What's more likely is some bean counter at the IRS realized enforcing taxes on tips cost more money to enforce than they gained, or was barely break even. It's an easy political win at no risk.
The easiest seems like who is paying the "tip". If it's your employer, it's taxable compensation. If it's a customer, than it could be a tip.
Then there would probably be a bunch of sub-bullet points defining whether a tip is taxable depending on whether you have a direct relationship with the customer tipping you, whether the "tip" is mandatory, or at the discretion of the customer, are you in X roles (e.g. barista) within Y industries (e.g. food services).
If you put a cap on income, then both you and the IRS need to maintain a record of the tips you received, to prove that you’re on the right side of the cap.
I don’t think that saves much in administration costs.
Yeah, maybe unintuitive, but even if it costs more to collect and enforce taxes than you get from taxes, it also has a preventative side to not abuse it.
I don't think so either, but they likely have useful data that politicians can draw off of. Remember Milton Friedman, who wanted to eliminate many forms of taxes, came up with a lot of his policies after working at the Treasury department on taxation mechanisms.
TLDR: Tax on tips is hard to enforce. A lot of it goes unreported. In 2023, the IRS wanted to revamp voluntary enforcement programs, consolidating three voluntary programs into one voluntary program. But they don't plan to move forward with that.
Trump ran an ad saying Kamala wants to "harass" tipped workers and has "weaponized the IRS", and making himself look like the good guy by promising to simply eliminate the tax. Kamala responded with a competing plan but with some modifications. One modification is to make tips exempt from income tax but still subject to payroll tax, allowing workers to get social security benefits when they retire.
