas hotel and casino workers are particularly underpaid?

Regardless, since North Carolina is also a battleground state, it will affect voter sentiment here. Also, like Nevada, our state is a popular tourism state — now No. 5 overall for tourism, with 43 million visitors spending almost $36 billion last year. Many of our hospitality workers at hotels, resorts and restaurants, like those in Las Vegas, also rely on tips.

But there are many important industries in swing states. We shouldn’t give them all election-year promises that the federal government will have a hard time keeping.

Here are the myriad problems with this particular proposal exempting tips from certain taxes:

It will cost a lot of revenue to the federal government, which is $35 trillion in debt, adding yearly deficits of more trillions of dollars.

If hotel and casino workers are truly low income, their biggest tax is not “income tax,” but the payroll tax (FICA). This proposal must include the payroll tax, or it will defeat its own purpose. FICA is what pays for Social Security and Medicare. Each is approaching a financial cliff. Benefits when we retire are based upon the income that was reported and taxed. If the federal government does not tax tips, these workers will be very angry with those who put them into the position to spend their retirement in poverty.

The other 100 million plus workers who pay tax on their income will be angry, as it will be necessary to raise their tax rates.

It is almost an axiom of tax policy that whatever income you do not tax will sprout wings and fly above other income that is taxed. There will be lots more tipped workers in all 50 states under this proposal. Those who have reached the maximum for entitlement to Social Security and Medicare will demand tips. Will it become customary among brokerage houses and bookstores to give tips (to which no one is entitled but everyone gets) instead of bonuses or performance pay? There is also the post-COVID reality that workers at previously non-tipped roles are now promoting tips on their iPad cash registers before the customer is even served.

Why would this not move restaurant, hotel, and casino prices higher? Owners can justify it by arguing their tipped workers don’t need actual wages as much, since most of their income is not taxed. Is life better now that you tip the barista for that overpriced caramel macchiato even before you receive the beverage?

Casinos are already ideal places to launder cash. Money goes in as cash from illegal businesses and comes out as checks. This will be exacerbated by “no tax on tips.”

Can anyone explain an actual policy reason for this campaign promise made by each national party?

Paul “Skip” Stam lives and works in Apex. He practices real estate and state constitutional law. He served 16 years in the NC House, the last 10 years as the GOP leader or Speaker Pro Tem.

This first appeared on The Carolina Journal.