Expatriate Owl

A politically-incorrect perspective that does not necessarily tow the party line, on various matters including but not limited to taxation, academia, government and religion.

Friday, September 08, 2006

A bad tip

Congressman Mike Sodrel from Indiana has introduced H.R. 5917, which would exempt tips from income and Social Security taxes. It's not a blanket exemption for tips, just those received by those who perform certain "qualified services," which means "cosmetology, hospitality (including lodging and food and beverage services), recreation, taxi, newspaper deliveries and shoe shine services." There are other limitations, including a maximum exemption of $10,000 per year. The exemption also does not apply to tips to the extent that they are part of the employee's minimum wage.

It certainly is a wonderful "feel good" bill, especially to those of us who for a period of our lives were or are gainfully employed in one or more of those "qualified services." If "feel good" were the sole criterion, then I would certainly be imploring my own Congressman to jump on Sodrel's bandwagon.

But "feel good" isn't good enough. There are several problems with Mr. Sodrel's proposal.

First of all, it would be just one more complication in the tax law. Hey, Congressman Mike, isn't the Internal Revenue Code complex and verbose enough?

Secondly, it not only imposes a double standard upon the taxpaying public, but also imposes a double standard upon income segments of the same taxpayer. There would be more complex recordkeeping requirements for people who, say, receive more than $10,000 in tips in a given year. This means a greater burden upon the taxpayer and the tax enforcer alike.

Thirdly, some of those denominated "qualified services" need some further clarification. The taxi driver obviously performs a "qualified service," but what about the driver of a chartered bus? Is the service he or she performs a "qualified" one? The hair stylist at the beauty parlor who receives a tip from his or her customer is certainly performing a "qualified service," the tips received for which would surely be exempt from taxation if otherwise within the limitations. But what if the hair being styled is detached from the customer's head? Would the services performed by a wig stylist be similarly "qualified" and exempted from the tax on tips?

[The very mention of "newspaper deliveries" in the bill rankles this former newsboy because a number of years ago Newsday, the Long Island MSM rag, gave pink slips to all of its delivery boys and girls and transferred its delivery to adults with cars, thus depriving hundreds of youngsters the opportunity to benefit from responsible gainful employment.].

I appreciate Congressman Sodrel's noble intentions, but H.R. 5917 is just an ineffective quick fix which can only complicate the situation. What Congress really needs to do is (1) completely overhaul our taxation system to a more plain and simple and manageable scheme, and (2) enact policies, taxation and otherwise, that will bring economic prosperity to all of America.


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