Chewing over a 10% meal tax
Governor Lincoln Chafee’s proposed 2-percent increase on meal and beverage taxes isn’t whetting anyone’s appetite, especially those who work in the food and hospitality industries. But the increased food sales tax won’t solely be an industry problem; it will become a state problem.
The Rhode Island Hospitality Association is in the process of holding meetings at various places across the state for those in the restaurant business (and also for the general public) to voice their opinions about the effects of the increased tax.
Currently, Rhode Island’s meal and beverage tax is 8 percent, higher than our neighbors in Massachusetts (7 percent) and Connecticut (6.35 percent). Chafee’s budget proposes a 10 precent meal tax. The reason? In his State of the State address, Chafee said the projected $38.3 million in added revenues would go to increased school aid to cities and towns.
But those in the hospitality and food industries are saying that the increased tax would be detrimental not only to them, but to Rhode Islanders in general.
Here’s the picture they paint: Increased costs at restaurants means decreased expenditure at those businesses. Whether it means consumers will dine out less frequently, or tip their server less, the restaurants get the short end of the stick.
Meanwhile, consumers either have to pay more, or decrease their intake at restaurants, drive-thrus and even concession stands.
And individual consumers are only part of the issue. If meal taxes go up, then organizations will look elsewhere for their functions, meetings and conventions. If prices are cheaper just across the border, Rhode Island will lose business, and not just in the food industry.
Those who dine in Rhode Island also shop in Rhode Island. They use our hotels, our public transit and our airport. They frequent our theaters, our cinemas and our sporting arenas. The food tax would have a ripple effect on the rest of the state’s already unstable economy.
At the beginning of the month, the Rhode Island Center for Freedom and Prosperity released a tax policy analysis that showed the negative effects of Chafee’s proposed budget outweighed the positive.
Through the use of an algorithm that projects the outcome of certain tax changes, the Center for Freedom and Prosperity found that the increased sales taxes would not attain their goal of $95 million in revenue increases. Instead, the hikes would account for $35 million in revenue increases, accompanied by the loss of 1,400 jobs, a drop of $27 million in investments in the state, and multi-million dollar losses from municipalities. Chew on that for a while.
It’s naïve to think that, in a time of economic recession, an increased meal tax would raise revenues and boost the state’s economy without any negative repercussions. This isn’t a “2-percent,” “mere pennies” issue. This is a tax that will not only affect what’s on our plates, but what’s in our wallets. And that’s much harder to swallow.