Former President Donald Trump and Vice President Kamala Harris disagree on many issues. However, they agree on at least one policy position: Both want to eliminate the federal tax on employee tips.

Trump first unveiled his proposal to eliminate the federal tax on tips at a campaign rally in June. “We’re going to do this immediately, as soon as he takes office,” he said during a speech in Nevada, a state with one of the highest concentrations of tipped workers (and, not coincidentally, a crucial swing state in November).

A month later, Harris, also in Nevada, joined Trump in supporting tax-free tips.

“I promise everyone here: If I’m president, we will continue to fight for working families. That includes raising the minimum wage and eliminating the tax on tips for service and restaurant workers,” Harris told a crowd in Las Vegas on Saturday, copying a populist proposal directly from her opponent.

Despite bipartisan support, tax experts warn that the measure could lead to a number of complications. Ernie Tedeschi, economics director at the Yale Budget Lab, a nonpartisan policy research center, is among those raising alarms about the idea of ​​not taxing tips, starting with the possibility of tax avoidance by corporations or high-earning individuals who could take advantage of such a measure aimed at low- and middle-income workers.

“There is a potential risk that businesses may reclassify other forms of income as tips to take advantage of the tax exemption, which could lead to fraud and income shifting. For example, financial services providers could reclassify bonuses or commissions as tips,” Tedeschi said. Newsweek.

Only scant details have been released from both campaigns, only Harris brought up the idea of ​​strictly limiting the tax exemption to employees in the service and hospitality industries. Neither candidate team has clarified whether the exemption should apply to income taxes, payroll taxes, or both. Payroll taxes finance Social Security and Medicare.

“The big question is why workers with similar incomes doing similar work and being compensated through wages should not receive the same tax treatment as workers who receive tips,” said Garrett Wattson, senior policy analyst and modeling manager at the Tax Foundation, an international think tank based in Washington, DC.

“It is likely that many workers will move into tipped industries as these occupations become more attractive compared to occupations where income is taxable,” he added.

The potential financial impact on the federal government is also a major concern, said Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, a nonpartisan think tank based in Washington.

“While this policy may benefit a small group, it has significant national implications, particularly on tax policy and government revenues,” the tax lawyer said.

The Yale Budget Lab estimates that by 2023 there will be about four million workers in the United States in tipped jobs, such as waiters or beauticians. That’s just 2.5 percent of all employees in the labor market.

A statewide ban on taxing tips would benefit a restaurant waiter in Nevada, who relies heavily on tips because of his state’s lower minimum wage, more than someone in the same position across the border in California who earns a higher base salary and therefore relies less on tips.

“If tips were exempt from taxation, employers could shift a larger portion of their compensation to tips rather than wages, which could lead to lower government revenues and higher budget deficits unless other taxpayers cover the shortfalls,” Rosenthal said.

“Policymakers would also need to address the possibility that taxpayers are avoiding taxes by reclassifying non-tip income as tips,” added Wattson of the Tax Foundation.

There are also concerns that the tipping exemption could impact the overall tipping culture in the U.S., where more industries and workers could begin to rely on tips. This could change the dynamics of compensation across different sectors and potentially lead to more tips being required in transactions where they are not currently expected – a scenario that has already been exacerbated by the increasing prevalence of tip prompts on point-of-sale tablets.

“There are other ways to help these workers,” said Yale University’s Tedeschi. He suggested raising the federal minimum wage from the current $7.25 and eliminating the federal minimum wage for tipped workers as more effective ways to help low-wage workers. (The federal minimum wage for tipped workers is currently $2.13, but employers must make up the difference if a tipped employee’s wage doesn’t reach $7.25 an hour.)

According to Budget Lab, the median weekly wage for tipped workers was $538 in 2023, compared to about $1,000 for non-tipped workers. Tipped workers tend to be younger, averaging 31 years old, and have lower incomes.

Changing federal tax policy on tips would also be costly. The Committee for a Responsible Federal Budget, a bipartisan group, estimates that exempting all tips from federal income and payroll taxes would reduce revenue by $150 billion to $250 billion between 2026 and 2035. That amount could rise even higher if the policy leads to more people declaring tips.

Whether Trump and Harris’ shared vision of eliminating taxes on tips will gain traction as a major economic policy goal remains to be seen. Despite warnings about the risks, the proposal remains popular with voters. A recent poll conducted exclusively for Newsweek by Redfield & Wilton Strategies shows that 67 percent of Americans believe that tips given to service employees should not be taxed.

Millennials (70 percent) and Gen Xers (74 percent) were more likely to support repealing the tip tax, while Gen Z (59 percent) was least likely to support it. Republicans (68 percent) were slightly more likely to support Trump’s idea than Democrats (65 percent).

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