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Meal
tax proposal "supersizes" tax burden
By
Bluegrass Institute for Public Policy Solutions
Few policy proposals illustrate government’s insatiable appetite for gobbling up
taxpayers’ money more than the current push to layer another tax on restaurant
meals in Kentucky’s largest cities. “Wait a minute,” cry supporters in
Frankfort. “We don’t support increasing taxes on restaurant meals. We just
believe local communities should have the option of raising additional revenue.”
However, it’s as obvious as an undercooked prime rib that these local
“tourocrats” (tourism bureaucrats whose main goals are to bloat their budgets
and tout questionable projects) and their henchmen – some elected, many not –
are simply pushing hard to implement a new tax.
Before signing this tax increase into law, Kentucky’s policymakers should know
that industry-specific tax proposals intended to fund new public projects are
being shunned across the nation when voters have a chance to weigh in. From sea
to shining sea, voters are rejecting extra helpings of “tax pie.”
In Salem, Oregon, a hike in meal taxes was repealed after council members, who
had previously supported the hike, were later defeated at the polls. The newly
elected council rolled back the tax increase before it was ever implemented.
Similar pressure was also exerted on the Ashland, Oregon city council, forcing
it to place the issue before voters after it had previously approved the tax
increase. Not surprisingly, the issue was soundly defeated.
Voters repeatedly display sounder economic prowess than their elected officials.
At the ballot box, they continue to balk at attempts to tax specific products or
industries to fund targeted public projects, usually related to tourism. For
example, three referendum attempts to increase taxes on meals in Loudoun County,
Va., since 1988 were all trashed. None of the proposals received more than 25
percent of the vote. Three similar ballot proposals between 1989 and 1995 also
found the wastebasket in Virginia’s Prince William County. None of these
proposals ever received more than 37 percent of the vote.
Virginia’s setup also demonstrates how restaurants in that state’s cities can be
placed at a competitive disadvantage. For example, while Virginia’s cities can
pass meals taxes with no ceiling and without putting the issue on a ballot,
counties are required to hold a public referendum.
In 1992, 58 percent of voters in Fairfax County, Va., turned down a proposal by
their Board of Supervisors to implement a meals tax. That placed restaurants in
the city of Fairfax, which already levied a 4.5 percent meals tax rate, at a
competitive disadvantage with restaurants locating outside the city limits to
avoid the higher meals taxes. This potential competitive liability occurs not
because of inferior products or poor services – issues that should cause such a
disadvantage – but because of government interference!
When placed in the hands of over-taxed voters today, meal taxes are being
rejected as often as burned toast. Why is Frankfort so committed to extending
this tax option?
Unsuccessful experiences in other states should give Kentucky’s policymakers
cause to re-think extending this tax option of up to 3 percent to first-,
second- and third-class city governments throughout the Commonwealth. It’s a
ticking time bomb that will oust local elected officials and upset mothers.
Added to the price of a meal and the existing sales tax, this increase could
levy a whopping 9.18 percent tax on meals. Are policymakers trying to persuade
Kentuckians to eat more at home?
Exhaustive research by the National Restaurant Association demonstrates the
hardships that super-sizing taxes would create on restaurants, most of which are
small businesses, and Kentucky families struggling to pay their bills and feed
their children.
According to the association, adding a 3 percent meals tax to the total tax levy
paid by restaurants – including income, unemployment insurance and workmen’s
compensation taxes – would increase total taxes to 24.5 cents for each dollar of
food served. For every $50 families spend at dinner, tax collectors would pocket
$12.25. For a family of four, that’s about the same as feeding Mom, Dad and
Billy while letting baby Sally go hungry!
What are some of the other unintended consequences of adding this 3 percent meal
tax? Over-worked mothers in two-income families will fix more meals at home with
fewer smiles around the dinner table. Restaurants won’t be ordering nearly as
much dough to make piecrusts for pies that won’t be eaten because families
increasingly eat at home. More restaurants will also be employing fewer waiters
and waitresses. Taxes work like tariffs on economic activity. The more
government levies, the less we get. That’s Economics 101.
Kentucky’s restaurants are already operating with spaghetti-thin profit margins.
Adding the burden of yet another tax is enough to cause all freedom-loving
Kentuckians to lose their appetites.
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