Election season is producing a lot of grand promises by the candidates. Let’s look closely at two ideas that are being proposed in order to gain votes.
“No Taxes on Tips”
In current law, gratuities are required to be reported and taxed. If the employee does not earn enough in tips to meet the minimum wage, then the employer is required to make up the difference in earned wages.
If people are given the opportunity to avoid taxes and thus gain thirty percent in extra income, then everyone will work for tips. Doctors, lawyers, accountants, and others will all want to switch to tipped and untaxed income! People find clever ways to avoid taxes.
Consumers do not like forced tipping, especially when the flipped check-out screen offers a choice of 20% or 30% gratuity for no extra service. The forced tipping results in a lack of price transparency. It’s hard to compare pricing if the extra gratuity is added at the end of the purchase. For example, wedding dress vendors are now asking brides for a percentage tip on an expensive purchase. The result is that the mother of the bride feels that the dress alteration will be held hostage in exchange for a generous tip. If tax law is changed on tips, how soon will other industries climb on the tax-free tip bandwagon?
Consumers have always liked to reward good service with a generous bonus. Changing the tax law on these bonuses will result in a two-tiered economic system of those who pay taxes and those who do not pay taxes.
“National Rent Control”
Anyone who has ever lived in New York City knows about the city’s rent control laws. Where is the incentive for landlords to build and maintain their buildings if they cannot get a return on their investment? The name of the NYC policy was changed to rent “stabilization”, but the policy is the same: the government dictates what landlords can charge. The good intention is to have affordable housing; the result is a large demand with a limited supply. People then do not move but remain in cheaper apartments.
Rent control, in which bureaucrats artificially sets the price of housing with no relationship to supply and demand, produces housing that no one wants to live in. There is no reason for landlords to update or maintain the properties since the lease rate cannot change according to the market. Landlords do not have the financial incentive to build new housing. Anytime that government sets the price, the result is a shortage.
Exporting failed New York ideas to the rest of the country is not good economic policy. Candidates claim that they have good intentions to help Americans in need, but these ideas are doomed not to help anyone.