In recent years, one of the predominant policy initiatives of the progressive left has been raising the minimum wage in locales around the country. At the same time, left-leaning politicians have sought the elimination of what's known as the tip credit, which allows employers to pay restaurant servers and other tipped employees a lower hourly base wage that they then bolster with gratuities.
Just a few years into this experiment, however, policymakers are showing signs of an about-face on the tip credit's abolition as they grapple with the unfortunate, and predictable, economic results.
In 2022, Washington, D.C., made news headlines when voters passed Initiative 82. As originally designed, it would have repealed the tip credit and required servers to be paid the District's full statutory minimum wage by 2027. (D.C.'s minimum wage was $16.10 per hour in 2022, but has since risen to $18.40 due to inflation indexation.) Prior to Initiative 82, D.C. servers could be paid a $5.35 tipped wage, so long as they earned enough tips to make up the difference between the lower tipped wage and the higher traditional minimum wage.
D.C.'s Initiative 82 was just the beginning. One Fair Wage, a progressive group that lobbies against subminimum wages, quarterbacked an all-out push to eliminate the tip credit in jurisdictions across America. Chicago became the second prominent city to follow suit. States like New York, Connecticut, and Illinois also quickly saw legislation introduced to eliminate the tip credit at a statewide level. (Apart from this recent wave, a small handful of American states—including California, Oregon, and Alaska—have long operated without a tip credit).
But just when it seemed like momentum against the tip credit had reached its apex, progressive politicians started to see the writing on the wall. In the aftermath of the tip credit's repeal, D.C. saw a close to 5 percent decline in full-service restaurant jobs. Tipped worker earnings also dropped by just under $12 million—likely a result, at least in part, of restaurants reducing hours for staff in the face of higher labor costs. At the same time, many D.C. restaurants began implementing service fees or so-called auto-gratuity policies that added mandatory 10-20 percent charges onto customers' bills.
Mugged by this economic reality, D.C. Mayor Muriel Bowser called for the full repeal of Initiative 82. Ultimately, the D.C. Council settled for a partial repeal in 2025, maintaining at least some semblance of a tipped wage that sits below the traditional minimum wage into the years ahead (although the tipped wage eventually rises to 75 percent of the traditional wage by 2034). This was a familiar story: The council had previously repealed Initiative 77, a near-identical attempt to abolish the tipped wage that voters passed in 2018.
After Chicago moved to eliminate the tip credit, the Illinois Restaurant Association found that 89 percent of Windy City restaurants raised menu prices; another 79 percent responded by reducing worker hours. Again bowing to economic reality, the progressive Chicago City Council voted to freeze the tip credit's planned elimination, only to see the effort vetoed by Mayor Brandon Johnson. Eventually, a compromise was brokered to at least pause the tip credit at its current level for two years—which punts the issue until after Johnson stands for election again, allowing a potential successor to endorse a more lasting reversal.
In Michigan, a 2024 state supreme court ruling set the tip credit on the path toward elimination by 2030. But state lawmakers intervened last year, deciding to maintain a 50 percent tip credit in perpetuity after 2031. Notably, Michigan is currently governed by a Democratic trifecta in the governorship and both houses of the Legislature. The tip credit's revival garnered key support from Republican lawmakers to pass in a bipartisan fashion, before being signed into law by Democratic Gov. Gretchen Whitmer.
While progressive efforts to eliminate the tip credit may be motivated by an earnest desire to ensure waiters are paid more, the math isn't that simple. Requiring a server to be paid a $16 traditional minimum wage—up from a $5 tipped wage—might appear to raise their pay on paper. But this fails to consider several important factors.
Under our "No Taxes on Tips" new normal, raising the minimum wage for servers could lead to a partial reduction in tips, which under certain scenarios can result in less take-home pay for waiters once the taxman takes his cut. If more server earnings come in the form of "auto-gratuity" policies—which are treated as taxed wages under the law—then the tax repercussions may grow even grimmer.
But more broadly, these laws attempt to subvert basic economics. As of 2025, Bureau of Labor Statistics data show that D.C. restaurants shed over 1,600 jobs in aftermath of Initiative 82; meanwhile, between 2022 and 2025, restaurant job growth in the District declined by more than 8 percent. This is just one example. The fallout is the inevitable result of restaurants responding to labor costs that suddenly skyrocket, forcing establishments to cut worker hours and sometimes transition to quick-service models that require less hourly staff. And that's to say nothing of the diners who bear the cost with higher prices and new service fees.
"We're watching a beloved bar back, a beloved busser, a dishwasher have their jobs taken away," D.C. restaurant worker Valerie Graham told Reason in 2024. "Not because our owner-operator is an evil billionaire but because they're an independent business owner who had to make some business decisions and there's a callousness with which our industry is talked about."
To be sure, the tip credit has only survived in modified and reduced form in D.C., Chicago, and Michigan—and in the case of Chicago, the about-face is only temporary. But the partial reversals show the tip credit's elimination is not a foregone conclusion. Economic reality continues to rear its head.
The post Some Progressives Tried To Abolish the Tipped Minimum Wage. Now They're Backtracking. appeared first on Reason Magazine.