The recent proposal by former President Donald Trump to exempt tips from tax could potentially inflate the federal budget deficit by $150 billion to $250 billion over the next decade, as per a forecast by the nonpartisan Committee for a Responsible Federal Budget (CRFB).
What Happened: The CRFB’s projection indicates that the deficit impact of Trump’s plan could be on par or even surpass the expected $172 billion revenue loss from the extension of the 2017 tax cuts for small businesses and other pass-through companies, which are due to expire next year, Bloomberg reported on Monday.
Trump’s tax exemption for tips, unveiled at a campaign rally in Nevada, is perceived as a strategy to attract younger voters. Nevada boasts the highest percentage of food service and accommodation workers in the U.S., industries where employees heavily depend on tips.
The CRFB cautioned that the cost could significantly escalate if employers and employees respond to the tax exemption by shifting more compensation from wages to tips. If there’s a 10% shift towards tips, the cost could increase to $275 billion. A doubling of tips offset by lower wages could cause the lost revenue to the federal government to soar to $500 billion.
Trump’s proposal comes with a hefty price tag, posing a fiscal challenge to its implementation. Trump, the presumptive Republican presidential nominee, is also proposing to extend individual and estate tax cuts enacted in 2017, which the Congressional Budget Office projects would cost $4.6 trillion over 10 years.
Why It Matters: Trump’s fiscal policy has been criticized by former Treasury Secretary Larry Summers as potentially more damaging than the one that led to the Great Depression.
Similarly, Treasury SecretaryJanet Yellen dismissed Trump’s proposal to replace parts of the U.S. income tax with increased tariffs on imported goods. She warned that the plan would adversely affect middle-class Americans and businesses.
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This story was generated using Benzinga Neuro and edited by Pooja Rajkumari
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