Testimony: ATR Opposes Ending Minimum Wage Tip Credits in New York State

To the Honorable Roberta Reardon, Commissioner, New York State Department of Labor, and Deputy Commissioners,

On behalf of Americans for Tax Reform, I submit this testimony in strong opposition to Governor Cuomo’s proposal to eliminate the wage tip credit, or sub-minimum wage — which allows service workers to be paid less than the minimum wage while they earn tips to supplement their income.

The reality that New York State is even considering a reckless and damaging move to eliminate the wage tip credit shows how disconnected our state government has become from the people it is intended to serve.

The state should be making it easier for New Yorkers to live, work, and raise a family. Instead, ending the tip credit would destroy a system that has been working for decades, for both businesses and workers.

The results would be awful for customers, businesses, workers, and ultimately government, as another blow to the economy risks hurting revenues and driving more economic activity out of state.

Please, heed the warning signs. New York State already has the 49th-ranked business climate in the nation, according to the non-partisan Tax Foundation. Upstate regions have especially suffered in recent years, with job growth around one-quarter of the national average.

Eliminating the tip credit would make these issues worse.

For each $1 increase in the base wage for tipped workers, a median-rated restaurant is at a 14 percent increased risk of closing, a Harvard Business School study found in studying San Francisco, as California does not have a wage tip credit. A similar effect in New York from the proposal you are considering would mean a 42 percent increased closure risk.

You don’t have to look cross-country to see negative consequences. In New York, over 270 restaurants closed after the minimum wage for tipped workers was increased by 50 percent in 2015.

It’s no wonder an Employment Policies Institute survey of 200 New York restaurants showed almost half of those that charge affordable prices said they will have to close if the tip credit is ended.

Maine, which recently made a similar change to the tip credit, saw their legislature restore it less than a year later because it was such an overwhelmingly unpopular move. The concerns servers voiced about their net pay decreasing without the tip credit proved to be very real in practice.

Proponents of eliminating the credit point to narrow cases of wage theft, which is already illegal. If there is a problem there, it is one of enforcement. Their factually-challenged case for this policy gives away that their campaign is meant to attack New York businesses and workers for the benefit of narrow, but powerful special interests.

These facts should be more than enough to dissuade the Department of Labor from eliminating the credit. If not, the flood of workers and business owners who have spoken against elimination of the credit at hearings across New York ought to drive the point home. They know best what works for them, and their families.

I strongly urge you to avoid making an obvious, and tragic mistake that will hurt the very hard-working service workers it is your mission to protect, and crush New York’s businesses under another unaffordable regulation. Reject the Governor’s proposal to eliminate the wage tip credit.


Thank you for your consideration,

A. Douglas Kellogg
State Projects Director
Americans for Tax Reform