In a survey released this morning by Scioto Analysis, 11 of 16 economists agreed that exempting tips from state income tax would significantly improve wellbeing for tipped workers. This comes after Representative Jay Edwards introduced a bill that would exempt tips from income tax in Ohio, and both President Trump and Vice President Harris announced that exempting tips from income tax would be part of their agendas if elected president.
Bob Gitter from Ohio Wesleyan who agreed with the statement qualified his response by saying “low-income tipped workers are not paying much, if any, income tax. The benefits will be for higher income tipped workers, e.g. servers at higher priced restaurants.” This highlights a common concern with this policy, the fact that many workers who rely on tips do not end up paying much if any income tax.
Similarly, Curtis Reynolds from Kent State commented about how this might create some negative incentives for employers “... I am not sure that this will really help at all. Some tips may not be declared on taxes in the first place (so exempting them does not help) and this may just slow wage growth if employers view this as an increase in total compensation.”
Additionally, 11 of 16 economists disagreed that exempting tips from income tax would lift more people out of poverty than raising the tipped minimum wage to the non-tipped minimum wage. As Will Georgic from Ohio Wesleyan wrote “The number of tipped workers in Ohio who are both in poverty and pay income taxes is vanishingly small. Exempting tips from income taxes will do very little to pull people out of poverty. Roughly doubling the tipped minimum wage to coincide with the overall statewide minimum wage will be much more effective at reducing poverty in a partial equilibrium sense. However, the ultimate effect will depend on how much of this increase in labor costs for employers is passed on to consumers and on the own-price elasticity of services provided by tipped workers.”
The Ohio Economic Experts Panel is a panel of over 40 Ohio Economists from over 30 Ohio higher educational institutions conducted by Scioto Analysis. The goal of the Ohio Economic Experts Panel is to promote better policy outcomes by providing policymakers, policy influencers, and the public with the informed opinions of Ohio’s leading economists. Individual responses to all surveys can be found here.