Monday, Sept. 2, 2024 | 2 a.m.
Americans are being asked to tip more often and in more places than ever before: at fast food counters and corner stores, at auto garages and carwashes, even at self-checkout kiosks. That has rankled many customers and divided employers and tipped workers.
It may soon get worse. Both major-party presidential candidates have embraced proposals to eliminate income taxes on tips, a move that would, in effect, subsidize tipping and prompt more businesses to rely on it.
Economists across the political spectrum have panned the tax idea, arguing that it is unfair — favoring one set of low-wage workers over others — and could have unintended consequences. Even some tipped workers and groups that represent them are skeptical, worrying that over the long term the policy could result in lower pay.
But the debate alone underscores how service-sector workers have emerged from the COVID-19 pandemic as an economically and politically potent force. The spread of tipping in recent years was, in part, a result of the intense demand for workers, and the leverage it gave them. The presidential candidates’ dueling proposals signal that they see the nation’s roughly 4 million tipped workers as a constituency worth wooing.
But it is far from clear whether the rapid shifts in the tipping landscape will work out in employees’ favor in the long term. Already, some workers say they are seeing their tips fall off as more customers grow tired of constantly being asked to tip — a complaint backed up by at least some data. There is also evidence that some businesses are using tipping to avoid offering larger pay increases. Both trends could intensify if the economy weakens.
With gratuities now embedded in industries where they were once uncommon, more workers will suffer if customers start pulling back.
“The more wages become tip-based, the more fragile your life is,” said Amanda Cohen, a chef and restaurant owner in New York City who is a critic of tip-based pay. “And I’m not quite sure why you would force more people into that system.”
A pandemic shift
A decade ago, Cohen was in the vanguard of a different trend in tipping: its abolition.
Cohen banned gratuities at her vegetarian restaurant, Dirt Candy, in 2015. In their place, she raised wages for all workers in her restaurant — whether they were servers or line cooks — and raised menu prices to pay for the increase. Other restaurateurs followed suit, including Danny Meyer, owner of New York establishments such as Gramercy Tavern and Union Square Cafe.
Cohen, Meyer and like-minded peers argued that the tipping system was problematic for a number of reasons. It was unstable, with servers never sure what they would make from one shift to the next. It was also inequitable, with those tipped workers — at least at higher-end restaurants like Cohen’s and Meyer’s — earning far more than the line cooks working for hourly wages in the kitchen. And it was rife with opportunities for racial bias, sexual harassment and other forms of discrimination and abuse.
But the anti-tipping movement never gained traction outside of a relative handful of expensive restaurants in major cities, and the onset of the pandemic killed whatever momentum it had.
Early in the pandemic, many Americans were eager to show their appreciation for in-person service workers by tipping generously, even in situations where gratuities were previously rare, such as takeout orders. Then, once restaurants and other in-person businesses began to reopen, they faced a severe shortage of workers. Restaurants and coffee shops that didn’t allow tips found themselves losing employees to competitors that did.
“Coming back to being in business the summer of the pandemic, we could not have hired anybody without tipping,” Meyer said. His restaurants abandoned their no-tipping policy in July 2020. (Cohen is one of the few no-tipping holdouts.)
The spread of tipping
Economists have struggled to figure out exactly where and how much tipping has grown. Statistical agencies such as the Bureau of Labor Statistics and the Census Bureau don’t publish data on tipping or ask about it in most of their surveys. The Internal Revenue Service releases some data, but only years after the fact, and its figures don’t include tips that aren’t reported on tax forms.
Data from private-sector sources, however, suggests the spread has been real and significant. Half of all bakeries and ice cream shops now pay out tips to workers, up from about a third before the pandemic, according to data from the payroll processing firm Gusto. Tipping has also increased at coffee shops, quick-service restaurants and similar businesses where it was once less common. (Some stores may previously have had cash tip jars, which aren’t tracked in the company’s data.)
