I had to check Snopes.com to see whether TIPS was an acronym, and unfortunately according to their site, it just isn't true--it's basically an online rumor. Sorry!
That being said, I also agree that tipping is a real pain. Especially if you have to do math to figure it out (I hate math). It seems to have become something that's expected of us in the U.S. rather than waiters (for instance) trying hard to provide good service so they get a good tip. There are some who do, but there are quite a few who don't seem to try, tip or no tip. I start to fear not leaving a tip because people do expect it, they are paid so little, and they may get mad if you don't tip or don't tip well enough! This may seem inconsequential--that is, until you return to the same restaurant or place of business and they mistreat you, spit in your food (it does happen, eww!), etc.
I think it is definitely the system though that makes this continue. The employees are led to feel entitled to a tip and to depend on it because their wages are so low. I think they should be paid minimum wage and tips should be considered a "bonus" (in other words, you don't have to tip, but feel free). I'm sure the restaurants, etc. would not like this idea at all, but I still think it should be done that way. I for one would pay a higher price for the food as long as I knew this was the reason.
Meanwhile, I do tip. My understanding is that you can determine the amount, but I usually think about 10-15% for standard service (less if it's just awful), and 15-20% and up (usually more rather than less) if it's outstanding service and/or if you were a problematic client (i.e., spilled your drink). I almost always leave a tip. When I got my recent haircut, I tipped 27% because I was very happy with it. It was pretty expensive ($75 I think) so that was a big chunk of money. I'm not rich (not even close!), and don't go that often to the salon.