Here's A Tip

Candidates propose ending federal taxes on tipped income—what's that got to do with you? I'll explain.

Photo by Kenny Eliason on Unsplash

This essay is about tips. As in gratuity.

Tips? Yes, tips.

I realize you (probably) don’t receive tips. Maybe you think tipping has nothing to do with your work, how you get paid, or your ability to meet your needs.

However, I’m prepared to make the case that it does. So will you stick with me?

Phew. Thank you.

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In June, Donald Trump announced he’d end federal taxes on tips.

The policy simultaneously sounded like a callous ploy to win votes among service workers, and an off-hand idea he discovered could garner applause. The policy is now part of the official 2024 Republican platform. Then, Vice President Harris announced her own version of the policy, as well as a proposal to end sub-minimum wages for tipped workers and disabled people.

I don’t believe that either version of the policy is likely to become a change to the tax code. Yet, the proposal’s social and economic implications are quite troubling.

The "no tax on tips" policy proposal isn't only a cynical attempt to win a small-but-mighty voting bloc; it's also part of an ongoing bid to reestablish social hierarchy and class structure. First, I explore why tipping is such a weird practice to begin with and explain how little an impact the “no tax on tips” policy would have on individual workers. Then, I dig into the history of tipping, including its overt racism and classism. Finally, I show how tipping is a class issue that’s part of a broader agenda to re-entrench social hierarchy among all but those at the top—including workers in the creative and knowledge sectors.

Tips are weird

Let's get one thing straight: tipping is weird. The extent to which tipping is practiced in the United States is a complete outlier compared with other liberal democracies worldwide. Further, tipping has expanded as technology has made asking for (and paying) tips easier. Digital point of sale systems and apps like Square give all sorts of businesses the chance to prompt the customer for a tip.¹

One way that tipping is weird is that it allows employers of tipped workers to subsidize employee pay with customer funds.

With the exception of seven states and a smattering of cities around the country, the minimum wage for a tipped worker is considerably lower than the overall minimum wage. Federally, the tipped wage is set at $2.13 per hour.² Legally, businesses must ensure wages plus tips equal the federal minimum wage of $7.25 per hour, although the degree to which this is enforced is questionable.³ The current tipped minimum wage was set in 1991—over three decades ago. The tipped minimum wage was only established in 1966.

This creates a weird (and unstable) labor relation between the worker, the employer, and the customer. Restaurants are notorious for thwarting labor regulations, engaging in wage theft, and creating hostile work cultures. Further, tipped workers are financially incentivized to 'look the other way' when customers engage in harassment and abuse. With pre-service tipping becoming more widely practiced across services like takeout, delivery, and ride-sharing, customers often feel taken advantage of even while workers feel demeaned.

That leads me to the second reason that tipping is weird.

Tipping has become detached from its mythical meaning as a social practice.

If we assume the best about tipping (we shouldn't—I'm getting there), social norms dictate that we do it to reward excellent service. But because of the wage scheme for tipped workers, tipping has become all but obligatory. Most people (I hope) understand that if they don't leave a tip, they're hurting the worker directly. Therefore, the tip has no connection to the quality of service; it's merely a surcharge that contributes directly to the workers' ability to pay the bills.

Further, pre-service tipping gives the lie to the cultural myth that tipping is a reward for good service. Pre-service tipping is precisely what it sounds like; you select the tip on your service before you receive that service. This practice, aided by technology, is common on delivery apps like Instacart. On the one hand, it allows gig workers some additional information when deciding to take on an order. On the other hand, the practice can lead to baiting workers with large tips and then revoking those tips after delivery.

Thirty or 40 years ago, tipping may have helped establish a trusted relationship with a service provider you would see regularly. The bartender at your local pub might learn that you're a generous tipper and show their appreciation before you order a single drink. But today's service workers are often employed by massive corporations or skip from job to job based on economic necessity. So again, the meaning of a tip has lost its center if we buy the idea that it’s a reward.

The third way that tipping is weird is that it interrupts how we process the value of what we purchase.

