Stop Government Gratuity Grabbing
Ron Paul proposes letting tips be tax-free; they're gifts, after all

by J. H. Huebert
by J. H. Huebert

DIGG THIS

Is Hillary Clinton a lousy tipper?

With war raging in Iraq, our leaders threatening another war with Iran and the dollar shrinking fast, you'd think the media would grapple with weightier questions.

But the issue of Sen. Clinton's generosity, or lack thereof, toward an Iowa waitress has nonetheless managed to capture headlines and air time this month in outlets ranging from Fox News to NPR.

Whether Sen. Clinton tipped a given waitress is, of course, trivial. After all, waitresses everywhere are used to getting stiffed by unpleasant patrons.

Much more serious is Hillary Clinton's participation in the systematic stealing of tips from waiters, waitresses, bartenders, bellhops and countless other U.S. service workers. Her partners in crime are most of her colleagues in Washington, including all the other contenders for the Democrat and Republican presidential nominations, with one exception.

Sen. Clinton and friends do this by endorsing our income tax system, which not only takes 10 percent of waiters' and waitresses' wages (often set below minimum wage) in taxes, but also forces them to report the amount they make in tips and hand over 10 percent of that, too.

In fact, only one presidential candidate has been truly decent to those who serve him dinner on the campaign trail: Rep. Ron Paul.

Rep. Paul – the physician who has made headlines primarily for his staunch opposition to the war in Iraq and his popularity and fund-raising success on the Internet – has introduced in Congress the Tax-Free Tips Act, which would make tips exempt from federal income and payroll taxes.

Rep. Paul's proposal – leaving tips in the hands of those who receive them – avoids the usual welfare-state problems typically associated with programs to help people with low incomes. It rewards work, doesn't promote class warfare and doesn't require the legalized theft involved in taking from one person to give to another. Unlike other proposals to help the poor, it doesn't create more bureaucracy, but instead removes it.

Anyway, those of us who give tips as a reward for good service hardly have it in mind to tip Uncle Sam for a job not-so-well done at the same time. We're not required to tip at all (a point Mrs. Clinton seems to understand well), so those tips are simply gifts – and gifts are already tax-free to the receiver.

Exempting tips from taxes is thus so obviously fair and sensible that anyone who opposes it should bear the burden of explaining why.

Why does the federal government need to make every waiter and waitress's life more difficult by taking a tiny bit of money from him or her, which means almost nothing to the government but could make all the difference to someone on the tightest of budgets struggling to make ends meet? Who could oppose a plan that puts more money in the pockets of millions of working Americans, with no additional government spending required?

To put this in perspective, consider the fact that the bottom 50 percent of taxpayers contribute just 3 percent of all income taxes. Presumably everyone whose livelihood depends on tips falls into that bottom 50 percent of earners. Therefore, tips comprise a small portion of that 3 percent of total income taxes – and virtually nothing compared with the total amount the government collects.

Some might argue that our heavily indebted government can't afford to lose even that tiny sum. But on the spending side, Congress seems to have plenty of money to waste on pork, war, entitlements and so much else. If anyone's going to do some belt-tightening, why shouldn't it be our porcine politicians and bloated bureaucrats instead of the servers who attend to them as they're wined and dined by lobbyists?

Maybe the real reason for taxing tips is to accustom people in what's often their first jobs to 'fessing up to their earnings and giving the IRS its due. Let them keep 100 percent of their tips, and next thing you know they may then even want to keep all of their money. Indeed, Ron Paul suggests that a 100 percent income-tax break for the rest of us would be a good idea, too. If government only did the things it's authorized to do under the Constitution, it wouldn't need to punish any of us for working.

Anyway, whoever becomes president, why not give those waiters, waitresses, and other servers a break? As long as she favors taking away workers' tips, Hillary Clinton has a lot more explaining to do.

Reprinted from the Orange County Register with permission.

November 22, 2007

J. H. Huebert [send him mail] an attorney and an adjunct faculty member of the Ludwig von Mises Institute. Visit his website.

Copyright © 2007 Orange County Register

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