Connect with us

Business

An Illustrated Guide to Who Really Benefits From ‘No Tax on Tips’

Published

on

An Illustrated Guide to Who Really Benefits From ‘No Tax on Tips’

There’s no question that President Trump’s proposal to stop taxing tips has broad appeal. It’s popular in polling, lawmakers in both parties support it, and now a version of the idea is on its way to becoming law.

But the effect of the policy would actually be quite narrow. About 3 percent of American workers receive tips, but about a third of those employees would not see a gain from the change.

Advertisement

That’s because of the way Republicans structured the policy in the tax legislation they passed through the House recently. Here’s who would benefit under their plan — and who wouldn’t.

The proposal would leave out workers who are not tipped.

Advertisement

The tax break is good news for people in industries like dining, where tips are a big part of worker pay. But it also means that two employees making the same amount, one a bartender and one a retail salesperson, could soon face very different tax bills.

Advertisement

These two workers each make $40,000, but the tipped worker would owe a lot less in taxes.

Note: Potential additional effects of tax credits or other less common deductions are not included.

Advertisement

The tax exemption would create a huge incentive for more people to try to earn tips. The Republican legislation lays out some ground rules, tasking the Treasury Department to limit the tax break to jobs in which workers have traditionally received tips. This could become the subject of intense lobbying, as companies try to convince the government that their employees deserve the tax break. Uber and DoorDash have already pushed to make sure their drivers can qualify for tax-free tips.

Many of the lowest-earning tipped workers wouldn’t benefit much, or at all.

Advertisement

Another obstacle to benefiting from the tax break is the way income is taxed in America. In general, before they pay taxes, Americans subtract deductions from their income, and then the government assesses tax on that smaller amount of money.

Everyone can take the standard deduction, which would be worth $16,000 for individuals and $32,000 for married couples this year under the Republican tax bill. “No tax on tips” would take the form of a deduction people can claim on top of the standard deduction, shrinking their taxable income even more.

But for a tipped worker who doesn’t make much more than the standard deduction — say a college student who waits tables over the summer — the ability to claim an additional deduction would not generate much in tax savings. Someone making less than the standard deduction would have no taxable income to begin with.

Advertisement

The policy would save this low-wage waiter a small amount.

Advertisement

Note: Potential additional effects of tax credits or other less common deductions are not included.

Advertisement

It’s important to note that the tips exemption applies only to the federal income tax. Workers would still owe payroll taxes, like the 6.2 percent Social Security tax, on their tipped income. They may also owe state income taxes on their tips.

For many low-income Americans, payroll taxes, rather than the income tax, are the biggest taxes they pay. Roughly 37 percent of tipped workers already don’t owe any federal income tax, according to an estimate from the Budget Lab at Yale.

Others wouldn’t gain because other benefits already eliminate their tax burden.

Advertisement

There are other tax breaks that could eliminate a worker’s tax liability before “no tax on tips” comes into the picture. For example, a full-time Uber or Lyft driver who can take advantage of the mileage deduction, which increases with every mile driven, may not have much use for another tax break.

Advertisement

The policy wouldn’t make a difference for this ride-share driver.

Advertisement

Note: Business deductions included are for qualified business income and business use of a car. The amounts differ under a “no tax on tips” policy because the deductions would interact. Potential additional effects of tax credits or other less common deductions are not included.

An exception to this would be tax benefits that are “refundable.” These are tax credits, like the earned- income tax credit, that give money to Americans even if they don’t owe anything in income tax. So these tax credits can become cash payments to low-income Americans. Because of that, workers could conceivably use the tips deduction to reduce their tax bills to zero and still receive the same benefit from a refundable tax credit.

The more money someone makes, the bigger the benefit.

Advertisement

The deduction would be most meaningful for those who make enough to owe a fair amount in income taxes. A typical tax cut for someone earning enough to benefit from the plan could be worth roughly $1,800.

Advertisement

This hairdresser would save the typical amount among those who would benefit.

Advertisement

Note: Potential additional effects of tax credits or other less common deductions are not included.

This dynamic is a microcosm of how cuts to income taxes often work: The more money you make, the more you pay in tax and therefore the more you save from a tax cut. In this case, though, your benefit would depend both on how much you make and what share of your income comes in the form of tips.

Advertisement

This Las Vegas blackjack dealer would save a lot based on his significant tips.

Advertisement

Note: Potential additional effects of tax credits or other less common deductions are not included. Figures are rounded.

