Restaurant Industry Divided Over Proposal to Eliminate Tax on Tips

The proposal to eliminate federal taxes on tips has generated a mixed response in the restaurant industry. Some segments support the idea, while others argue it would help too few people and obscure bigger issues in the way tipped workers are paid.

The Independent Restaurant Coalition, which represents nearly 100,000 restaurants and bars, has appealed to Congress to reconsider the proposal. The coalition says the idea would leave out too many workers who do not receive tips. "I think there's a huge hole in this concept of 'no tax on tips' because a lot of restaurant workers aren't receiving tips in the first place," said Elyanna Calle, a bartender in Austin, Texas, and president of the Restaurant Workers United union. "It's not helping most kitchen workers, and oftentimes those are the people who are being paid the least."

On the other hand, the National Restaurant Association supports the proposal. The association estimates that the measure would benefit more than 2 million servers and bartenders.

But the proposal would only benefit a small percentage of workers in the industry. According to government data, the U.S. restaurant industry has more than 12 million workers, including dishwashers and chefs.

Some restaurant owners are experimenting with compensation models that avoid tips altogether. George Skandalos, a pizza restaurant owner in Moscow, Idaho, has a gratuity-free policy at his restaurant, Maialina. He charges a 20% service fee that is distributed to all employees and helps pay for benefits like paid vacation and parental leave. Skandalos said "no tax on tips" doesn't acknowledge restaurants like his that are trying to distribute pay more equally.

Key Takeaways

• The proposal to eliminate federal taxes on tips has divided the restaurant industry, with some supporting the idea and others opposing it.
• The Independent Restaurant Coalition opposes the proposal, saying it would leave out too many low-wage workers who do not receive tips.
• The National Restaurant Association supports the proposal, estimating it would benefit more than 2 million servers and bartenders.
• Restaurant owners who do not use tips are experimenting with different compensation models, such as charging a service fee that is distributed to all employees.

Statistics

• According to government data, the U.S. restaurant industry has more than 12 million workers, including dishwashers and chefs.
• More than 15% of U.S. restaurants add some form of service charge to customers' bills.

Sources

• The Independent Restaurant Coalition and Restaurant Workers United union.
• The National Restaurant Association.
• Government data.