Daniel Levinson Wilk is a professor of American history at SUNY-Fashion Institute of Technology.
A few weeks ago Charles Rangel, the Lion of Lenox Avenue, was carried into St. Patrick’s Cathedral in New York City with a full military guard. Rangel, a longtime U.S. congressman from Harlem, was the chair of the Ways and Means Committtee in the House of Representatives, the committee with authority over taxes, tariffs, and benefits; many consider it to be the most important committee in the House. Until the election of Barack Obama, Rangel was arguably the most powerful African-American politician in the history of the United States.
As mourners gathered in the cathedral, two scandal-ridden New York politicians running to become the next mayor of the city, ex-governor Andrew Cuomo and current mayor Eric Adams, glad-handed up front with congresspeople and other notables. Zohran Mamdani, a left-wing politician who would soon win a shocking victory over Cuomo in the Democratic primary, worked the pews halfway back. State legislators compared notes on when they’d gotten home last night after the final vote on the budget.
And then there’s the other problem with ending taxes on tips. Historically, even when politicians and bureaucrats act in good faith to help workers earn more money, tipping policy changes have created unintended consequences because managers and customers have reacted to them in unpredictable ways.
Or a change in enforcement can lead to the unintended consequence. In recent years, aided by the wider paper trail inherent in the shift from paper money to credit cards, the IRS started policing tip reporting on tax returns more carefully. This, in turn, upset a longstanding, tacit agreement between labor and management—managers would turn a blind eye to their employees’ underreporting of tips, and the workers in turn would accept a certain level of fraud and abuse from management—tip skimming, underpayment for overtime, yelling and belittlement. Once workers lost their end of the bargain, they were less willing to put up with managerial abuses, creating a more adversarial and litigious workplace. We are only just beginning to understand the effect this has had on customer service.
Railroad station managers, now on the hook for red cap salaries, responded with mass layoffs and a speed-up enforced by a network of spies. This was to be expected; when wages are forced up by the government or unions, bosses try other strategies to bring labor costs back down. Red cap union officials fought as hard as they could to protect members’ jobs and rights, and many of the laid-off were hired back again.
What was less predictable was the “accounting and guarantee” plan that managers invented to fulfill the new wage requirement. Stationmasters made red caps fill out their tip earnings on slips of paper, and if tips came in less than two dollars a day—eight hours at the 25-cent minimum wage—the station said it would make up the difference. It is remarkably similar to today’s tip-credit system, except that instead of a subminimum wage plus tips with a top-off when necessary, it was no wage at all plus tips and a top-off. This was a great way to avoid the requirements of the minimum wage law—if workers reported making less than two dollars a day, managers fired them, claiming they must have been bad at their jobs. To avoid this fate, most red caps started reporting exactly two dollars a day in earnings every day.
Red caps found themselves in an untenable position, between a public tipping less because of the new minimum wage and managers who refused to pay it. They falsified their tip-earning records downward, against their own interests, in order to keep their jobs. They were making less than ever before, and their union leaders complained. The press did little to publicize the problem, but federal investigators from the U.S. Department of Labor’s Wage and Hour Division held hearings and a case went all the way to the Supreme Court.
In the end the court ruled that management could satisfy the minimum-wage requirement however it wanted, but in the interim, because of all the trouble, the railroads changed their policy again, to the “check and charge” system. A red cap attached a perforated tag to each bag, gave half the tag to the passenger in order to redeem the bag later, and then dragged the luggage away on a trolley, ending the tradition of personal service that red caps had always provided.
Customers didn’t like it. Many misunderstood, underpaid, or acted abusively. As Cornelius Thompson from Broad Street Station in Philadelphia told investigators, “I had one man to curse the president, the Labor Act and me.” Even when they weren’t angry, Thompson noted, customers could feel the loss, and so could he. “We can’t give all that personal service that we did. Sometimes I would spend hours with one person…I was very cautious about those things, and I was rewarded. But now I have to do like the rest. I have to push right along in the crowd.” The reformers and union leaders who fought to give red caps a full minimum wage did not see this change coming, and they had trouble seeing it when it arrived. Their reports celebrated an end to red caps’ reliance on tips and ignored the sense of loss.
If we end the tax on tips, what unintended consequences will reshape working conditions and customer service? Imagining the tax-free windfall for workers, will employers drop base wages and will customers decrease tips, making workers’ lives more precarious and more beholden to abusive customers? Or will the promise of untaxed tips have little impact on wages and tipping amounts? Will workers become more cautious and ingratiating in their manner? Or will a bonanza of untaxed tips give them greater confidence to put unruly customers in their place? Will occupations rise up or disappear? What are we not imagining?
You fools, I did not say, though perhaps I should have. Didn’t you learn anything from the Rangel funeral? Immigration policy isn’t the path forward to justice and equality. It’s the tax code! But not this proposed tax code, and not an end to taxes on tips.
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