In online forums and on social media, customers often share more extreme examples: Tip screens have shown up at movie theater concession counters, airport newsstands and doctors’ offices. Gusto’s data suggests that such cases remain rare, but are increasing: The share of retailers accepting tips has nearly doubled since 2019, to about 6.5%.
Technology has played a role: Widespread adoption of tablet-based payment systems like Square and Toast have made it easy to start soliciting gratuities.
But for many of the businesses that added tip screens, the decision came down to a simple economic calculation: They needed to pay workers more to retain them, but couldn’t afford to do so without raising prices.
“Asking for a tip is a way of raising prices on the people who are willing or able to pay,” without raising prices on everyone else, said Michael Lynn, a professor at Cornell University who has studied tipping.
‘Tip fatigue’ fallout
For customers, however, seemingly constant requests for a tip — each of which must be accepted or awkwardly and publicly declined — can be exhausting, said Liz Wilke, Gusto’s chief economist.
“It’s like, how generous are you feeling today, Liz?” she said. “It’s an uncomfortable question to get asked five times a day.”
In surveys, many Americans report being frustrated by frequent tip requests, and some say they are becoming less generous as a result. So far, there is only limited evidence that is actually happening. Data from Toast and other sources suggest tipping has fallen from its mid-pandemic peak but has recently leveled off.
But concerns about “tip fatigue” underscore how the growth of tipping has been a double-edged sword for workers. On the one hand, gratuities have been a crucial source of additional income during a period of rising costs — and have, so far, come on top of wage increases, not instead of them.
On the other hand, workers are more dependent than ever on tips. They now account for about 20% of earnings for workers at quick-service restaurants, for example, up from about 10% before the pandemic, according to data from Square. That makes workers vulnerable to any pullback from customers, whether out of frustration or because of a cooling economy.
“Working for tips can be a bittersweet thing,” said Qiara Mercer, a 23-year-old server at a Waffle House in Durham, North Carolina. “Sometimes you have good days, and sometimes you have bad days.”
Lately, she has had more bad days than good, earning only about $10 an hour even after tips.
The tax-on-tips debate
Former President Donald Trump was looking to tap into the concerns of workers like Mercer this summer when he proposed exempting tips from federal taxes — an idea that he said had grown out of a conversation with a waitress in Las Vegas. Vice President Kamala Harris endorsed a version of the idea during a speech, also in Las Vegas, in August. Harris, unlike Trump, paired the proposal with a promise to raise the minimum wage.
The idea of exempting tips quickly won the support of the Culinary Workers Union in Nevada, as well as industry groups like the National Restaurant Association.
But economists point out that the proposals would give a big tax cut to higher-earning servers — some of whom can earn six figures, nearly all of it in tips — while doing nothing for low-wage workers in the kitchen or in other industries. Even many tipped workers, like Mercer, wouldn’t benefit because they earn too little to owe any federal income taxes. (Tips are also notoriously underreported on tax forms, although experts say that is probably less true now than in the past, when most tips were paid in cash.)
The proposals could also have a subtler effect: encouraging even more tipping.
If tips aren’t taxed, workers should, in theory, be more willing to sacrifice wages for tips. Over time, that could lead more businesses to adopt tipping for more workers, said Ernie Tedeschi, a research scholar at Yale Law School who was, until this spring, a White House economic adviser.
“This proposal shifts the burden of compensation a little bit away from the wage side and toward the tip side,” Tedeschi said. That’s good for restaurants, whose costs will fall. But for workers, he said, “they’re going to make a little bit less in wages.”
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That’s the opposite of what Isabella Crow would like. She works as a barista at a coffee shop in Ann Arbor, Michigan, where she is a senior at the University of Michigan. Tips make up a big part of her earnings — $2.50 to $4 an hour on top of her $12.50 hourly wage — and she appreciates them.
But Crow, 21, would rather see the industry rely less on tipping, and doesn’t like the idea of a tax policy that would instead embed the practice further into the business model. And outside work, she would love to be asked to tip less often.
“I’m a barista here,” she said, “but a customer everywhere else.”
This article originally appeared in The New York Times.