This would be true up to a point. The Republican legislation would bar tipped workers making more than $160,000 from claiming the break. (That level would apply for this year and increase over time.)

Advertisement

The cut-off is a stark one. A tipped worker making $160,001 would, under the bill, receive nothing, potentially encouraging people to try to lower their earnings to claim the tax break. Making that extra dollar could mean thousands in additional taxes.

“No tax on tips” could end up as a short-lived experiment. In the House-passed bill, the policy would last only through 2028, though the legislation could change in the Senate.

Many tax-policy experts are rooting for the demise of the deduction, which they see as another potential hole in a tax system so strewn with carve-outs that it is often compared to Swiss cheese. In general, they would prefer a system that charges roughly the same tax on workers with roughly the same earnings, rather than creating a tax advantage for certain types of work.

Advertisement

“It’s the exact opposite of the general principles that tax policy purists advocate for,” said Joseph Rosenberg, a senior fellow at the Urban Institute.

Advertisement

About the data

Advertisement

Illustrated examples were constructed using data from a summary of the House Republican bill (proposed tips policy, standard deductions and tax rates); the Bureau of Labor Statistics (typical wages by occupation); companies and industry groups (estimated typical tip shares); and analyses from the Budget Lab at Yale and the Tax Policy Center (distributional effects of the policy). Workers in all examples have a single tax-filing status.

Business

Paramount’s Delrahim slams ‘fear-mongering’ and partisan politics clouding Warner Bros. deal

Published

on

Paramount’s Delrahim slams ‘fear-mongering’ and partisan politics clouding Warner Bros. deal

Paramount Chief Executive David Ellison has been circling the globe, meeting government regulators who will ultimately decide the fate of his controversial $111-billion takeover of Warner Bros. Discovery.

Last week, Ellison spent two hours answering questions from U.S. Justice Department antitrust lawyers in a bid to secure a key government approval — one that few people believe is in doubt because of President Trump’s strong support of tech billionaire Larry Ellison and his son’s ambitions to amass more power.

Throughout his travels, David Ellison has been accompanied by a savvy wingman: Makan Delrahim.

Delrahim, Paramount’s chief legal officer, served as the nation’s top antitrust regulator in the Justice Department during Trump’s first term. The 56-year-old Iranian American, who grew up in Los Angeles, is the architect of shrewd moves that have brought Paramount within reach of its blockbuster merger that would redefine Hollywood.

Politics have permeated the process — even before Trump announced he would get involved. Opponents have been suspicious of the Ellisons, given the family’s ties to Trump and programming changes to redefine Paramount’s CBS, including last month’s departure of late-night comedian Stephen Colbert and a shakeup at “60 Minutes,” CBS’ newsmagazine.

Advertisement

Buying Warner Bros. Discovery would give the Ellisons control of both CBS News and CNN.

Paramount’s bid for Warner Bros. has sparked dread in Hollywood for another reason, too: Thousands of jobs already have vanished through a string of media mergers.

More than 5,000 artists and entertainment industry workers have signed an open letter, calling on California Atty. General Rob Bonta to try to block the deal on antitrust grounds.

In an interview with The Times, Delrahim responded to concerns and criticisms. This interview has been edited for length and clarity:

Where does the regulatory process stand?

Advertisement

We are still going through the regulatory approval process. We actually started planning for the regulatory approval filings last summer. We knew we were going to be pursuing this transaction but it took a few months longer to sign the transaction than we thought. There were some interveners [Netflix, Comcast], but we planned ahead.

Do you have a commitment from Trump or his administration that you’ll get a thumbs up?

There are no deals with the president. We have a deal with the Warner Bros. shareholders. We’ve submitted [applications] to the governments of Europe, Canada, U.K. and the U.S., and that’s where it is.

You got a head-start because you filed a regulatory approval in December — months before Paramount had a deal with Warner. Why so soon?

We were always very skeptical [the Netflix deal] would ever go through. The only way to really show the [Warner] board that our deal would get through — because it doesn’t have antitrust problems — was to move as fast as we could.

Advertisement

One of the benefits being a former [DOJ] enforcer and having a team of outside lawyers who are also former colleagues and enforcers was that we anticipated what the government would ask for. Those were questions that we would have asked, and so we provided those answers.

Your timeline is aggressive. Some suggest Paramount wants this deal done before the mid-term elections.

