With gas prices through the roof and President Donald Trump's approval rating in the gutter, Republicans are hoping last year's gimmicky tax cuts could help save their House and Senate majorities this fall.
"We prevented a 30% tax hike and delivered no tax on tips, no tax on overtime," House Majority Leader Steve Scalise (La.) crowed from the stage Wednesday at the party's first midterm Republican National Convention.
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"He passed the largest tax cut in American history. No tax on tips. No tax on overtime," Sen. Tim Scott (S.C.) said of Trump in his own convention speech.
The president himself has been hyping these policies in recent weeks. In a speech last month full of creative math, he claimed nearly half a million Nevadans "saved an average of $10,000 on their taxes" due to the tip policy alone.
"Think of it: Every worker made $10,000 more money. That's all because of the fact that I said I was going to do it and I got it done," he boasted Aug. 5 in Las Vegas.
In reality, the share of people who benefit from these tax breaks in Trump's "big, beautiful bill" is relatively small, and the savings for typical workers aren't anywhere close to what the president has been letting on. That's probably why the much-touted tax savings seem to have done little to make voters feel better about inflation, which outpaced wage growth in the government's most recent estimates.
The tip policy, which enjoyed bipartisan support, allows workers to deduct up to $25,000 a year in gratuities from their taxable income if they work in a qualified occupation, the most obvious being restaurant servers and bartenders. The benefit phases out for single tax filers with income above $150,000.
The Tax Policy Center, a joint project between the Urban Institute and Brookings Institution, estimates that only 3% of filers would benefit from this provision.
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Critically, the benefit is a tax deduction — not a tax credit. A worker who claims $5,000 in tips on their tax return won't be $5,000 richer; they just won't be taxed on that income. For a worker in the 12% tax bracket, which for a single filer in 2025 was an income of $11,926 to $48,475, the $5,000 deduction would come out as a tax savings of $600.
"It's just a deduction from the income that would be used to compute your taxes," said Aparna Mathur, an expert at the Tax Policy Center. "It's a big distinction that I think the average person [needs to] understand."
In his Nevada speech, Trump was probably misrepresenting the average deduction as the average savings when he said "every worker made $10,000 more money." Even a high earner in the top tax bracket could not squeeze that much juice out of the deduction if they had $25,000 in tips; the maximum value would be $6,000.
"That's just fully misleading, and intentionally so," Adam Michel, director of tax policy studies at the libertarian Cato Institute, said of the $10,000 line. "They put out the deduction number because it is bigger. … They prey on people's misunderstanding of credits and deductions. If it was a tax credit, it would be dollar for dollar."
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As Factcheck.org reported, Trump appeared to use the same calculator in a Georgia speech in July, when he claimed that more than 100,000 Georgians "saved an average of more than $7,000 on their taxes … because of no taxes on tips." The Treasury Department said that $7,000 was the average deduction among 7.5 million filers who claimed tips on their returns this year — a value of $800 for someone in the 12% bracket.
Factcheck.org could not figure out where Trump's 100,000 figure in Georgia came from, though it surmised that the 440,000 workers Trump cited in Nevada came from an explicitly theoretical analysis that noted the actual number of beneficiaries "is likely far lower."
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Like the tips deduction, the tax break on overtime pay is not as big as it might seem.
When hourly employees log more than 40 hours in a week, most of them become eligible for time-and-a-half pay on the additional hours. But the tax deduction applies only to the pay premium — the "half" in "time-and-a-half." So if a worker earning $20 per hour works 50 hours in a week, they would be paid $300 for the 10 overtime hours but could only deduct $100 from their taxable income.
Treasury said that 29 million filers claimed deductions for overtime pay this year, but the average amount was only $3,100, less than half the average deduction claimed on tips. For a worker in the 12% tax bracket, that comes to a savings of $372, an amount that could easily be wiped out by the higher fuel prices caused by Trump's war in Iran.
Mathur noted that the maximum benefits of both provisions would fall to the highest earners eligible for them. There is a high "standard" deduction due to the 2017 and 2025 tax laws — $15,750 for a single filer this year — meaning people who claim it would have to earn more money overall than that before they could benefit from deducting tips or overtime premiums.
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"We think these are targeting low-income households," Mathur said. "At the end of the day, it's really not going to benefit them as much as we thought."
Michel is a fan of lower overall tax rates — not narrowly tailored benefits built on political sound bites. There is no reason a restaurant server should benefit from a new tax deduction but not a schoolteacher, he said. And besides, the tips deduction could encourage employers to shift more compensation to gratuities — likely leading to even more tip prompts for tip-weary consumers.
He argued that the 2025 tax law serves as a "microcosm of the tension within the Republican Party": the broad lower tax rates of Trump's earlier reform, but paired with narrow, populist provisions like tips and overtime, which play well to the MAGA base but don't do a whole lot.
"All this new stuff is moving us in the wrong direction," he said.
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