Is tipping fair?

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1:20If I didn't get tips, I wasn't getting paid. You're a bartender and you can't make good tips, then you're just not a good bartender. You got$6 tips. So an 87 % tip. This is Explain It To Me from Vox. I'm Jonquan Hill. My name is Freddy. I'm with you Sarah for today. Awesome. Give me a more time for a look at the food menu. Do you have any recommendations? What are your favorite things? My favorite in the menu, this is a seasoning three pepper chicken. You like spice? I like spice. All right, we've got two chilies. We'll make it happen. Yeah, let's do it. Okay, Jonquan, this is me, Peter Balanon-Rosen, producer on Today Explain It To Me.

1:55What are we doing today? Okay, so one, we're bonding in a team-like fashion, which is very important. Very important. But even more importantly, we're out and about because we are doing an episode about tipped wages. And what better way to do that than to go to a place where they tip, aka a restaurant. So we're having lunch.

2:18All right, yes, we did have some delicious lunch, but I gotta admit, that chicken was not actually that spicy. Okay, I'm glad you said that because it was good, but I was like, this is not that hot. No, no, not at all. But hey, it could just be us. Maybe we're used to spice. Maybe. I don't know. Those two chilies did seem like they were lying. Okay, but we weren't just there to check out the chili report. We were also there to discuss a bunch of calls that we got from our listeners. They had a lot to say about tips and wages. I really want to know how to tell when someone is being paid serving minimum wage.

2:54Because when they flip that little POS tablet towards you asking for the tip, I always feel like I'm in a moral crisis of whether or not I tip and how much I should tip. Because how much are they being paid? My main question is, what do servers actually take? Can I do anything? I'm a server at a fine dining restaurant in Wisconsin where servers make$2.33 an hour. And what you take home is really just your tips. We'd all like a better solution to this, but until then, we're just taking home our tips. All right, so we're going to split up, right? Yes. I'm going to find out the history of tipping, and you are going to talk to some people with skin in the game.

3:39And then we're going to come back and talk about what we found out. All right, let's do it. Yeah.

3:48Okay, Peter, you went out. You did some reporting. What'd you find? Okay, JQ. Well, we need to start with something absolutely riveting. A definition. So basically, there's this thing called the tipped minimum wage. It's a way more minimum wage just for workers who get tips, like servers or bartenders. At the federal level, it's just$2.13 an hour. The idea is tips will help those workers earn at least minimum wage. And if they don't, employers are supposed to pay the difference. But right now, states and cities all over the country are kind of like our caller from Wisconsin. They're wondering, should this weigh more minimum wage?

4:27Should it change? Should they get rid of it? And one of the places figuring this out is where you live, the place we had lunch, Washington, D.C. A place I know very well. So to learn about how this is playing out in D.C., I went to go meet up with Sophie Miyoshi. She's executive director of Rock D.C., an advocacy group for restaurant workers. And this is our extremely messy office. Am I seeing a piñata here? A piñata. We have some puppets of the council members. She has been out there leading protests, calling for tip workers to get paid more. There's so many problematic things about the tipped minimum wage.

5:05So one of the first things is wage theft. Technically, the employer is supposed to make up the difference if you're not making the full minimum wage on top of the tipped minimum wage. Most folks aren't paying attention to that. They're just trying to survive. So it's really easy to steal from tipped workers because of the system that is in place. Sophie says to understand what's going on here, we got to go back in time a bit. In 2016, the fight for 15 was popping off. You remember that? I remember that, yeah. So D.C. agreed to raise their minimum wage to 15 bucks an hour for everyone except tipped workers.

5:41Ooh, OK. All right. They said the minimum wage for tipped workers would top off at$5 an hour. And Sophie was like, that's super unfair to restaurant workers. We need to take this on our own. Sophie and her organization, they start eyeing a ballot initiative, which basically puts the question of should the tipped minimum wage go up directly to voters to vote on? What was the response to the initiative? Well, as you can imagine, not everyone was into this. The restaurant industry, who actually lobbied to keep that tipped minimum wage at five bucks an hour, they came out saying, uh-uh. They said this ballot initiative, it'll raise labor costs.

6:19It'll make restaurants have to close. It'll force bosses to have to cut jobs or hours for workers. And they sent this messaging to voters and restaurant workers. Like spreading fear among workers of like, oh my God, my tips are going to go away if this passes. We're just going to get the minimum wage, which was not the case at all. There are many states that this system doesn't exist in and they're doing just fine. Okay, whose messaging prevailed in all of this? Well, in 2018, Sophie's did. The ballot initiative passes. I mean, it was exciting that it actually passed despite the efforts of the Restaurant Association.