Typically, the value of the labor required to produce a product is included in its price—the market value—along with profit, cost of goods, overhead, etc. That labor value is then part of how we understand the price we pay when we purchase a good.⁴

But because the value of service labor is offloaded to the customer in a tipping situation, the full price of what we buy isn't on the menu. We see an artificially low price. So we learn to expect that a nice cheeseburger costs $15, forgetting the $3-4 we'll tip on that price at the end of the meal. Restauranteurs argue that people won't pay $19 for a cheeseburger (even though they already do) and use that to justify maintaining the current wage scheme. Meanwhile, restauranteurs sell this scheme to tipped workers by pointing to the potential upside. Servers might earn more than the $3-4 per burger! Of course, they might also earn nothing at all.

Between customers paying workers instead of employers, how tipping has been divorced from its mythical meaning as a social practice, and the devaluation of goods in tipped workspaces, tipping is a profoundly absurd practice. There are plenty of other reasons that tipping is weird, some of which I'll get to later. But before I get there, let's examine the economics of tipping without taxing.

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Tipping without taxing

It's possible to argue that making tipped income tax-free is a bad policy that would help many people in the short term. It's possible to say that it's a cynical ploy while also acknowledging that it would benefit workers regardless of political persuasion.

Sure, it's possible. However, the economic data make it clear this isn't the case.

Economist

Jadrian Wooten

spells it out in a recent article on the economics of ending taxes on tips. First, a large segment (37%) of tipped workers already receive that income without earning enough to owe federal income taxes. Further, Wooten explains, "The majority of low-income workers who rely on tips already benefit from tax credits like the Earned Income Tax Credit (EITC) and the standard deduction, which often reduces or even eliminates their federal income tax liability."

Often missing from the conversation about tipping and the tipped minimum wage is how this practice impacts workers' ability to take time off or save for retirement. No federal law mandates paid time off (PTO) for any worker. But when paid time off is part of a worker's compensation package, it is generally paid at the same (or a similar) rate as the worker would be paid if they were working. Employers of tipped workers can claim to offer PTO while paying poverty wages for that time—essentially eliminating PTO as an option. Similarly, other benefits like a 401(k) are tied to wages, meaning a policy that appears generous at first glance can be downright Scrooge-like.

Finally, while tipped workers make up a small percentage of the American workforce overall, the service and hospitality industries are among our fastest-growing sectors. As apps, point-of-sale systems, and capital's hunger for lowering labor costs find new ways to offload wages onto customers, the economic challenges of tipping are sure to grow.

The classist and racist origins of tipping

If you guessed that America's weird obsession with tipping had something to do with slavery, you are right! But first, we have to talk about Europe.

Tipping originates in Medieval Europe. "During an age of paternalism and wardship, the master or lord of the manor might give his servant or laborer a few extra coins, from either compassion or appreciation of a good deed," explains Kerry Segrave in Tipping: An American Social History of Gratuities. Later, it was standard practice for guests to pay the host's servants for the above-and-beyond services the guests received. Americans who visited European estates picked up on the practice—and earned a reputation for being overly generous tippers.

Segrave makes clear that tips were paid for servant or menial labor: "All of those who received tips in the past were regarded as social inferiors at a time when such distinctions were felt to be normal and natural." So tipping has been a class issue from the jump—a practice that reinscribes who gives the orders and who follows them.

Eventually, tipping fell out of favor in Europe. Ironically, this was prompted, at least in part, by an anti-tipping movement in the United States at the turn of the 20th century. While cultural attitudes about tipping changed in Europe and elsewhere, Americans doubled down on tipping after Prohibition. For there to have been an anti-tipping movement, though, there had to be a pro-tipping movement.

Tipping solidified its grasp on the United States in the South in the 1860s.

After emancipation and the Civil War, former slave owners and other leaders fought to maintain the antebellum social order. One way they did this was to shunt Black workers into menial service work: cooks, servers, porters, laundresses, etc. "Instead of paying Black workers any wage at all, employers suggested that guests offer Black workers a small tip for their services," according to the Economic Policy Institute.

