
Donald Trump's new proposal to exempt tips from taxation would blow up the federal deficit even further, a nonpartisan budget think tank estimated, Accounting Today and other news organizations reported.
The proposal would add between $150 billion to $250 billion to the federal budget deficit over 10 years, and possibly much more if it were to cause a shift in overall compensation from wages to tips, according to the Committee for a Responsible Federal Budget (CFRB).
The plan's deficit impact would be comparable and potentially much larger than the $172 billion projected revenue loss from extending the tax cuts for small businesses and other so-called pass-through companies enacted by the Tax Cuts and Jobs Act (TCJA) of 2017. These provisions are due to expire next year.
Trump has also proposed extending individual and estate tax cuts enacted by the TCJA, which the Congressional Budget Office (CBO) projected would cost $4.6 trillion over 10 years.
"The big picture is clearly we have huge fiscal challenges for whoever the next president is, yet we seem to be seeing a number of proposals that would make the situation worse rather than better," CRFB President Maya MacGuineas told CBS MoneyWatch. "Our politicians pander as their political strategy, which leaves the country so much weaker."
Trump's proposal, which doesn't address how it would be paid for, is bad tax policy because it would create an incentive to push more income into tipping, MacGuineas added. "Changing our economy into a tipped economy is not desirable in the first place," she said.
Trump announced his proposal at a campaign rally in Nevada, which has the country's highest proportion of workers in the food service and accommodation industries, and they have historically relied on tips.
"We need to spread the word so that every time you leave a tip for the next five months, you put on the receipt, 'vote for Trump because there's no tax on tips,'" the former president said at an event in Florida on Friday night.
The CFRB estimated that with a 10 percent shift toward tips, the cost could rise to $275 billion. With a doubling of tips offset by lower wages, the lost revenue to the federal government could rise to $500 billion.
"There is going to be a rigorous debate next year" about tax and spending policy, said House Budget Committee Chairman Jodey Arrington (R-Tex.), according to Accounting Today. "With the size of the debt and the level of interest rates, we are in a much different environment than 2017."