I don’t think it’s aggressive. It has nothing to do with the midterms. The midterms do not change the officials at the Justice Department or the FCC — we have that minor application there. The midterms have no effect on the European Commission or anybody else. We’ve been very transparent and proactive with members of Congress and with the state attorneys general and the federal authorities.

Are you preparing to defend a potential antitrust challenge from Atty. General Bonta?

Well, no matter what field you’re in, whether it’s antitrust or whether you’re preparing for a football game, you always prepare the best you can for the worst, and you hope it never gets there. So, we’re preparing for challenges from anybody and everybody. But I don’t think any serious antitrust enforcer who looks at the facts, the law, the economics of this transaction will see an antitrust violation.

Advertisement

Why are you so confident?

There’s no element of this merger that is anti-competitive. Once you look at it, it’s incredibly pro-competitive. It increases output, it increases jobs, and it lowers the cost to the consumers. If you actually try to block this deal, you’re going to harm consumers, you’re going to harm creative talent, because you’re going to harm the creative ecosystem — the vision that David [Ellison] is trying to deploy here. It’s transformative from the efficiencies that it creates.

David Ellison has promised to release 30 films a year. Was that commitment to show that this merger will not be a repeat of Walt Disney Co.’s 2019 purchase of Fox?

I’m quite familiar with that one because I was at the Justice Department and reviewed it. Disney-Fox was a transaction with a different thesis. Disney wanted to get into streaming and they wanted to get scripted series. It wasn’t about studios trying to increase output.

Our transaction, as David has described, is motivated to create more content to feed the theaters, then streaming. We have a natural economic incentive to create more content. We’ll still be in fourth place after this transaction on the streaming side — almost half the size of Netflix.

Advertisement

David Ellison hasn’t made any commitments on the television side or pledged pledge to keep the various TV studios intact. Why?

I don’t think there’s much of an overlap on the television studios. Look, you have incredible studios in HBO, Warner Bros. Television, certainly our own studio. We’re not paying money to limit supply. It’s the exact opposite.

There is overlap between CBS News and CNN. How are regulators looking at that issue?

We’re very proud of CBS News and hopefully CNN, post-transaction. There is very limited overlap. Why? Because CBS News only airs a few hours a week of programming whereas CNN is 24/7, and it has international reach.

Antitrust regulators are going to see that it’s going to create synergistic effects. You might be able to cross-program and more people will be exposed to the incredible programming of CBS News. They’ll benefit from each other’s independent strengths.

Advertisement

During the first Trump administration, you said merger conditions were problematic because it’s difficult for the government to enforce behavioral remedies. Has your thinking changed?

No, I’ve been quite consistent. If there’s an antitrust problem, you need a divestiture [selling assets]. I don’t think there’s a remedy needed in this transaction. But having said that, we’re happy to engage with regulators to discuss where they see a problem and a possible solution. We’re always wanting to engage in constructive dialogue.

Would Paramount spin off CNN?

I don’t see that. I can’t see any antitrust reason to do so. That would be a weaponization of the antitrust law, and that would not be appropriate.

Many people in Hollywood view the merger with trepidation because of the prospect of more job losses. Others see it through a political lens. How do you evaluate the politics?

Advertisement

Politics is part of life. It’s part of the beautiful process of democracy. Generally, we are very empathetic to the folks in Hollywood, but this transaction will actually create more and better and exciting jobs. David is an absolute lover of films; he’s a filmmaker himself. For the first time, you are getting an owner who comes from the creative side.

Let’s be honest. There’s a lot of fear-mongering, particularly from people in Washington, D.C. They are running a political campaign. Some of these people are trying to inflict harm on this transaction really because of their own antisemitic views. Regulators and law enforcement officials will see right through that.

Do regulators share others’ concerns about the merger debt — $79 billion — for the combined company?

Some regulators appropriately have asked about it. They say: ‘This is what we have heard, that you guys are not going to be around because of this debt,’ which is just silliness. David and his family are owner-operators. They’re not rented CEOs. They have over 50% ownership. They put their money at stake and my money is on them.

Advertisement
Continue Reading

Business

Move over, Grogu. Internet culture soars as ‘Backrooms’ and ‘Obsession’ top the box office

Published

on

Move over, Grogu. Internet culture soars as ‘Backrooms’ and ‘Obsession’ top the box office

Internet culture is showing up in a big way in theaters, as low-budget horror films “Backrooms” and “Obsession” led this weekend’s box office and beat out big franchise films like “Star Wars: The Mandalorian and Grogu.”

