Former president Donald Trump’s “no tax on tips” proposal figured prominently in his nomination-acceptance speech at the Republican National Convention, confirming that he’s serious about it. Critics from the Left and the Right claim it’s a political ploy that would benefit few workers and reduce tax revenue. Without question, tax policy should be designed to increase tax revenue, not to accomplish political goals. But some policies, such as this one, could achieve both.

Obviously, tipped employees would benefit if part of their income is untaxed—and that’s a good thing. According to the Budget Lab at Yale University, a nonpartisan policy-research center, roughly 4 million workers (2.5 percent of the labor force) hold jobs in tipped occupations. However, 5 percent of workers in the bottom 20 percent of wage earners—those making less than $17.66 per hour—hold jobs for which tipping is the rule. As a former restaurant-company CEO, I feel very confident predicting that this percentage would rise if Trump’s proposal became law, as would the benefits for low-wage workers. And those benefits would extend beyond a simple increase in those workers’ income.

Earning a paycheck can improve a person’s, and particularly a young worker’s, sense of self-worth. Earning tips enhances that experience because the rewards of the job are directly tied to individual performance and received in real time—tangible proof that a worker has excelled at his job. This builds confidence and strengthens the role of incentives in our economy. It also increases incomes far more effectively than, for example, government-imposed minimum-wage increases, which are unrelated to individual performance.

>>> How To Weather Our Economic Storm Without Capsizing

This helps explain why tipped workers overwhelmingly support keeping in place what is known as the “tip credit”—receiving a much reduced minimum wage ($2.13 an hour at the federal level) in anticipation of tips. In this respect, tipped workers are already treated differently than non-tipped wage-based employees—and they prefer it.

Lloyd Corder, an adjunct professor at Carnegie Mellon University, recently canvassed 3,735 tipped restaurant workers in eight states where there are initiatives under way to eliminate the tip credit. A whopping nine out of ten said they’d prefer to retain the lower minimum wage rather than risk a decline in tips. According to Corder, “it’s rare to find an issue that commands such widespread support across diverse age, race, gender and geographic groups.” Indeed.

“No tax on tips” can have the income-enhancing benefits of a minimum-wage increase without the risks—such as reduced working hours, automation and job displacement, or business closures, which would resulting in fewer overall job opportunities. “No tax on tips” would also benefit employers, reducing the pressure on them to increase wages—as workers can earn an increase with every shift—and incentivizing employee performance (which is what earns tips). Reduced or stable labor costs would leave employers with more capital available to keep a business open or to expand it and create more jobs.

Consider California. It has the second-highest minimum wage in the country, at $16 per hour, an unmatched $20 minimum wage for certain restaurant companies, and no tip credit. It’s no accident that California was the leading state for fast-food-restaurant closures in 2023 (at 379). Or that it has the highest unemployment rate of any state, at 5.9 percent, well above the national average of 4.1 percent.

Just to be clear, when businesses close—and new ones never open—the result is lost tax revenue.

“No tax on tips” would have direct and indirect tax effects. The direct effect of eliminating a category of taxable income obviously tends to be reduced tax revenue, as critics have noted. But the indirect effects of Trump’s proposal would preserve or create jobs, increasing tax revenue.

>>> How Much Federal Income Tax Do the Rich Pay?

Unfortunately, it is difficult to adequately include the job-creating—or job-preserving—benefits of a tax cut in a cost–benefits analysis. The Committee for a Responsible Federal Budget, a nonprofit public-policy organization, estimated that “no tax on tips” would reduce federal tax revenue by at least $150 million over ten years. But this analysis failed to account for any of the indirect benefits.

The CBO made a similar mistake in 2018, projecting the reduced rates of the Tax Cuts and Jobs Act would cost $1.1 trillion in tax revenue between 2018 and 2027 despite its potential to increase economic growth. With six years of actual data, however, including record corporate and overall tax revenue, the CBO is now projecting an inflation-adjusted increase of $570 billion.

Business incentives often matter more than number-crunchers are willing or able to anticipate. Bottom line: “No tax on tips” is an innovative proposal that can increase benefits for low-wage workers while decreasing the costs of running and growing the businesses that employ them. That is a unique combination—which helps explain why it just feels right. The fact that it also may be a political plus does not negate those benefits.