The Democratic Party’s problems have a two-word solution: “economic populism.”
Or so suggests much recent commentary (including, to an extent, my own). Yet, the merits of “populist” economic policies depend a lot on how that term is defined.
“Populism” is best understood as a rhetorical mode that portrays political life as a conflict between the many and the few — the righteous people and the extractive elite. This narrative frame has been a staple of Democratic politics since the days of FDR (if not Andrew Jackson) — and for good reason. Many economic issues genuinely pit the interests of the rich against those of ordinary people. And the Republican Party often takes the minority’s side of those fights.
Politically, Democrats have an interest in increasing the salience of the GOP’s plutocratic loyalties and reestablishing their own credibility as guardians of working-class interests. Substantively, the party should aim to redistribute economic power from the few to the many across a number of fronts — including through the promotion of collective bargaining and expansion of social welfare benefits.
But not all forms of economic populism are worthwhile.
It is not always self-evident whose interests a policy will serve. Some measures speak to the public’s intuitions about economic fairness yet undermine the well-being of working people. Economists are often better able to appreciate these adverse second-order effects.
Yet, policies that align with common sense — but not with technocratic consensus — often attain a populist aura, precisely because they offend credentialed experts. This dynamic is especially likely when a proposal boasts the support of a sympathetic, working-class constituency.
Progressives aren’t immune to such anti-technocratic populism. In recent months, Democrats have been fiercely debating why it is difficult to build housing and infrastructure in the US. Many liberals have argued that the problem derives in part from the unintended consequences of certain regulations. Some on the populist left have sought to discredit this fundamentally empirical claim by demonstrating that it doesn’t poll as well as denunciations of corporate power.
But valorizing the public’s gut instincts, while denigrating economic hand-wringing, has its hazards. The American electorate’s economic judgment isn’t reliably sound or progressive — as Trump-era policy trends have indicated.
Tariffs, “no tax on tips,” and the pitfalls of anti-expert populism
Trade is one area where popular sentiment and expert opinion have historically conflicted. Mainstream economics holds that broad tariffs typically reduce living standards for workers in the aggregate, even as they may benefit some segments of the labor force. Yet, the notion that free trade will reduce Americans’ wages — since people in poor countries are willing to work for less — is highly intuitive.
Further, some US workers really have suffered from such trade and have organized in opposition to it. It, therefore, is not difficult to frame the debate over protectionism as a fight between working Americans and greedy corporations, even as the actual conflict is much more complicated (with trade restrictions harming most US workers and potentially helping some US business owners).
But the hazards of economic populism may be best illustrated by the recent, bipartisan embrace of exempting tipped income from taxes. This week, the Treasury Department released a list of 68 professions that qualify for the president’s “no tax on tips” policy. The catalog of occupations eligible for deducting gratuities is remarkably broad, including not merely waitstaff and bartenders but also electricians, plumbers, and “self-enrichment teachers.”
Trump’s policy is substantively indefensible. There is no economic theory for why tipped income should be taxed less heavily than wages. And the problems with such favoritism are myriad. To name just a few:
It arbitrarily favors some blue-collar workers over others. There is no reason why Chipotle staff should be taxed at a lower rate than retail clerks or manufacturing workers who earn the same incomes. If we believe that working-class Americans are paying excessively high taxes, we should just cut rates on all of them.
It provides a disproportionate benefit to more privileged tipped workers. The lowest-paid 37 percent of tipped workers don’t earn enough to owe any federal taxes, irrespective of Trump’s policy. Among eligible workers who do qualify, meanwhile, the largest benefits will generally flow to the highest earners: Servers at expensive high-end restaurants could gain thousands of dollars from Trump’s policy, while a Cracker Barrel waitress gains nothing.
It invites gaming that will erode the tax base. Trump’s policy encourages plumbers, electricians, and various other workers to offer customers a discount rate, if they’re willing to pay in “tips.” Of course, this sort of tax avoidance is not formally condoned. But it will be extremely difficult to police (especially given the president’s defunding of IRS enforcement).
It entrenches a fundamentally inefficient and inequitable approach to compensation. Standardized wages provide workers with predictable incomes and protection against discrimination. Yet Trump’s policy is likely to encourage employers to shift more roles into tipped categories, so as to capture its tax advantages. This will yield an economy in which more workers’ pay is contingent on the generosity of their patrons (and liable to fall below the federal minimum wage).
Nevertheless, “no tax on tips” is a popular concept. One poll from last year found more than 70 percent of voters supporting ending all federal taxation of tipped income. The policy speaks to conservatives’ aversion to taxes and liberals’ desire to aid working people.
Its popularity also likely reflects status-quo bias. The impetus for the policy is that tipped workers were once able to systematically underreport their incomes: Since their tips were mostly in cash, they were invisible to the IRS. As credit cards and payment apps displaced greenbacks, waitstaff, housekeepers, and other tipped workers lost the ability to cheat on their taxes, which abruptly increased their effective tax rates. This led unions like the Culinary Workers Union to mobilize for relief.
“Since this group of workers used to be able to cheat on their taxes, they should now pay a lower rate than other workers who earn the same incomes” doesn’t really make sense as an argument. But it seems to resonate with people. And since the policy’s beneficiaries are both sympathetic and organized, Trump can portray his policy as a defense of working people against globalist elites who would waste their tax dollars.
Populist goals, technocratic measures
As Trump’s tariffs have demonstrated, if an idea is symbolically appealing — but practically dysfunctional — it can rapidly bleed support upon implementation. Once confronted with the reality of hamfisted protectionism, the public’s views on trade have shifted sharply toward those of economists.
It’s unclear whether “no tax on tips” will provoke a similar backlash. Should the policy make touch-screen tip requests even more ubiquitous — and turn virtually every transaction into an ethically confusing conundrum — the public’s enthusiasm may wane. Regardless, the measure is unsound.
This doesn’t necessarily mean Democrats were wrong to support it. As far as senseless policies go, “no tax on tips” isn’t especially destructive. The law is expected to add $32 billion to the deficit over the next decade, a pittance in the context of a nearly $7 trillion budget. Given that Democrats could use the support of Nevada’s large tipped workforce to compete in the Electoral College, pandering on this front might be worth the political benefits.
Unless Democrats fully abandon the progressive project, however, they’ll need to be willing to say that some of the public’s intuitions are wrong. The popularity of “no tax on tips” reflects a broader backlash against taxation that threatens to undermine core government services (let alone visions for welfare state expansion). In Gallup’s polling, the share of Americans who believe they pay too much in taxes is now 59 percent, the highest figure since 2001 — despite the fact that taxes have fallen sharply over the past 24 years. Meanwhile, the share of voters who say that they would prefer paying higher taxes for more government services has never exceeded 25 percent since 1993. As of 2021, a majority of Americans favored “lower taxes” in exchange for “fewer services.”
Put simply, one can’t be a progressive in the United States and think that the American public’s economic intuitions are reliably sound. Indeed, virtually all highly political people — no matter their ideology — believe that their movement can best advance voters’ stated interests by ignoring some of their policy judgments.
Democrats should therefore be populist in both their rhetoric and basic objectives. But when assessing whether a given policy will actually aid “the many,” popular opinion is not a substitute for expert analysis.
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