I don't blame Harris. I blame her advisors.
And never forget that I hate Trump, so this isn't just grousing.
And I don't hate non-economists having opinions about economic issues. I do wish they would be less vocal about things they don't know.
***
Anyway, Trump offered up a policy to stop taxing tips.
Nominally, you always had to pay taxes on tips. But no one reported them. Easy to do if the tip was cash you put in your pocket.†
But you and I probably do this really rude thing: we include a tip when we tap our card. The thing is, that payment goes to the bank, then to the employer, who then forwards the tip to the employee. That makes these very easy to track. And tax. If the employers chose to report the tips; which many of them didn't since they viewed it as a pass-through.
Under one of the first fiscal policy measure to address CoVid (the CARES Act of March 2020), an Employee Retention Credit was created. This allowed for a business to offset (importantly, that is a much bigger deal than a write-off) taxes due, and perhaps receive money back (importantly, that is not a refund) if they could show their revenue was down from CoVid. This credit went to the business to help their bottom line, but in turn they had to pass a portion of the credit on to employees whose pay had been cut. This all sounds good. But, for good or bad, employers were allowed to count the tips they knew about (from credit card swipes) to make themselves more eligible for the credit. Basically, in helping service workers out they made it more likely their tips would be taxed. Oof. On the brighter side, there was a limit on the size of the claim per employee of $10K, so if you made a lot of tips, most of them could still go untaxed.
But, policymakers sell themselves by providing new "programs" or extending or expanding existing ones. So in the fourth fiscal policy to address CoVid (the American Rescue Plan Act of 2021) the Democrats included an expansion of the Employee Retention Credit. A tiny little expansion of about ... oh ... 550% in the amount that could be paid out. Or potentially a 550% increase in the amount of one's tips that might now be taxed.
By the time this came up for a vote, there was no longer bipartisan support for CoVid fiscal relief: a lot of money had already been allocated, bunches of it hadn't even been spent yet, and there were fears (that turned out to be correct) that the economy had returned to full employment and further stimulus would be inflationary. The bill passed the Democratically controlled house, but deadlocked at 50-50 in the Senate. The Vice President can cast the tie-breaking vote, and Harris did.
To sum up, she voted to tax more tips.
Then, inexplicably, one of her first policy proposals as a candidate was to promise to not tax tips. Even though this was already Trump's policy.
***
Here's the thing: not taxing tips is internally consistent with the view Republicans typically hold about labor markets, and is inconsistent with how Democrats typically view labor markets. How so?
Consider the minimum wage. This is a form of (binding) price floor. The textbook argument is that price floors are not a good idea. There are several reasons, but one is that you can't force demanders to make purchases at the floor price, so some supply goes unsold, and surpluses appear that were not there before.
Now, the labor market is backwards from most peoples' initial intuition: employers are the demanders, and employees are the suppliers. Price floors help suppliers, and the minimum wage can do the trick.
But then you run into another issue. The qualitative answer in textbooks is that some workers may lose their jobs when the minimum wage rises, since the price floor may make demanders drop out of the market. So the higher wage would only help the people who kept their jobs, but would hurt those that lose them.
Except, quantitatively, it's not clear how big that effect is. If demand is inelastic, almost no one loses their job. If demand is elastic, lots of people will lose their jobs.
Politicians aren't actually much for hard evidence. So generally, Democrats just presume that the demand for minimum wage workers is inelastic so that minimum wage increases are beneficial to workers, and Republicans presume it's elastic so that minimum wage increases are harmful to workers. Hold that thought.
Consider tax incidence. This is who actually pays the tax (directly or indirectly) rather than who the tax is targeted at. A basic conclusion is that taxes are most incident on whomever has a more inelastic curve (because inelasticity means you can't change much, even to avoid a tax).
For example, suppose your political position is that fast food is bad and we need to discourage it. And your policy is to tax McDonald's employees (lower take home pay, so less workers, so slower food, and customers stay away). If labor demand is inelastic, that means that McDonald's can't go without employees, and eventually they will end up paying the tax for their employees so they don't go work at the hardware store.
OK, now, for good or ill, tips are currently taxed a lot more than they uses to be. So a policy to stop taxing them is like an anti-tax (or subsidy).
This makes a lot of sense if you're Trump and you view labor demand as elastic: most of the benefit of subsidizing workers by not taxing their tips will go those service workers.
But this makes no sense if you're Harris and you view labor demand as inelastic: most of the benefit of not taxing tips will go to the employers of those service workers.
I think it's plausible that Harris' economic advisors (a group with zero actual economists) did not catch this blunder. I also think it's possible that they don't care; although this requires a cynical presumption on my part that they think the voters they're likely to attract with it are stupid.
And I absolutely get that economics can be difficult, and boring, and that no one should have to understand it if they don't want to. But having said that, I think that makes a strong case for using economic advisors that know their economics. I think potential voters trust their politicians to at least be able to do that.
Or not: it's been about 2 weeks now, and the Harris campaign has not changed their proposal.
***
For what it's worth, I had a conversation with ChatGPT about Harris' positions and it quickly noted the inconsistency. So, in principle, all Harris' advisors had to do was type a bit if they were concerned about economically sensible policy. Do note that ChatGPT is not current enough to know about Harris' positions, so I did have to input them on my own and ask it how they meshed.
† Confession: I worked for tips in the 80s, which were all in cash, and I did not report them.
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