A24’s “Backrooms” topped the charts with $81.5 million in the U.S. and Canada in its opening weekend, according to studio estimates. The film is directed by 20-year-old YouTuber Kane Parsons, who based it on his internet series of the same name.

“Backrooms,” which reportedly had a production budget of about $10 million, stars Chiwetel Ejiofor as a furniture store owner who finds a mysterious portal in his basement. The film made a total of $118 million worldwide.

In second place was Focus Features’ “Obsession,” which hauled in $26.4 million in its third weekend in theaters, up 10% from the previous weekend’s total. The film, which had a production budget of less than $1 million, has now grossed $104.7 million domestically for a global total of $148 million.

“Obsession” director Curry Barker is also known for his YouTube sketch comedy channel.

Advertisement

The success of two YouTube-native filmmakers at the box office indicates the growing power of the platform — and online culture as a whole — in attracting audiences to cinemas.

Walt Disney Co. and Lucasfilm’s “The Mandalorian and Grogu” fell to third place this weekend with a domestic gross of $25 million. Lionsgate’s musical biopic “Michael” ($11.7 million) and Sony Pictures’ family comedy “The Breadwinner” ($7.5 million) rounded out the top five at the box office, according to Comscore data.

Continue Reading

Business

The robot puppeteers of Silicon Valley teaching humanoids how to make your morning coffee

Published

on

The robot puppeteers of Silicon Valley teaching humanoids how to make your morning coffee

Fernando Flores can spend eight hours a day pouring the same cup of coffee.

He is not a barista. He’s a robot puppeteer, trying to train humanoids.

He manipulates mechanical arms remotely, using hand and arm sensors to make them pick up a pot of coffee, pour it into a mug and put the pot back in the coffee maker. Flores checks for spills, then empties the mug back into the pot by hand and does it again — hundreds of times.

“The repetitiveness, it can cause some discomfort,” said Flores, who has the title of senior robotic pilot at San Francisco startup Encord. “It becomes second nature after a while.”

This Sisyphus of Silicon Valley is on the front lines of a rapidly expanding industry of robot trainers, preparing to teach and operate the army of humanoid robots scheduled to march out of nearby factories in the coming year. Encord practices, records and sells data about movement to the companies racing to bring humanoids to homes, offices and factories.

Advertisement

If tech companies’ optimistic plans are to be believed, a swarm of American-built robots is about to hit the market.

Tesla’s Fremont factory stopped car production this year to make way for production lines for its Optimus robots, with unbelievable plans to ramp up capacity to 1 million units a year. Palo Alto-based 1X Technologies is already manufacturing its 66-pound, 5-foot-6 humanoid named Neo at its factory in Hayward. The company received 10,000 preorders, and its first shipment is expected later this year. Figure AI’s humanoid factory in San Jose has increased its manufacturing capacity to produce one Figure 03 robot an hour, with the goal of producing 12,000 a year.

Fernando Flores demonstrates the articulation of a robot performing a whisking motion at Encord on May 21.

(Paul Kuroda / For The Times)

Advertisement

Goldman Sachs projects the global market for humanoids could reach $38 billion by 2035.

The AI of these humanoid robots needs an immense amount of data on human movement. How humans write, speak, code and compose was easily scraped off the internet, but the bots need more information to master how to stand, step, lift, squeeze, pour and perform other physical movements. That is where companies like Encord come in.

The $10 billion invested in robotics in 2026, according to CB Insights, has spawned an industry focused on training robots. Initially, that meant humans strapping iPhones to their foreheads, recording actions like cooking, cleaning and performing household chores. That, however, doesn’t capture the exact torque, force and grip required for a robot hand to work flawlessly.

Now, humans are directly guiding robots through expensive rigs that let them control the robots’ movements. Data collected using robot arms offer richer insights into motor skills and object manipulation. Encord charges clients up to $1,000 per hour for training data.

The information gathered from trainers controlling robots is “super important to bridge the next level of learning,” where robots will learn to correct mistakes and do the chores on their own, said Vineeth Velmurugan, head of robotics learning at Encord.

Advertisement

The company is already working with some of the top companies in robotics, but said it couldn’t share most names. Among the clients it could mention were Toyota Research Institute and Weave, which already has laundry-folding robots in a few homes.

