I use to tip the remainder to the next 5th, but I've never seen a sub $5 shoe shiner in Los Angeles so it normally comes out to be $2-$4 dollars. If I were every charged $3, I'd probably tip $2 unless they were friendly and held a good conversation with me than I'd tip $7 and say it was cheaper than a movie ticket.
That being said, I just cannot possibly ever bring myself to have someone shine my shoes because I just don't have confidence in their products. I use to get a cheap pair of shoes shined on a monthly basis since I wore them every day, and I stopped when I started doing it myself. I was around the area of the old shoe shiner, and I stopped by thinking to see his technique since he's a fielded veteran. Once I saw the cheap shit he used, bottles of spray on wax, some caked up and cheap wax, conditioner thicker than lube, I had to just get the hell out of there. Do you interview prospective shoe shiners, go through their inventory, or have them answer a questionaire before you drop them off? Do you know if your shoe shiner uses Sapphir or some other high quality shit?
My approach to tipping in general is that I am much less generous when I'm dealing with the owner of the business who sets his or her own prices. If you own the salon and you set the price for a haircut at $40 or whatever, why do I need to give you a 50% tip on top of that? If you aren't making enough, by all means, increase your prices. In fact, I have actively encouraged some service providers to do just that and happily paid up when they took my advice.
Well, considering that I know people in the saloon business, and I have friends that have them as clients, I can give you two good reasons why this happens. Reason 1 is that staying competitive, especially in the last few years, is important. You'd be surprised that people that normally pay $300 for hair work (cut, color, $40 blow drys) would balk at this when the economic is in the shits, but evidently, this is true. For me, if I know two hair stylist that do a good job, one charges $40 and the other $60, I'll go for the $60 but pretty much tip $10 (or $20 if the conversation was good, I love to fucking chit chat OK?) regardless of the base price for a haircut. Unless you are completely booked and no longer take walk ins, your base price does matter to a certain extent.
Reason two is tax evasion so you can claim $40 income on a hair cut and say every 3rd customer was a stingy jew and pay $3-$6 less tax on that 3rd haircut (assuming income 30% tax). If you work 6 days a week, 3 haircuts a day on average through the year, you are looking at 939 haircuts, you report less tips on every 3rd (or on all of them), save a thousand or more on taxes, and blow it in Las Vegas, literally.