Tipping the call for a gratuiti the Expectation of one the guilt if you Don't leave one feels like a growing Part of our daily life and the numbers Support this according to the payroll Processing firm Gusto 6 and a half% of American retailers currently accept tips Which is nearly twice the amount Recorded in 2019 while tipping has Always been common place in sitdown Restaurants It's Not Unusual now to see It at fast casual spots coffee shops Sporting events the barber online few Research surveys shows that the constant Bombardment of requests has led many Americans to experience tip fatigue Which can lead to actually reduced Gratuities tipping has now made its way Into the political campaign not a Request for donations but both KLA Harris and Donald Trump say there should Be no taxes on tips Michael Lynn joins Us now he's the Michael D Johnson and Family professor of services marketing At Cornell's School of Hotel Administration thank you so much for Being with us let's start with these Um these campaign proposals to eliminate Uh taxes on tips how would those Actually affect Workers well the obvious is that they'll Have less taxable income right so They'll take home more but the IRS Estimates that roughly half of all tax
Uh all tip income is Undeclared anyway Um we think they're about 40 billion 45 Billion a year tipped in in the United States half of that's being declared so Let's say 21 billion um 20 uh one Billion of income is now Taxfree Um that's the benefit to the employee And how would it affect do you think Businesses if they if taxes are no Longer going to be uh I mean sorry if Tips are no longer going to be Taxed I think that depends upon the Details and we haven't heard very much About the details for example is it just The in personal income tax that's going To be Exempted or are we also going to Exempt the employee from the FICA taxes On that tip income and if the employees Are Exempted from FICA taxes what about The employers their share are they going To be Exempted if so then it'll benefit The employers too Um and it's you start to to have to Speculate right so if if this were to Pass presumably more and more employees Are going to ask and pressure their Employers to add a tip screen uh and It'll be harder and harder for those Employers to resist and and because Consumer backlash that could hurt them Politicians rush in where there is a new Part of American life and that seems to Me the the that this rise and tipping
That we all feel is now proved by the Fact that politicians want to take Advantage of it why is tipping now so Prevalent in so many of the different Places that we Go well technology is part of it it's Easier to ask than it's ever been uh Covid conditioned us to start tipping in Places that we hadn't previously done And uh a really tight labor market has Given employees enough power to demand Uh that their employers Ask for tips explain the co part of of That answer what happened in Co that Made uh the changed both the expectation Of tips and also our willingness to give Them well a during covid many people had Nowhere else to spend their money so They had plenty of cash they were at Home Safe service workers were not and they Felt and they knew that those service Workers weren't getting for example Restaurant uh waiters weren't getting in Dining uh customers and so there was a Clear they had a greater need for tips And I think consumers responded to that Perceived greater need and also wanted To reciprocate kind of as a hazard pay Uh for employees working during that Time and as a consequence they started Tipping more for traditionally tipped Services and became more and more likely To tip
For services that we wouldn't Otherwise uh tipping for Quick Service Increased during covid mhm