Thus, tipping became a social technology—a practice that regularly reinforced which groups of people were superior to others. Whether merely describing the practice or arguing against it, American writers in the late 19th and early 20th centuries were clear on this point. Proclaiming tips un-American, one writer urged Americans to resist "the example of caste-bound Europeans." On the flip side, journalist Arthur Gaye explained that a tip is a form of payment directed to those "presumed to be inferior to the donor, not only in worldly wealth, but in social position also." In 1905, the mayor of Portland, Maine, argued that college students shouldn't take summer jobs that subjected them to the "degrading conditions of tipping."⁵

My favorite explanation of the practice at this time comes from a journalist named Elizabeth Banks.⁶ She wrote, "I, good American as I consider myself, do look down upon certain persons as my inferiors, and those persons are the ones who accept tips from me, and I expect and demand that they shall treat me as their superior." In case that wasn't clear enough, she continued saying that anyone who received a tip from her "is not my equal ... Tips and servility go together."

Tipping is still a social technology that reinforces the superiority of some people over others. For every feel-good story of someone leaving a $1000 tip on a $3 coffee tab during the holidays, there are millions of stories of mistreatment and harassment of tipped workers. Anyone who works for tips—especially those subject to the sub-minimum wage—is regularly reminded of their position in the social order. With tipping becoming instituted across new forms of work and in sectors where the practice was once unheard of, the number of people abased by tipping is expanding.

Consider the gig economy and the creator economy. Both utilize platforms to generate income independent of a formal employer. The gig economy tends to consist of tipped services and odd jobs, whereas the creator economy is all about entrepreneurship. Gig workers tend to be people of color, immigrants, and working-class people. Creators tend to be white, college-educated, and middle-class. Derision about creators aside, there’s a perception that gig workers are a 'lower' class than creators.

To that end, sociologist İsa Demir proposes the term 'errand economy' as a better description of the way platform capitalism is transforming labor. The errand economy highlights "the process of transforming all workers, regardless of skill level, into people who do the footwork, gruntwork, legwork, and odd jobs under a newly formed working regime." The notion of 'errand workers' (even 'errand boys' and 'errand girls') serves to illustrate the social position of this class of workers. One might even imagine a bespectacled man in a top hat flipping a couple of coins toward the Dasher who brought him lunch.

No tax on tips: what's the big deal?

Ending federal income taxes on tips is unlikely to have much direct economic impact—positive or negative—but it has the potential to accelerate the conservative agenda that would put workers back in their (hierarchical) place. The message of "no tax on tips" is a marketing message for tipped work, which is critical since those were a large segment of the jobs that people refused to return to once restaurants, hotels, and other hospitality businesses got back to 'normal' in the wake of the pandemic.

Eliminating taxes on tipped income is also likely to further expand the work eligible for tips. Assuming that the sub-minimum wage isn't abolished along with those taxes, we can expect that more employers will utilize tipped work (and the sub-minimum wage) to cut labor costs—not unlike how more 'jobs' are now done by 'independent contractors' than before that practice was essentially green-lighted by regulators.

Finally, tipped work is inherently precarious, and tipped workers have a harder time saving for retirement or taking time off. This creates a more compliant workforce with few options other than to put up with whatever bullshit their 'employer' throws at them. The expansion of tipped work will only exacerbate and expand this problem.

There's a name for this phenomenon: proletarianization.

Welcome back to the proletariat

For many of us, our economic agency is the product of embourgeoisement. That's a ridiculous word that simply means becoming part of the bourgeoisie, or the class of professionals, business owners, and merchants who may not run things outright but have considerably more economic and political power than the working class (proletariat). Embourgeoisement is upward mobility par excellence.

