Monday, September 24, 2007

Would a Meals Tax be a Free Lunch?

Should Amherst impose a local meals tax if the State decides to let towns impose meals taxes?

A meals tax is a particular kind of luxury tax, which seems like a good idea. Tax wealthy people on stuff that they buy, and use the money to pay for vital services used by everybody. Meals are particularly good, because I don't think people would drive to Hadley just to avoid paying an extra buck or two on their $100 dinner at La Baraque de Casse-Croƻte (or an extra nickel on their Happy Meal).

There ain't no such thing as a free lunch, though, so that extra $1 that they're paying the Town is a dollar that they're not spending on something else. Maybe they'll eat out 99 times in a year instead of 100, costing local restaurants a little bit of business. Maybe they'll give a little less money to charity. Maybe the next time they want chocolate they'll buy Hershey instead of Godiva. Or maybe they'll decide to vote against property tax increases. Probably they'll do a little bit of all of those things.

I'd support a local meals tax if 100% of the money went to the local government, if only because it's more progressive than the property taxes and fees we pay now.

But the meals tax being proposed last year gave 75% of the money to the local government, with the other 25% going to the State. Is that a good deal for Amherst?

I don't know. It depends on how the tax changes spending patterns. If spending $1 more when eating out means that people spend $1 less on other stuff in Amherst, then it's a bad deal for Amherst-- we'll get 75 cents in tax revenue, but local businesses lose $1 in revenue. A quick google search turned up this factoid:
The results show that for every $100 in consumer spending at the local businesses, $73 stays in Chicago's economy (--Andersonville Study of Retail Economics)
Assuming that Amherst consumers spend like Chicago businesses (admittedly a bad assumption-- I wouldn't be surprised if we spend more money in Hadley than we do in Amherst), an extra dollar meals tax (as proposed last year) would mean 73 cents less for local businesses and 75 cents more for local government.

I'd vote no.

No comments: