The Tip Is the Distraction, and the Wage Is the Scandal 

Gesturing, I caught the waiter’s attention to pay my restaurant bill. He hustled over and brought with him the now-ubiquitous handheld payment device. I tapped the prompts and noticed something unsettling. The suggested tip amounts—20 percent, 22 percent, 25 percent—were calculated not on the subtotal for the food and drink, but on the grand total, a number bumped by 8.625 percent state and local sales tax in San Francisco and, in the case of my burger, an additional 6 percent city-mandated health charge to help pay for restaurant workers’ health insurance. 

This is a tip-on-a-tax, a surcharge on surcharges. Let me be clear: As a former waiter, I am not critical of the hardworking people who depend on tips. I once depended on them, too. I believe in tipping generously. My objection is to the software and the business decision behind it, which inflate the basis for the tip and, in turn, the swipe fees that go with it. This sleight of hand, much like shrinkflation, erodes trust by banking on the inattention we give to modern transactions. The solution is simple: point-of-sale (POS) systems should be programmed to calculate gratuities on the pre-tax subtotal. “No tips on tax” should be a principle of consumer fairness. 

But this debate over digital deception, and even Donald Trump’s 2024 campaign promise of “no tax on tips,” are parlor games. They obscure a corrosive injustice that hides in plain sight on Americans’ pay stubs. The scandal isn’t how the tip is taxed or calculated; the scandal is the lousy wage the tip subsidizes. 

Trump’s headline-grabbing proposals about tips mask the draconian reality of the little-discussed, risibly small federal tipped minimum wage. This rate, frozen since 1991, is $2.13 per hour. 

For less than the price of a cup of coffee, an employer in dozens of states can legally purchase an hour of labor. This is not a historical artifact; it is the federal standard, an economic shell game. The employer receives a “tip credit,” allowing the customer’s gratuity to subsidize their payroll. If a server’s tips don’t bridge the gap between $2.13 and the federal minimum wage of $7.25, the employer must make up the difference. But this provision is notoriously tricky to track and often ignored, leaving workers with little recourse. 

Contrast this with California. For decades, the Golden State has upheld a higher standard, rejecting a subminimum tipped wage. Thanks to wage policies established by the state’s Industrial Welfare Commission in the 1970s, California law mandates that employers pay tipped workers the state minimum wage before tips. This foundational decision is based on the principle that a tip is a bonus for good service, not a subsidy for an employer. Alongside Washington and four other states, California operates on a simple premise: every worker deserves a stable, guaranteed base wage. 

A shocking number of states—including Texas, Georgia, North Carolina, Nebraska, and Wyoming—cling to the antiquated $2.13 model. They have built an economic sector that condemns its workforce, predominantly women, to precarity. How can you set a budget, get a mortgage, or plan your child’s education on an income contingent on a customer’s mood? 

Over two decades ago, Barbara Ehrenreich’s seminal work, Nickel and Dimed: On (Not) Getting By in America, unmasked this brutal reality. Going undercover as a waitress, Ehrenreich documented the Sisyphean struggle to survive. Her findings were not an academic abstraction but a lived chronicle of exhaustion, indignity, and the mathematical impossibility of escaping poverty or near-poverty through hard work alone. She revealed that for many, low-wage work is not a steppingstone but a trap. 

The $2.13 tipped wage is part of that trap, fostering an environment where workers must tolerate harassment to secure the tips they need to survive. Markets work best through transparent pricing. You set a price; I may or may not choose to pay it. But under the tipped wage system, there’s a hidden subsidy that makes servility and obsequiousness central to the transaction. This is an economic failing and a moral one. 

Maybe in an ideal world, there’d be no tipping. But there’s no getting rid of tipping, just as there’s no getting rid of other performance-based compensation, like sales commissions. The solution is not Trump’s sugar high of a tax-free tip. The real reform is to abolish the subminimum tipped wage entirely. 

First, Congress must, like California did decades ago, eliminate the federal tip credit, mandating that every worker earn the full minimum wage in their state before tips. 

Until then, states operating under the $2.13 model must be called out for perpetuating this raw deal. They should follow the seven states that guarantee a minimum wage at or above the still preposterously low federal floor of $7.25, and the 26 that require a rate higher than that floor. Paying a living wage is not radical; it is the fundamental compact of a functioning capitalist democracy. This will put a burden on smaller businesses like restaurants, who will have to pay their waitstaff more, but no more than, say, the grocer or wholesaler, who both sell food. 

The debate, then, should not be on Trump’s terms about what part of a pittance the IRS takes, but about getting out of the pittance business and giving workers the dignity they deserve.  

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