The odds are good that your family history is full of working-class, servant-class, or enslaved people. That’s just the math. But post-World War II, Western Europe, the United States, and Canada saw a blossoming of upward mobility, with more (predominantly white) people moving into the middle and upper-middle classes. Our parents or grandparents might have gone to college or started businesses that led to more comfortable lives and later opened new doors for us. We might also be the children or grandchildren of trade unionists who won solid middle-class salaries and ample benefits through collective bargaining. Or, we might have been first-generation college students or scrappy entrepreneurs who fought our way into a higher class.

It's the American Dream, right? Well, the American Dream has led to a lot of people demanding more from their work—higher wages, better benefits, more stability, etc. As a college degree became less of a nice-to-have and more of a have-to-have, graduates flooded the market with their expectations for what life and work should entail. A higher-skilled, better-educated, and/or more tenacious worker isn't nearly as compliant as someone living paycheck to paycheck or depending on the generosity of the strangers who give them tips.

It is no coincidence that the assault on higher education and shoulder-shrugging about our student loan crisis was a precursor to this "no tax on tips" proposal. They are part of the same agenda, one that would see the expectations of today's and future workers returned to a more exploitable baseline. Despite the rhetorical support for the working and middle classes, the conservative economic agenda is one that would systematize downward mobility, ensure the existence of a compliant service class, and funnel the ill-gotten gains to the top of the social order. That’s proletarianization. Or rather, for many of us, re-proletarianization.

Keen observers have been anticipating this re-proletarianization for decades.

In 1967, Guy Debord noted that the proletariat, or average working-class folks, "is being objectively reinforced by the virtual elimination of the peasantry and by the increasing degree to which the 'service' sectors and intellectual professions are being subjected to factorylike working conditions." Bernard Stiegler saw proletarianization in how the contemporary labor regime separates work from the knowledge of craft, satisfaction, and critical thinking. More recently, McKenzie Wark describes both the possibility of extreme upside and the extreme downside—either way precarious—that comes with creative and knowledge work today.

Wark also demonstrates that class appearances have shifted such that many of our richest entrepreneurial heroes wear t-shirts and jeans rather than fancy Italian wool suits. A member of the working class might drive an $80,000 truck while a college professor might struggle to pay rent on their third-floor walkup. And on social media, any of us can easily perform the appearance of a class we aspire to.

The contextual collapse of class appearance interrupts class consciousness. We fail to see how, as a life coach or graphic designer or marketing consultant, we have similar concerns and goals to the people being courted by the "no tax on tips" policy. We fail to notice that our own frustrations with work, healthcare, and flagging self-respect are the same frustrations that the Uber driver or bartender has.

Without organizing, demanding change, and plotting a new course, this will be the future of work. We'll makebelieve that the lords and ladies who deign to throw a few coins our way don't see us as inferior.⁷ Our institutions will continue to pump out graduates who hope to win the career lottery by landing a job that actually requires a degree and pays accordingly. We'll continue to fail those with the least proximity to power and wealth simply because we can't see how our situations are remarkably similar.

We don't need a fully fleshed-out plan to start reversing the one that's landed us in this social, economic, and political quagmire. We don't need, as David Graeber put it, "a detailed architectural blueprint of how an alternative system would work." We can start small, "work it out, slow it down." Pushing back on the "no tax on tips" proposal—questioning its motives and aims—is one way to do that. We can find ways to end or lessen the student loan crisis. We can organize for stronger labor regulations, including ending worker misclassification.

These are all small steps, to be sure. But they're steps away from a social order that puts some on top and many more on the bottom. In other words, they're steps in the right direction.

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1. In researching this piece, I was horrified but not exactly surprised to learn that apps like Square charge their fee on the total transaction, which includes taxes and tip.

2. To qualify as tipped workers, workers need only make $30 per month in tips. In Pennsylvania, the threshold is $135.

3. Minimum wages vary by state.

4. In our system of hyper-consumption capitalism, labor value tends to be highly underpriced so it's not like the alternative to tipping is perfect in this respect!

5. Examples are all found in Segrave’s Tipping.

6. I'm picturing her as the role our contemporary Elizabeth Banks plays on 30 Rock.

7. For more on the “conservative impulse” to defend hierarchy, see this article by political scientist Matthew McManus.