President Donald Trump continues his shakeup of nearly everything since taking office, as he recently renewed his vow to eliminate taxes on tips. New Orleans is, of course, known for being a service-industry driven economy and many are curious how this would reshape the economy locally.
UNO Business Professor Walter “Dub” Lane says the sheer amount of workers it would affect would be massive in this area simply based on the way service industry staff make their money for the most part. “People on the wait staff in particular live on tips. Their required minimum wage is paltry and anything above that, they live on tips. Obviously, this could help put some money in those workers’ pockets and they can spend it locally. It’s what we call a multiplier effect on the local economy,” Lane notes.
However, how deeply wages might be impacted really depends on where many wait staff are employed. Lane points out that the difference in tips simply by the percentages of the final bills between a five star restaurant or a local greasy spoon can be vastly different. “If you’re talking about the wait staff at Commander’s Palace or Galatoire’s or one of these high-end classic restaurants, some of those people make quite decent money. But, the wait staff at a local diner don’t make all that much and I’m not sure they’re paying income taxes anyway because you have to meet a certain wage threshold to have to pay income tax. In that state of Louisiana, less than half the people actually pay income tax,” adds Lane.
For those expecting a windfall of extra cash if Trump is somehow able to follow through on this promise, Lane emphasizes caution. “If workers get cash tips, many of them don’t report that or pay taxes on it anyway. So, the effect might not be quite as big as one might initially think in my mind,” Lane points out. “Even if many of these workers are paying taxes, most of them are likely in the 10% tax bracket. But, again, if it’s ONLY on reported tips, that might end up only being a 3% to 4% net bonus to them. So, while it sounds great to say you’re not going to pay taxes, my guess is that the impact won’t be that great,” Lane goes on to say.