Room tax, meal tax, bad tax

Taxing the tourism goose which lays our golden egg
Why a 40% increase in meal tax is bad for Cape Cod

By Steve Sullivan

New Hampshire retailers rejoice
Increase in meals tax by up to 40 percent - The tax on restaurant meals will increase from 5 percent to 6.25 percent. Additionally, the state is now allowing the local towns to impose an additional local meals tax of 0.75 percent to each bill. Thus, the state and local government take will in all cases rise 25 percent, and in many cases it will rise 40 percent. (Globe)

First the good news. Massachusetts is doing better than California. Here's the bad news. California raised the sales tax in a misguided attempt to solve there budget problems long ago and has suffered ever since.

I do not know of an economist of any ilk that would advocate raising sales taxes in a recession. The question is, why did the voters wait until the deed was done to start their complaining?

Why did the newspapers treat it with such little coverage? The third question is the most important. Why do we need a permanent tax to solve a temporary problem. I voted for this governor and I have been sorry ever since.

The lack of checks and balances in Massachusetts has never been more impactive. I cannot imagine Bill Weld, or any other republican governor going along with this. They may have lost in the long run but they would have put up a fight. Just try to imagine having a big ticket retail store near the New Hampshire border.

The great folly of this action is that the near term results could be a net lower revenue stream. If we take a look at the states that have taken the same tack in the past we see that the recovery process is lengthened.

If you want to throw a big monkey wrench into this simple scenario, you make it harder to spend. That is what a sales tax does. It creates savers.

Here is why.

70% of our economy is us.  When we spend the economy is good and when we don't, well we have a recession. If we don't have jobs, we don't spend. The starting point of getting out of a recession is spending. That creates need for more product which creates the need for more labor which creates more jobs Yada yada yada.

So if you want to throw a big monkey wrench into this simple scenario, you make it harder to spend. That is what a sales tax does. It creates savers.

Pols are not stupid people, they know what they are doing.

The problem is they are not addressing the same problem which we all are. They just want to force more revenue as quickly as possible in order to pay the state's bills without impacting their supporters and contributors.

Many of them will not be around to pay the piper. Just imagine if instead of cutting your spending you could just tell your employer to give you more money. You would simply explain that you need to balance your check book and that is what the money will be used for. Oh, and by the way after you get back on your feet you expect the increase to continue. That is how it seems to work in the public sector. Here is the kicker. After the recession is over, the tax revenues will be substantially larger than they were before this recession started.

What do you think that will do? You don't need to be a genius to figure out that the budget will increase to match the new revenue. And when the next recession occurs ?

California here we come.

If you want to support something you subsidize it.
If you want to discourage something you tax it.

Here are a couple of economic facts.

Government has never created a job that created a job. There is a economic adage that if you want to support something you subsidize it. If you want to discourage something you tax it. Here on Cape Cod we owe half of our income too the spending of people who do not live here. Tourism as an industry is clean and requires little in the way of government support. Very little of the meal and lodging tax is spent on increased services.

However, taxing them seems easy. They come, they go and they leave their money behind.

So why not raise the taxes on these folks to cover our needs. First of all the money goes into the general fund and that does not specifically help Cape Cod. Second, It discourages people from coming here and that hurts Cape Cod.

Sin taxes are easiest to pass

Town now can raise the hotel tax from 4% to 6%, in addition to the state tax of 5.7%.

It is the easy part that is at the heart of the problem. Pols like to go after the easy marks like smokers and drinkers (sin taxes) The idea is that these are things we don't need or should not do at all. Unfortunately at some point if you tax something too much you start to create a black market and that just lowers the revenue, so those are all used up..

If you can afford to go on a vacation then you can afford to pay a little more to do it. Thats the rational but what is the reality. People solve the problem by cutting there vacation budget to match the increase.

That means folks in the tourism business are the ones who really pay the taxes not the vacationers. It is only fair that if I am going to point out the folly of these tax plans I should offer one of my own. It is very simply, raise the state income tax for a prescribed period of time. That time period would be based on revenue points and once those points were reached the tax increase would revert back to its original amount. Spending would be frozen at last years rate.

Before you start pointing out what happened the last time we had a "temporary" increase in the state income tax, I acknowledge that the weak spot is, we absolutely cannot trust these guys and that is because they are all on the same team. Good solid solutions come out of adversarial government and as long as we have little or no support of republican candidates then we will continue to get what we deserve. More checks and less balance.

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