President Donald Trump caused a nationwide stir when, during his campaign, he proposed eliminating the income tax on tipped wages. While the suggestion may sound radical to some, the underlying idea is rooted in equity.

My first job was at a restaurant; it is actually what inspired me to become an entrepreneur. On breaks, after getting picked on by one of the chefs, I would go to the nearby 7-Eleven to get a big gulp and a Slim Jim—I realized then that it took 45 minutes of hard work to be rewarded with 15 minutes of pure bliss in the form of 2 ounces of greasy beef squeezed into a tube and 60 ounces of slurpee.

Now, as a small business owner running a financial firm in Michigan, I have seen firsthand the impacts this policy could have on our economy. We are a blue-collar state that relies heavily on the economic contributions of waged workers.

In the restaurant industry, tips form a significant portion of a worker’s income, often accounting for the majority of their take-home pay. When tips are taxed, workers can feel the pinch. By eliminating the tax on tips, we would ensure that these workers can keep more of what they earn, enhancing their financial stability and morale.

The median age in Michigan is 10 years younger than the median age of all other workers, meaning the industry is comprised of much younger workers.

In fact, in my experience, both working in a restaurant and advising clients, it is younger kids and older adults taking these jobs. Both are important to the economy.

First, we all hear the accusations that today's youth are lazy, so let's incentivize them to work. Tax-free tips are a policy that could motivate and encourage more teenagers to work.

And why tax these kids? I remember the first time I saw FICA stealing my dollars.

Second, retirees choosing this path leads to better economic certainty. It allows them to earn and spend more during the years when they can enjoy it most. Plus, the longer someone works, statistically, the healthier they stay, meaning they’re less likely to make as many claims on Medicaid.

For customers, the current system of taxing tips can also be confusing. In many cases, tips are considered part of the overall transaction, which means taxes can feel more burdensome for both the consumer and the employee.

The elimination of this tax would simplify the process, create a more transparent interaction, and ultimately encourage greater generosity from customers. People are often more inclined to leave a higher tip if they know that their gratuity is going only to the worker rather than to everyone’s least favorite relative, Uncle Sam.

Moreover, eliminating the tax on tips could drive more people to work in industries that are traditionally underpaid, like restaurants and bars. In the aftermath of Covid lockdowns, many in the service industry are still struggling to rebuild and hire new workers.

My home state of Michigan lost 3,000 restaurants during that time and hasn’t recovered.

These industries have long been known for relying on tips to supplement wages, which has led to a disparity between the total income of tipped employees and those in salaried positions. By removing the tax on tips, we level the playing field somewhat, giving workers in these sectors more financial flexibility, which could improve employee retention and overall job satisfaction.

While eliminating the tax on tips sounds like a win, I have strong reservations about the idea of reducing the tipped wage credit for restaurant workers. We are seeing this debate in Michigan right now, where the tipped wage is set to increase by nearly 20%.

This credit allows employers to pay workers less than the tipped minimum wage, with the expectation that tips will make up the difference.

Many people misunderstand that when tips fall short, employers must step in to ensure workers earn at least minimum wage. Reducing the tip credit doesn't necessarily boost workers' earnings—it just forces employers to shell out more.

A higher tip credit lets employers schedule more servers per shift. Cutting it, though, drives up costs. To balance that, businesses might raise prices, shrink portions, or skimp on quality—all things customers notice. That can sour their experience, making them less likely to tip well, or at all.

Often, a lower tip credit means fewer servers on the floor. Hiring extra staff for a potential dinner rush gets pricey, especially if the rush never comes. For employers, the cost of higher wages outweighs the gamble of stretched service from fewer workers. Fewer servers mean slower service, and slower service tends to shrink tips.

In the end, slashing the tip credit shifts the ups and downs of business from employers to workers, which feels fundamentally unjust.

In short, tips is actually an acronym, it means to-insure-prompt-service. Tips are for going above and beyond. They encourage people to work harder, to do more, and to be better servants. For those reasons, we should free the tip from tax.

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Michael Markey is a Harvard-educated finance expert and former Republican Congressional candidate.