Friday, January 30, 2009

Hysterical tax opponents are lying to you -- part 1: meals tax

Since Governor Patrick proposed giving cities and towns the option to raise meals and hotel taxes as well as tax increases on the sale of “junk food” and alcohol, you can hardly pick up a newspaper or turn on the TV news without coming across some hysterical legislator, business owner, or consumer crying that the increases will force people to go to another town or state to do their business.

Do not listen to them. With almost no exception they are either monumentally stupid or lying to you.

(The one exception would be those who are entirely opposed to taxes as a matter of ideology. I would suggest those folks are lying to themselves.)

I’m going to break down each of the three proposed tax increases in a series of blog posts over the next few days. First, let’s take a look into a bleak future where towns are pitted one against another because of their different tax philosophies. (Note, I have already discussed local option taxes once before).

There will be a Texas Roadhouse steakhouse opening in Leominster next month. There is already one open in Worcester. Let’s say that Michelle and I want a nice evening out and decide that’s where we want to go (we could do a lot better, I know. Just play along). The restaurant in Leominster is six miles from our home. The franchise in Worcester is 18 miles away. Both are a reasonable drive for a night out.

But wait! Leominster has decided to impose the dreaded local meals tax while the Worcester City Council has decided that they will lose so much business by raising meals taxes by 1% that the city will actually lose revenue. Maybe I should go out to dinner in Worcester to save money!

While Michelle gets ready to go, I decide to do the math. I assume that a gallon of gas costs $1.75 and that the average car gets 25 mpg (of course, your mileage may vary), for a cost of 7 cents per mile. Based on that, I can calculate the maximum distance I could drive and still save money on my meal. I’m not going to take into account what my time may be worth or assume any depreciation or maintenance cost…just the cost of gas.

If I go to Worcester, I will use $1.68 more in gas (24 miles round trip) than I would if I dine in Leominster. So the only way I will actually spend less in Worcester is if our dinner costs us more than $168.00. I don’t think I could have $168.00 worth of food and fun at Texas Roadhouse, and if I did I’d need a cab ride or an ambulance home and that would make the trip even more expensive.

Are you starting to see why opposition to the local option meals tax on the basis that it will drive diners out of town is rooted in pure stupidity? Anyone who tells you that the local meals tax will hurt business in one town and drive diners to another is lying to you (And if they dare suggest that it might drive diners out of state—where Connecticut already has a 6% meals tax, Rhode Island and New Hampshire 8%, and Vermont 9%—they don’t deserve your time).

Here is a chart showing the maximum distance one can drive and still save money under different cost scenarios. Refer to it the next time some hysterical official tells you your town will go to hell in a handbasket if it passes the meals tax.(I’m assuming the Governor’s proposed state meal tax of 6%, compared with the 7% meal tax in a town that also levies the local-option tax.)

There may be a lot of economic factors that will keep people from going out to eat or that may influence where someone goes for a meal, but the local option tax is not one of them. In an effort to give cities and towns more control over their own budgets, it should be passed by the legislature.

Next: The tax on “junk food.”

blog comments powered by Disqus

Post a Comment


No Drumlins Copyright © 2009 Premium Blogger Dashboard Designed by SAER