President Donald Trump has positioned himself as a champion of the working class, yet his economic policies indicate otherwise. In July of this year, Trump signed a new “Big Beautiful Bill” into law, which included a provision that eliminates taxes on tips, a measure presented as a victory for the service industry, as it is expected to save the average worker about $1800 per year. While Trump’s “No Tax on Tips” provision may offer symbolic and small-scale relief to workers in the service industry, the broader bill is also simultaneously stripping many of the same workers of governmental assistance such as Medicaid and SNAP benefits. On the surface, the provision seems to put extra cash in the pockets of servers by eliminating a regressive form of taxation. However, the larger bill that contains this proposal erodes social programs, and “No Tax on Tips” distracts from a much deeper piece of legislation embedded in the US hospitality and service sector: the obscure but exploitative tip credit system.
The tip credit system allows employers to pay subminimum wages under the assumption that tips will make up the difference. Employers can claim a tip credit of $5.12 per hour, which would amount to almost $9000 for the average worker, working 35 hours a week. While Trump’s No Tax on Tips provision gives workers $1800 back, the tip credit allows employers to pocket five times that. Although tips are often framed as an extra reward for good service, without the stability of a minimum wage, millions of service workers are left dependent on the generosity of customers rather than the accountability of employers for their livelihoods. By highlighting the short-term optics of “tax-free tips,” Trump’s proposal conceals the exploitative structure that defines tipped labor.
This is exemplified in many states, such as Georgia and Oklahoma, where the federal minimum wage of $7.25 is a fiction. Under the Fair Labor Standards Act, the real base pay for tipped workers is just $2.13 an hour. Employers can claim a “tip credit” if an employee’s combined wages and tips meet the federal minimum wage. While this system claims to guarantee workers a minimum wage, stating that “the employer is required to pay the balance so that the employee receives at least the minimum wage with the defined combination of wages and tips,” this is not always the case. In fact, misuse of the tip credit by employers is one of the most common reasons for wage theft. If a worker’s pay falls short one night, and employers fail to make up the difference, it could result in workers receiving less than minimum wage. The Department of Labor found that approximately 84 percent of investigated restaurants violated the tipped wage policy, amounting to over 1,170 tip credit violations and roughly $5.5 million in stolen wages.
Last year, Waffle House, a popular American breakfast chain with over 2,000 locations across the United States, faced scrutiny for scamming its workers by misusing the tip credit. For example, there were cases of workers completing untipped labor, such as washing dishes, while only receiving the minimum tipped wage of $2.13. When the cost of living has skyrocketed, this wage is far from a livable wage. In Georgia, where the minimum tipped wage sits at $2.13, a livable wage for an adult with no children is estimated to be $23.94.
The exploitative nature of tipping culture is not accidental. Rather, it is an intentional tool of systemic oppression with a lengthy history. While tipping originated in the medieval era as a form of reward for good service in master-serf relationships, in the post-Civil War period, it allowed employers to avoid paying newly freed Black workers fair wages. For example, the Pullman Company, a railroad company, played a significant role in entrenching tipping into the US economy. By employing formerly enslaved people and paying them extremely low wages that were expected to be supplemented via gratuities it created a system of racialized labor exploitation. Its legacy continues to propagate oppression and inequality in the service industry today. Following the Civil War, many Black Americans were funneled into service jobs, and the modern tipping system reflects these historical dynamics. Today, a majority of tipped jobs are held by people of color and women, where they are still subject to subminimum wages.
Tipping was created to shift the cost of labor from employers to customers, creating various ethical dilemmas. Employees are left with uncertain pay, relying on the inconsistent contribution of customers, while employers can legally withhold part of their earned wages by paying them a subminimum wage. This system places customers in the role of moral arbiters of worker pay. Many customers assume that their tip goes directly to the worker, unaware that the employer can use it to meet wage expectations; this assumption may even lead to customers tipping less than they otherwise would. In both cases, the tip credit is extremely misleading and can erode trust between customers and businesses.
While a handful of states, like California and Oregon, have abolished this practice, requiring employers to pay full minimum wage regardless of tips, most have not—forty-two, to be exact. This allows for wealth to unfairly consolidate in the hands of the employers instead of the workers who actually deserve it. Additionally, a worker’s livelihood should not depend on customer generosity, but rather be guaranteed through predictable wages from their employer.
Proponents of the tip credit argue that removing the tip credit would harm small businesses, as they may be unable to afford to pay employees the full minimum wage, resulting in reduced hiring power and capital. However, this should raise a deeper question as to why our labor system is structured so that paying livable wages is seen as financially threatening to businesses. Tips are promoted as a bonus, but in practice, they function as a substitute for reliable wages. Especially in today’s economy, where tipping is socially normalized and increasingly expected at rates as high as 30 percent, the expectation of a tip transforms it into an obligatory supplement for inadequate pay. Even as public scrutiny grows, most states have failed to reform the system, preferring to protect business interests rather than confront the exploitative nature of tipped labor by demanding an overhaul.
While federal legislation such as Trump’s policy on tax tips may put a few extra dollars in the pockets of service workers, these policies really function as a facade to hide the structural weaknesses of low wages and the tip credit, ensuring that wealth continues to flow upward. Tipped workers are among the most economically vulnerable. In the United States, poverty rates for tipped workers are more than double those of non-tipped workers. Additionally, tipped jobs rarely provide benefits such as health insurance, retirement plans, and paid leave. This increases many tipped workers’ dependency on social programs such as Medicaid. While Trump vows to support tipped workers, he is actively destroying the very structures that support them.
Tips remain popular in the United States, often framed as a token of appreciation. Yet for millions of workers, tipping is not a bonus, but often a necessity. If Trump and other populist politicians claim to be champions of the working class, they must first start by dismantling the exploitative structure of tipped labor. While eliminating taxes on tips may seem beneficial, it fails to address the broader structural issues of our labor system. True reform requires a critical reevaluation of tipping culture, first by abolishing the tip credit and enforcing a nationwide livable base wage policy sufficient to support workers regardless of how much they earn in tips.