A campaign ad claims she “unleashed” IRS agents on workers who receive tips, but the proposal in question was never implemented.
Analysis by Glenn Kessler
“Don’t let Kamala Harris fool you. Not only does Harris support taxing service workers’ tips, news reports confirm Biden and Harris have weaponized the IRS to confiscate your tip money. Biden and Harris have literally unleashed the IRS to harass workers who receive tips.”
— Voice-over of Trump campaign ad, released Sunday
One of Vice President Kamala Harris’s first policy proposals after formally securing the Democratic nomination for president was to support ending federal income taxes on tips. Former president Donald Trump, the Republican nominee, immediately cried foul, saying she stole an idea that he announced in June. Harris announced her proposal earlier this month in Nevada, a battleground state with a gaming and hospitality industry where many workers receive much of their income in tips.
This Trump ad, which earned 8 million views within 48 hours of being posted on X, is intended to suggest Harris is simply playing politics and has no intention of eliminating taxes on tips. With images of actors portraying IRS agents in dark suits and sunglasses invading a person’s home, the ad accuses the Biden administration of having “literally unleashed the IRS to harass workers who receive tips.”
This is all false.
The Facts
Though Harris embraced the idea after Trump, she has released more details of her tip plan than her opponent. She would impose a cap on earnings, perhaps $75,000, to prevent upper-income workers from seeking to declare some income as tips. She would also not exempt Social Security and Medicare taxes from being collected. The Trump campaign has refused to clarify whether tip income would be exempt from payroll taxes, and the ad says “only President Trump has a plan that ends all taxes on service workers’ tips.” That suggests he wouldn’t have the government collect those taxes, either.
Dean Baker, a Social Security expert and senior economist at the Center for Economic and Policy Research, said that would mean substantially lower Social Security benefits for workers who rely on tips, which could have a big impact because people receive much more of their earnings in retirement benefits at lower wages. “If not counting tipped income reduces their average lifetime earnings by $3,000, it would reduce their yearly Social Security benefits in retirement by $2,700, or $225 a month,” he wrote on X.
As for the ad, it uses a classic attack-ad tactic — citing an obscure bureaucratic proposal to make wild allegations. We had to consult with four tax experts and industry officials to even begin to understand what was going on.
The ad relies on an IRS announcement in February 2023 that it was seeking comment on a proposal to consolidate three voluntary tip reporting programs into one called the Service Industry Tip Compliance Agreement (SITCA). The federal government for decades has sought to tax tip income, but because tips were largely in cash, it was complicated for both employees and employers. Even though wait staff might receive most of the tips, they often share a portion of their tips with workers in the kitchen or at the front desk. The programs used formulas to calculate what all employees should be earning in tips, with taxes applied accordingly.
Since 2013, the IRS has tried to come up with a new system that streamlined the process and took advantage of new point-of-sale technologies that collect data on tips. After all, Americans increasingly do not use cash to pay for restaurant bills, including tips, and rely instead on credit cards or payment apps. This data makes it easier to determine what an average worker’s tip would be. A study conducted by the Trump administration found that nearly $1.7 billion in tip income had not been reported in 2016.
“It’s pretty good the IRS put this out for comment,” said Nina Olson, executive director of the Center for Taxpayer Rights and a former IRS taxpayer advocate. “The whole point of the proposal is to reduce the number of audits that would need to be done.”
SITCA, like the programs it would replace, would be voluntary. The IRS received comments on the initial draft, and industry officials say the agency has not signaled any intent to enact SITCA.
In fact, the plan has been shelved.
“Treasury and the IRS have no plans to move forward with the voluntary program and, as such, there are no new reporting or compliance components,” Treasury spokeswoman Ashley Schapitl told The Fact Checker. “We continue to carefully consider comments received in response to the proposed guidance.”
The ad, however, falsely claims the proposal has already been implemented, with such lines as: “Biden and Harris have literally unleashed the IRS to harass workers who receive tips.”
Nope, that’s false.
The ad also tries to project verisimilitude by claiming “news reports confirm” that the Biden administration “weaponized the IRS to confiscate your tip money.” The citations are from conservative news organizations or interest groups in 2023. They were echoing talking points released by House Republicans in 2023 eager to claim that Biden had violated his pledge not to increase audits of people making less than $400,000. The pledge was made after the IRS received an influx of tens of billions of dollars to improve service and boost audits of wealthy Americans.
Last month, the IRS said that as result of the additional resources, it has collected $1 billion in back taxes from about 1,500 delinquent millionaires and billionaires.
Olson said the images in the ad were especially misleading because criminal investigators — the IRS agents who invade homes — are not in the business of conducting audits and because about 85 percent of audits are a letter from the IRS asking for more information.
The Trump campaign noted that the lowest wage earners are audited at a much higher rate than the wealthy. But the report it cited attributed that problem to the IRS being starved of funds and unable to hire enough agents. (This was before Biden obtained $80 billion from Congress for the agency.) In a September letter to Congress, IRS Commissioner Danny Werfel said the agency was seeking to reduce correspondence audits of people who took advantage of tax credits aimed at lower-income workers.
In a statement, the Trump campaign falsely accused the Biden administration of wanting to hire “an army of 87,000 new IRS agents” (a Four-Pinocchio claim) and insisted Harris and Biden “want this newly empowered IRS to target tipped workers.”
The Pinocchio Test
To recap, the Trump campaign claims Harris can’t be trusted on her no-tax tip plan because the IRS proposed a plan to streamline three programs to help employers calculate tip income. But the proposal has been shelved. So, leaving aside the exaggerations about what the proposal would do, it’s simply false to claim Harris “literally unleashed the IRS to harass workers who receive tips.”
The Trump campaign earns Four Pinocchios.
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