6:59But one of my colleagues, like, turned to me and said that, you know, we can't really celebrate because it's going to get repealed by the D.C. Council. The D.C. City Council basically says, yeah, no thanks. We're going to get rid of this thing. Why'd they do that? What's the thought process? Well, if you look at some reporting from the time, it says that in the moments after the vote was counted, the Restaurant Association in D.C. began lobbying politicians to overturn it. They told politicians this was going to cause bosses to cut hours, cause customers to tip less. Sophie and her camp, they were saying, no, no, no, no, no.

7:37This is going to be good for workers. This is what the voters voted on. But the D.C. Council, they got rid of it. So this thing kind of basically dies. But then a little thing called the novel coronavirus pandemic hits in 2020, and we see restaurant workers get laid off by the masses. And people who don't work in restaurants, they start tipping more. They start donating to laid off employee funds. Our whole relationship to restaurants and tipped workers, it changes. Yeah, that feels really familiar. You know, I was here in D.C. during lockdown, and my thing once a week was that I'm going to get takeout from a local restaurant that I love and I want to stay open, and I'm going to tip well, and I'm going to tip well because I'm not spending any other money because I'm just sitting in my house watching WandaVision.

8:24Indeed, indeed. Okay, so you, me, everyone else, we're all doing that. And riding that energy, in 2022, this new initiative hits the ballots and asks voters again, should the tipped minimum wage in D.C. go up to match the regular minimum wage? So we're doing this again. We are doing this again. And again, it passes. This time, the tipped minimum wage starts going up from five to six to eight to ten bucks over a few years. And this year, right as the law decreed that the tipped minimum wage would hit 12 bucks an hour, everything comes to a halt. Okay. What's going on and also how are restaurants responding during all of this?

9:06I mean, if you ask the Restaurant Association of Metropolitan Washington, they'll say things had been kind of crashing out for them for a while. They basically pointed to the fact that 74 local restaurants had to close, and they set out on this campaign to kill the tipped wage increase and get it back down to where it had been at$5.35. They basically said, okay, this might be good for workers' bank accounts, but this is killing businesses. I mean, in one year, my payroll doubled. I mean, for the first time in 15 years here, I raised prices. I can't really go much higher than$5 for a Miller High Life.

9:45This is Tony Tomelden, Tony T. He's the owner and bartender at a place called The Pug. Oh, I'm familiar with The Pug. I've had a beer there myself a time with you. Yeah, so you know, like the bar, it's covered floor to ceiling in beer signs, bobbleheads, band posters, all these light-up Santa Clauses. I mean, I guess it's your definition of a dive bar. A lot of DC stuff and then a lot of boxing. Pug is actually short for pugilist. Oh, I had to ask, do you own a pug? No, it's for pugilists. So that's the boxing stuff. So Tony T, who owns the pug, but not a pug, he also used to own this place called Brookland's Finest.

10:22And he says because of the tipped wage increase, his payroll costs were set to go up 60K this year. And that combined with the fact that his sales were way down, it meant he just couldn't swing things. and he shut down Brooklyn's Finest a few months ago. We were ringing half what we rang pre-lockdown and it wasn't the only factor, but that's a big factor is how high my payroll got. Like you just mentioned, sales were shrinking. I don't know how rents are going here. I know where I live. They're going up and up. So there seemed to be a confluence of factors going on. Why focus on the wage fund?

11:00Because that's the only thing that the city can really step in and effect because... And with the restaurant association lobbying for it and restaurant owners like Tony T calling for it, the city council, they came in for a second time to stop a raise to the tip to minimum wage. But where are the workers' heads in all of this? So I went to meet Max Holla, a bartender, to find out. He's been in the hospitality industry for over a decade, making cocktails, serving beers, bringing out patrons. His bar, The Grand Duchess, includes a 20 % auto gratuity on bills. And he says raising the tip minimum wage to$10 an hour, it's been good for him.

11:38It's like I can buy, you know, more groceries on time. My tax returns look a little cleaner. If you're not depending solely on tips, you don't have to put up with as much, you know, negative interactions. Some workers in D.C. have come out against raising the tip minimum wage. They worry if customers know they're making a higher base wage, they'll tip less and it'll leave their paychecks worse off overall. But data shows median hourly wages for servers and bartenders, it's now up since this measure passed, even if it's still below what economists call a living wage. But what is the scene in D.C.

12:16like overall? Well, I reached out to the D.C. Restaurant Association. They never agreed to an interview. But when you look at the numbers, it's not actually like DC's restaurant scene has evaporated because of this. If you go deep into Bureau of Labor Statistics data, which I did because I got a little obsessed here, you'll see that there were about a thousand full service restaurants in 2022 before this law took effect. And today there are actually a few dozen more. So, you know, it's not exactly like The restaurant scene is now exploding because of this law, but it definitely has not evaporated either.

