Virginia Gov. Glenn Youngkin | Photo: Shutterstock
While servers and bartenders wait to see if Donald Trump will make good on his campaign pledge to shield gratuities from federal income taxes, Gov. Glenn Youngkin is aiming to give the tipped workers of Virginia a break on their state taxes, too.
The state’s Republican governor included a provision in his next fiscal budget to exclude tips from taxable incomes. The move is part of a larger push by Youngkin to stimulate economic activity by leaving more disposable dollars in Virginia residents’ pockets.
“By removing tips from taxable income, it will directly increase the take-home pay of hundreds of thousands of Virginians and give them more buying power, which in turn will improve financial stability, stimulate local economies, and honor the value of their hard work,” the governor said in a statement.
Yet, in a preview of the major challenge Trump’s proposal will likely face in Congress, there’s no proof the stepped-up economic activity will generate enough revenues from other sources to compensate for the lost income-tax dollars. The governor’s office has estimated that Youngkin’s no-tax-on-tips proposal will cost the commonwealth $70 million in tax proceeds.
More than 250,000 restaurant, hotel and beauty parlor employees would benefit from the exemption, according to the Virginia Department of Taxation and the state’s Employment Commission.
Youngkin’s proposal is independent of Trump’s promise, meaning Virginia servers, bartenders and hosts could get the state tax break even if the incoming president’s campaign proposal should falter.
Youngkin’s proposed budget has yet to be approved by the Virginia General Assembly. The legislative body is controlled by Democrats.
After hearing a restaurant server describe how difficult it was to live off her income, Trump announced while campaigning that he would halt the federal taxation of tips on day one of his administration if voters returned him to the White House.
His Democratic opponent, Vice President Kamala Harris, subsequently pledged to give tipped workers the same break.
Many political pundits have predicted Trump’s federal proposal will go nowhere because of the financial impact it would have.
Federal income tax revenues would drop by $6.5 billion during the first year Trump’s proposal was in place, according to the Tax Policy Center, a government think tank affiliated with the Urban Institute & Brookings Institution. It estimates that only 60% of households with a tipped worker in residence would feel any benefit because of the income thresholds that would need to be met to qualify.
The average boost in disposable income for the qualifying residences would be about $1,800, according to the Center.
The exemption proposed by Trump was turned into legislation by Sen. Ted Cruz, a Republican from Texas. The bill he’s drafted has been endorsed by the National Restaurant Association.
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