A giant tax-and-spending bill making its way through Congress features a provision that in theory would be welcome to labor-starved restaurateurs around the country: The elimination of taxes on tipped income.
But for Mike Haskett, the proposal would matters worse.
Haskett spent much of a Zoom call working in the back of M.B. Haskett Delicatessen, his restaurant in Sioux Falls, South Dakota. “I don’t have enough cooks in the kitchen to do the things I need to do as a restaurant owner,” he said during the call, presented by the Independent Restaurant Coalition (IRC), an activist group of independent restaurant owners.
The coalition is opposing the provision that would eliminate taxes on tipped incomes, arguing that it would increase a sense of unfairness inside restaurants. Servers, bartenders and other tipped workers can already make incredible incomes, particularly in states that required tipped workers be paid the minimum wage.
Back-of-house workers like cooks and dishwashers, on the other hand, are lower-paid workers and can be difficult to find. Federal labor law makes it illegal for non-customer-facing workers to receive tips.
The IRC argues that the no-taxes-on-tips proposal would make it even more difficult to find those back-of-house workers. It is arguing in favor of changes to the proposal to include service charges, which many restaurants charge to pay higher rates for those back-of-house workers.
Many independent restaurants have turned to service charges to increase pay for back-of-house workers.
“The no-tax-on-tips provision creates a real problem here,” said Erika Polmar, IRC’s executive director. “It leaves out the back-of-house staff … dishwashers, line cooks, porters, prep workers, who are just as critical to restaurants.”
The provision was proposed by now-President Trump during the presidential campaign last year and was backed by his opponent, Democrat Kamala Harris. The provision was included in the tax bill that passed the U.S. House of Representatives last month. That bill is now being debated in the U.S. Senate.
More than half of tips are paid to restaurant workers, according to the Yale Budget Lab, which estimates that just 3% of U.S. families would benefit from a tipped-income tax break.
While politicians like its populist message, economists don’t think much of it. The Brookings Institution called the idea “an answer in search of a question” and “inconsistent with sound tax policy.”
The Congressional Budget Office estimates that it would cost the federal government $40 billion.
The National Restaurant Association supports the provision, arguing in favor of “common sense tax policies that support restaurant viability, including providing tax relief to tipped workers and their families.”
But many operators argue that tipped workers get bigger benefits from current labor regulations as it is, and that the unbalance leaves out back-of-house workers that are struggling financially in the current economy. While tipped workers get more money when it’s busier, back-of-house workers get paid the same regardless.
“I’m currently paying $21 to $23 to a lot of my cooks,” said Eli Sussman, executive chef with Gertrude’s in Brooklyn, New York. “They are still struggling financially. It’s 11:20 in the morning in New York City. They’ve been here already for an hour. In four or five hours, the front-of-house will show up and they will make three times as much money today.”
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