Brian Gonzalez pulls an ethernet cable using a robotic arm at Encord

Brian Gonzalez pulls an ethernet cable using a robotic arm at startup Encord on May 20.

(Paul Kuroda / For The Times)

Many of the new robotic data companies are focusing on industrial use cases. Robots can perform better in a structured, predictable environment, like a factory or warehouse.

Home tasks are tougher, as layouts and tasks are more varied and messy. While many bots have mastered walking, they still struggle to open doors, fridges and washing machines smoothly. They don’t know where or how to grasp a doorknob, handle or door edge or how much pulling, pushing or twisting force to apply.

Advertisement

Flores has mastered making the robot arms pour coffee, but he still often spills. When that happens, he deletes records of the attempt.

“Typically, we don’t want any mistakes,” he said. “If we have more than three consecutive mistakes within a 15‑second window, that’s not going to be good data.”

Inside Encord’s test facility in Hayward, it has replicated a standard American home with a fully furnished living room, kitchen and bathroom.

In the living room, a pilot rearranges an untidy study desk. She first scatters AA-size batteries, pens and scissors on the table, and walks back to the nearby control rig to make the robot arms place each one inside the tray of a desk organizer.

Depending on the day’s training, the pilots could be opening and closing refrigerator doors, whisking liquids in a bowl, sorting silverware or turning a water faucet on and off over and over until the robot arms get it right.

Advertisement
Cortney Weintz, left, and Tony Schiller record data with cameras at Encord.

Cortney Weintz, left, and Tony Schiller record data with cameras at Encord.

(Paul Kuroda / For The Times)

In another corner of the facility, people wearing smart glasses place and pick up playing cards and sort plastic plates by hand, collecting first-person videos.

One key skill for the coming bot invasion: plugging in cables.

Companies want robots that can crawl into duct spaces, identify ports and plug cables to help build the massive data centers needed for AI. Encord replicated a real data center server rack, where an operator inserts blue cables into penny-sized sockets all day.

Advertisement

Many companies have entered this business. Meta-backed Scale AI and Palo Alto-based Micro1 are major players in the space. China has more than 40 state-owned robot data-collection facilities where hundreds of on-site humans mimic train bots how to move in the real world.

In Watertown, Mass., Tutor Intelligence has set up a 100-robot facility dedicated to harvesting movement data. Its robot arms, which are being trained to do factory work, are controlled by a human team split across Mexico, the Philippines and Boston. This is in part to train its robot, Sonny, which will hit the market later this year.

Elaine Batchlor sorts screws and bolts with a robot in a mockup at Encord.

Elaine Batchlor sorts screws and bolts with a robot in a mockup at Encord.

(Paul Kuroda / For The Times)

“We built the Data Factory to bootstrap the initial intelligence for the Sonny robot, so that we can begin to deploy Sonny into the field,” said Josh Gruenstein, co-founder of Tutor. Ten of its remote operators are based in Boston, and the rest are international.

Advertisement

Remote operation is emerging as an integral part of the humanoid robot business. Employing teleoperators in countries where wages are much lower than in the U.S. could, in theory, mean a robot controlled by a human in another country could do a task at a fraction of the cost of having an American do it.

This month, a humanoid robot cleaning service in San Francisco called Gatsby completed a robot cleaning of a U.S. home using a teleoperator in Mexico.

The technology is still evolving, said Aron Frishberg, co-founder of Gatsby, but being a first mover means Gatsby is getting more training.

“There’s obviously stuff that goes wrong,” he said. “It’s really hard to get precise hand movements or arm movements and grab something.”

Encord co-founder Ulrik Hansen said it will be setting up a teleoperations center in its Hayward facility in the next three months. Even as more robots are deployed and master increasingly sophisticated tasks, they will still need humans to occasionally take control remotely.

Advertisement

“They will need some exception handling when they get things wrong,” he said.

Hundreds of teleoperators will learn where the system succeeds, where it breaks and step in when needed. Once those patterns emerge, Hansen said, they can move teleoperations to cheaper locations abroad or to the Midwest.

Back in Hayward, Flores created new coffee-pouring challenges for his robot arms. He changed what was on the counter around the coffee maker and moved the mug to different spots. It takes a lot of know-how to puppet and train a robot, he said.

“A lot of people would (guess) this might be easy, this is dumb,” Flores said. “There actually is thought here. There actually is critical thinking.”

Advertisement
Continue Reading
Advertisement

Trending