Bev Lucatelli, owner of The Caravan Lounge, pretends to jokingly strangle one of her bartenders, King Patrick Eugenio, under the warm glow of the bar’s rainbow Christmas lights and they both burst out laughing. All the employees treat each other like family, with Lucatelli even offering to spot Eugenio when he’s low on rent money.
For these employees and workers in the service sector every dollar makes a difference, especially tips, which have become a hot topic during this election cycle. The idea of ending the tax on tips has bipartisan approval and hospitality workers are all in.
Eugenio said he makes about $300 a week in tips, but he could make more if his tips weren’t taxed — money he would put toward rent and paying performers for a drag and burlesque show he hosts at the bar. Lucatelli said an end to the tax on tips would help ease her employees’ financial burden in pricey Silicon Valley.
“That would be amazing to see,” she told San José Spotlight. “Nothing would make me happier because my employees are my family.”
Politicians locally and nationally have endorsed the idea in recent months, including presidential candidates Vice President Kamala Harris and former President Donald Trump. Harris has provided some limitations to the potential policy, including only exempting people who make up to $75,000 annually and only applying it to federal income taxes and not payroll taxes, which fund programs such as Social Security and Medicare, according to the Washington Post.
Democratic California senators killed the idea “without discussion or debate” after state Republican Sen. Rosilicie Ochoa Bogh introduced an amendment implementing the exemption in late August, according to a Republican state Senate statement. It is unclear what that will mean if the policy is implemented federally.
Russell Hancock, CEO of Joint Venture Silicon Valley, said the region has seen rapid salary growth in the tech industry, while wages at tipped jobs remain stagnant.
The 2024 Silicon Valley Pain Index found inequities throughout Santa Clara County have gotten worse over the past five years. Nine households in the region hold $110 billion in liquid wealth — 12 times more than the bottom 50% of regional households.
“It used to be the case that the economy would generally grow across the board, and that’s not happening anymore,” Hancock told San José Spotlight. “So what do you do when that happens? Well, people scratch their heads. Presidential candidates are scratching their heads.”
Some economists are skeptical of the idea.
William Sundstrom, an economics professor at Santa Clara University, said the potential policy is misguided because it won’t help as many people as it seems.
An analysis by Yale University’s Budget Lab found only about 5% of workers making the lowest wages nationally earn tips.
Sundstrom said that brings up issues of horizontal equity where workers in similarly paid jobs pay an unequal amount of taxes, such as food delivery drivers paying less than retail delivery drivers. Sundstrom said a better system is the federal earned income tax credit, a refundable tax credit for low- to moderate-income workers.
“Creating a tax system that helps out some of them and doesn’t help out others is sort of a violation of horizontal equity, treating people differently for what would appear to be not so obvious reasons,” he told San José Spotlight. “Why is it that that set of low-income folks should get these benefits and others shouldn’t?”
Wages have increased in some parts of the service industry. Fast-food workers statewide earn a minimum of $20 an hour after the base wage increased earlier this year.
But that’s not the case sector-wide, with the minimum wage across Santa Clara County varying by city and starting at $16 an hour.
Local service workers such as Douglas Bledsoe, who has worked at The City Fish in downtown San Jose for four years, use their tips as a needed boost on top of their hourly wages. Bledsoe makes about $200 a week in tips and joked he would use the extra income he saved without tax on alcohol, but said he’d actually use it for groceries.
“Those tips go a long way,” he told San José Spotlight.
Service workers don’t care which side of the political aisle the idea comes from as long as it’s implemented.
“I don’t care who brings that, it has my 100% (support) because it will ease my bartenders’ lives,” Lucatelli said. “They work hard, it’s their money and I don’t think the government should benefit from their service.”
Whether or not politicians enact the exemption in the near future, Hancock said just the prospect will spur important discussions.
“All of those conversations are going to be breaking out in a big way here in in the months and years to come,” he said.
Contact Annalise Freimarck at [email protected] or follow @annalise_ellen on X, formerly known as Twitter.
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