Horsford announces bill to make sure high-end earners can’t exploit an end to tax on tips

U.S. Rep. Steven Horsford is bringing forward legislation that not only eliminates the federal income tax on tips but also seeks to abolish subminimum wages for tipped workers.

And the Tipped Income Protection and Support (TIPS) Act, which he plans to introduce this month, will also include provisions designed to prevent employers or high-end earners from exploiting the elimination of federal taxation of tips, he said during a call Tuesday.

“We are not going to do something that advantages other people at the expense of helping the very people who need to be lifted out of poverty wages,” he said. 

Eliminating federal income tax on tips has become a campaign issue since former President Donald Trump, the Republican nominee for president, proposed the policy during a June rally in Southern Nevada. 

Vice President Kamala Harris, who is the Democratic nominee for president, announced support to end taxation on tips and raise the minimum wage at a rally Saturday in Southern Nevada. 

Following the event, the Harris’ campaign said if elected she would work with Congress to craft a proposal that includes an income limit and strict requirements to prevent hedge fund managers and lawyers from structuring their compensation in ways to try to take advantage of the policy. 

Republican U.S. Sen. Ted Cruz has also introduced the No Tax on Tips Act to exempt tipped wages from federal income tax. U.S. Sens. Catherine Cortez Masto and Jacky Rosen announced their support for Cruz’s bill in July.  

That proposal has been criticized by policy groups, including the left-leaning think tank Center for American Progress.

The group noted that Cruz’s bill was flawed and contained “few, if any, guardrails to prevent high-income professionals such as hedge fund managers from shifting their compensation to a tax-free tipping model.”

The Economic Policy Institute warned that eliminating taxes on tips could encourage companies to shift to more tipped occupations and prevent them from offering higher and more competitive wages.  

Horsford attended a roundtable last week with Culinary Workers Union Local 226 members, who pushed for a federal ban on letting employers pay tipped workers subminimum wages in addition to eliminating taxes on tips. The union has also endorsed Harris since that meeting. 

Horsford reiterated on Tuesday that eliminating “tax on tips alone doesn’t solve the problem.” 

“If we are to create a nation where working families can get ahead and not just get by, we have to ensure every hard working tipped worker can provide for families while working one job,” he said. 

Though the legislation hasn’t been released yet, he said that he is working with the Center for American Progress to “look at imposing guardrails” in his bill. 

“They are part of the input we are receiving as we shape the final version of the legislation I will introduce later this month,” he said. 

Nevada Current reached out to the offices of Cortez Masto and Rosen to see if they would support protections to ensure employers can’t exploit a policy eliminating tax on tips.

Cortez Masto’s office issued a statement reiterating her support for Cruz’s bill but didn’t answer questions about whether the legislation should include guardrails to prevent abuses. In the statement, her office said her support for the bill was part of efforts to “cut middle-class taxes, raise the minimum wage, and eliminate subminimum wage for tipped workers nationally.”

Rosen’s office issued a statement reiterating the senator’s support for exempting tips from income tax and saying she also supports “eliminating the subminimum wage at the federal level like Nevada has done.”

Rosen “would also support efforts to make sure there are reasonable income and eligibility requirements for ending taxes on tipped income so it primarily helps service and hospitality workers,” the statement from her office said.

Tipped workers who are paid subminimum wages by employers earn as little as $2.13. 

Nevada along with Alaska, California, Minnesota, Montana, Oregon and Washington have banned subminimum wage for tipped workers. Horsford said there needs to be federal action to prevent states from rolling back protections.  

Eliminating the subminimum wage at the federal level would mean workers earn at least $7.25, the current federal minimum wage, or whatever rates states or local governments have approved.

While Harris announced support of a higher federal wage and ending taxes on tips last week, she is expected to unveil more details about her economic policy agenda later this week. 

Horsford, who also chairs the Congressional Black Caucus, said he has spoken to Harris about economic policies that are affecting workers. He anticipates hearing her plans on how “we close the racial wealth gap in this country.”

“Today in America, the average white family has a net worth of about $284,000. The average Black family has a networth of about $44,000,” he said. “I think (Harris) will also lay out a number of other key elements around the care economy and ensure there is support in place to lift up health care workers and child care workers. Those are the other elements that determine a strong economy.”

Trump has criticized Harris on his Truth Social website and said she “copied” his proposal on ending taxes on tips

Horsford pushed back on that claim, saying the idea comes from workers, not Trump. 

“Donald Trump has no ideas,” Horsford said. “He has no policy ideas. He threw out a few words as red meat without details. As someone who has employed service workers throughout his career, if he really cared about workers, Donald Trump would have demonstrated it then and led by example.”