(RNS) — Most Americans believe politicians should work together in a bipartisan fashion for the common good, but sadly, too often political parties tend to agree on policies that are stupid.
The most recent example of bipartisan stupidity is the proposal to exempt tips from taxes. At first blush, this sounds like a good way to help low-wage workers in restaurants. In truth, it is just another way for politicians to buy votes.
Donald Trump first proposed this idea in Nevada, where it was a blatant attempt to win over voters working in the hospitality industry who make up a large chunk of the Nevada electorate. These workers would normally vote Democratic, but exempting tips from taxes would be an attractive promise to people having a hard time making ends meet. Kamala Harris quickly jumped on board lest the proposal give Trump an advantage in the swing state of Nevada.
Almost every economist thinks this is a bad idea for many reasons.
First, as usual with any tax-cut proposal, the politicians are not explaining how the tax cut will be paid for. Will other taxes be increased, will spending be cut or will we increase the deficit? And if it is spending that will be cut, which programs will be affected?
Second, will the exemption apply only to the income tax, or will it also apply to the payroll taxes supporting Social Security and Medicare? What about the employer’s side of these taxes? Social Security and Medicare are already in trouble; exempting tips will make matters worse.
Third, the truly poor who receive tips do not earn enough to pay income taxes in any case. If you want to help them, it would be better to increase the minimum wage and to increase the earned income tax credit. These two proposals do more to help poor people than exempting tips.
(Photo by Sam Dan Truong/Unsplash/Creative Commons)
Fourth, employees and employers will conspire together to convert salaries into tips in order to avoid taxes.
Fifth, employers will use the exemption as an excuse to cut wages and push the responsibility of paying employees to customers with tips.
Sixth, tipping will appear in places that have not traditionally had it. We may also begin to see the rise of mandatory tipping. And if most of their income is from tips, employees may demand the tip upfront before any service is given.
Seventh, the stress on tipping will force employees (especially women) to put up with more abuse from customers because of the fear of not getting a tip.
Eighth, those working in high-end restaurants, bars and clubs will benefit the most from this policy, not the workers at cheap establishments. Nor will the non-tipped employees (dishwashers, cooks, etc.) in the back of the house benefit.
Exempting tips from taxes is a bad idea. Raising the minimum wage and the earned tax credit, on the other hand, helps low-income workers.
Another example of bipartisan stupidity is having the government stop Nippon Steel from buying U.S. Steel. Once again, politics intervenes because Pennsylvania is a swing state with thousands of steel workers. Both Democrats and Republicans are promising to stop the purchase.
After the Second World War, while Asia and Europe were in ruins, the American steel industry was the only show in town, and it got complacent. While other countries invested in new and more efficient technologies, U.S. executives put their feet up on their desks and smoked cigars. By the time they woke up, it was too late. U.S. Steel is a shadow of its former self. It needs new management and an influx of capital that Nippon will bring. They do not want to close the plants but, rather, upgrade them.
There was also bipartisan support for tariffs on steel imports, although economists showed that it would cause inflation and job loss outside the steel industry. When steel is more expensive, products using steel become more expensive. This hurts consumers, workers in industries that use steel and exports that must compete with cheaper steel abroad.
Another example of stupidity is the tariff on solar panels and EVs from China. The Chinese, unlike Americans, understood that global warming is a threat and an economic opportunity. They invested heavily in EVs, batteries and solar energy. Now politicians want to protect American industry as it tries to catch up.
Frankly, I don’t care where solar panels come from as long as they are cheap. Not only will they reduce our dependency on fossil fuels, they will also create many more jobs for installers than we would ever have building them. Rather than protecting U.S. industry so it can reproduce what the Chinese are already doing, it would be better to invest in research and development so we can produce better and cheaper solar panels and other green products.
The attempt to protect the American EVs through tariffs is also foolish. The Chinese have developed a cheap EV that will sweep the Chinese and international markets. As long as the American auto industry makes more money selling SUVs and trucks, it will not change. Rather than going full speed ahead developing EVs, American auto companies are cutting back on manufacturing them under the protection of the tariff. This strategy will turn the auto industry into the next U.S. Steel.
The American business community claims to be capitalists; it opposes government regulations and praises the free market. But as soon as American businesses are threatened by the free market, they run to daddy for protection. In the long run, this is not good for business, workers or America. Don’t be fooled by these bipartisan political stunts.
