The No Tax on Tips Act initially sounds good for hard working folks, especially as it is usually the rich who benefit the most from tax breaks. The bill exempts up to $25,000 in tips from federal income (not FICA) taxes for those earnings up to $160,000. But a closer look shows that the bill is unfair and it makes little sense — especially when more broadly based and effective policy options are at hand.

The bill is poorly targeted. The tax break only applies to a very small share of the workforce, about 2.5 percent. It also bypasses most low-wage workers as only 5 percent of those earning less than $25 per hour earn tips. Rendering it even further off the mark is that one in three tipped workers do not earn enough to pay income taxes. This bill does nothing for the majority of the one in ten workers earning below $15.00 an hour.

Simply put, this policy nets out too many deserving low wage workers.

The bill is unfair. In an unusual move, the bill treats taxes owed on income from tips differently than taxes on the same amount of income earned from working in other occupations. Why should federal taxes differ for two workers who have the same earnings and are identical in every way except one is a tipped worker and the other is not?

Let’s take an example from Nevada — the tipped capital of the US — by comparing two workers in the state. The first is a full-time back-of-the-house restaurant worker earning the $12 minimum wage in Nevada—about $25,000 annually. Let’s assume this worker claims the $15,000 standard deduction on their federal taxes. Working in the same restaurant is a food server paid the same minimum wage, as Nevada has no subminimum wage for tipped workers. The server would also earn $25,000 paid by their employer, but let’s say they also earned another $25,000 in tips. Under the new tax act, the tipped worker would claim the $15,000 standard deduction plus another $25,000 from the No Tax on Tips bill — exemptions totaling $40,000. All else being equal, both workers owe federal taxes on $10,000 even as the earnings of the waitstaff were twice as much as the non-tipped worker. The policy is unfair and makes no sense.

What is lacking are serious policy proposals that we know work to help low wage workers and their families. The problem facing low wage workers is not their tax burden – it’s that their wages are too low.

Two policy aspects from the Nevada example are notable. First, the state minimum wage is $12.00 per hour — significantly above the $7.25 federal level. Second, the state of Nevada — with the largest concentration of tipped workers in the US—is one of seven states that does not allow employers to pay tipped workers a subminimum wage. Tips are on top of wages, not a substitute for them.

The low bar for low wages in the US is the federal wage floor policy where the regular minimum wage has been $7.25 for the last 16 years and the $2.13 subminimum wage has been in place since 1991. It is far past time to increase the federal minimum wage and phase out the tip credit that allows employers to claim worker tips in lieu of paying wages. Historically, the tipping economy has always been about denying workers a fair wage.

What can be done? Pass the 2025 Raise the Wage Act (RTWA) that incrementally increases the minimum wage to $17.00 an hour and phases out the subminimum wage.  The lion’s share of the one in ten workers earning less than $15 an hour work in the $7.25 states, which is why the federal policy matters. The RTWA gets to the heart of the problem for many workers in the US — they simply cannot make ends meet with such low wages.

Billionaires are gearing up for more tax cuts. The result will be that the rich will get even richer, inequality will worsen, and the enormous income generated in our country will continue to elude most of the workers who produce it.