It was introduced in January by Sen. Ted Cruz, R-Texas, and a bipartisan group of co-sponsors including Nevada's two Democratic senators, Jacky Rosen and Catherine Cortez Masto.
Rosen brought the bill up in the Senate for a "unanimous consent" request Tuesday, which means any senator can block it. The process is typically used for more mundane matters, and bills are routinely called up and thwarted by objections. Consequential tax bills usually follow a more complex process. But none of the 99 other senators objected to Rosen's proposition, which led to the legislation's passing.
"Nevada has more tipped workers per capita than any other state. So this bill would mean immediate financial relief for countless hard-working families," Rosen said. "No Tax on Tips was one of President Trump’s key promises to the American people, which he unveiled in my state of Nevada. And I am not afraid to embrace a good idea, wherever it comes from."
The legislation follows through on proposals on the campaign trail last year, with both Trump and his Democratic rival, then-Vice President Kamala Harris, backing versions of the idea. While the National Restaurant Association threw its support behind Cruz's bill early this year, labor advocates and tax policy experts have largely criticized it.
At best, critics say, eliminating taxes on tips would be a marginal victory for hourly workers — many of whom don't make enough to pay federal income taxes anyway. Some also warned the change could incentivize employers to reclassify wages as tips for tax savings.
At worst, they say the proposal reinforces a two-tiered pay system that they're pushing to eliminate and replace with higher, universal pay floors with tips on top. That broader battle is nowhere near over, as last seen in a deal reached by Michigan lawmakers in March, which left intact a "subminimum" wage allowing employers to pay less than the state's ordinary base pay so long as tips make up the difference.
In the meantime, consumers say they're tired of being asked so frequently to kick in gratuities, and many have been pulling back. Some restaurant workers, for their part, aren't sold on scrapping the tipped pay system altogether, but told NBC News during the campaign that eliminating tip taxes wasn't a top economic priority.
The bill senators passed Wednesday now goes to the House, where Republicans have been seeking to include a version of the proposal in their sweeping party-line package for Trump's agenda. But the broad Democratic support for the idea gives GOP leaders options, including the possibility of passing it separately and removing it from broader legislation to lower the cost or spend the money elsewhere.
"Whether it passes free-standing or as part of the bigger bill, one way or another, No Tax on Tips is going to become law and give real relief to hard-working Americans," Cruz said on the floor. "So I’m proud of what the Senate just did, and I commend Democrats and Republicans, even at a time of partisan division, coming together and agreeing on this commonsense policy."