13:00What should cities and states that are trying to figure out their whole tipped minimum wage thing take away from this? So my takeaway is that implementing change, it's messy. And if you're going to raise the tipped minimum wage via a ballot measure in a place with a strong restaurant lobby, well, be ready for some backlash. I feel like I know so much more about what goes into that spicy chicken we had. Indeed. There's a whole economic reality behind it all.

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16:16Okay, so we just talked about wages for tipped workers and how messy trying to change them can get. But there's also another side to tipped work that's gotten a ton of attention lately. It's the tips themselves. Politicians can't stop talking about them. But why is that? Two words, Nevada and Trump. That's Richard Rubin. He covers tax policy for The Wall Street Journal. So, you know, you saw now President Trump go to Las Vegas last year and start talking about no tax on tips. And he described the story of meeting a waitress in Las Vegas who kind of came up with this idea or inspired him to come up with this idea.

16:59She happened to be beautiful, but I won't say that. I won't mention that. But nevertheless, a waitress came over and I said, how are you doing? She said, not good, sir. Why? the government is killing me on tips. And she looked at me, she said, sir, there should be no tax on tips. I said, say it again. You know, it's a great four-word simple slogan, no tax on tips. And so he started talking about it. He said, yeah, we can do that. And it's one of the things that he's, you know, he's very good at sloganing. It was just something that he said, and then the policy came after that. And so he talked about it.

17:36Then Vice President Harris said, yeah, we'll do something like that too. Eliminate taxes on tips for service and hospitality workers. And it became kind of a bipartisan thing out of nowhere, basically. And they wrote it into the law. No tax on tips. No tax on overtime. That was a campaign promise of President Trump's. Now he's signing it into law as part of his so-called One Big Beautiful Bill.

18:07you know you mentioned that no tax on tips is an easy forward slogan like it's pithy yeah um but one thing that is not pithy are bills out of congress and now that this is law i know you've read the fine print what does it actually say it's got some limits and so so congress was trying to write something that fulfilled the president's promise largely, but that also would work. So your first$25 ,000 of tips will be income tax free, basically. There's some limits at the high end. So it starts shrinking once individual income is at$150 ,000 and married couple income is at $300 ,000. And it's also subject to payroll taxes, which is the taxes that for many Americans are larger than income tax.

18:54Now, that only helps people who are paying income taxes or paying federal income taxes. So for lots of people, you may not be paying income taxes in the first place. Do you think the political will to support this is going to last? Like, is this going to be a longstanding policy or is this sort of a flash in the pan that we're seeing? It's hard to know. I think there is the appeal of it. And it's hard to take something away once it's in the law. So this is the no tax on tips policy itself is in the law through 2028. So Congress will get another bite at this then. One challenge with it that you hear from tax experts is the equity between tips workers and non-tipped workers.

19:39Like what is it that makes a tipped worker special for tax purposes? And now they are. So you can imagine someone is working in a restaurant and they're a bartender and they're getting tips and they're going to pay less taxes on the tips that they're receiving. In that same building, the person who works for the outside contractor who is repairing the roof, the person who's sweeping the floor, none of those people are tipped workers, but they're all part of the same value chain. And as you noted, we use those screens everywhere, right? Like tipping culture has expanded in the US and in recent years, right?

20:16I remember when I went to the Renaissance store to see Beyonce, I bought merch and there was the option to tip. And so that's just a new phenomenon. The Treasury Department is required to come up with a list of traditionally tipped occupations who can get this. So I don't know whether Beyonce merch salesperson will be in that list or not. It's an open question, I'm sure people are going to be jockeying and lobbying to get on that list to have it be as expensive as possible. I'm curious how you think about the money you make on a job that's a tip compared to the money you make on a job that's a wage.

20:54Like, why not tax this particular pot of money? Right. So in the past, before 2025, wages and tips were effectively the same thing for tax purposes. That's what Congress basically changed this year. They said, you can think of tips more like voluntary payments. They really are like a gift. So if I gave you$100 just because I don't like you and I want to just give you money, that$100 is not taxable income to you. If you think of tips that way as really gifts from you to the Beyonce merch salesperson or me to the waitress or the bartender, then this is an attempt to reflect that in the tax law. And I have to ask, how much do you...

21:44I don't get tips. No, sorry. Listen, how much do you tip? Is this going to change the way you think of tipping when you're out and about, like grabbing coffees and dinner and stuff now? No, I think, I mean, like in some places, including here in the District of Columbia, they've increased the tipped minimum wage. For me personally, that can sometimes affect tipping behaviors, like if the people are already getting that base wage. But I think it's a lot harder to be able to say, oh, I'm going to tip you less because I know that you're not going to pay taxes on this. Like that's, I'm not sure this would necessarily make me change tipping behavior.

22:24But it is a real difference now that Congress has created between tipped workers and others.

22:39Okay, so that's the future of taxes on tips. But what about the past? How did we get the system in the first place? That's next.

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