Oy.
Flaherty, who announced his candidacy Sunday, said the city shouldn’t be pushing for a 2 percent tax increase, charging it will hurt average working families and force restaurants out of business.
“A meals tax for him is the answer” as the city seeks to close a staggering $140 million budget gap next year, Flaherty told the Herald. “It most definitely is not for the resident when that building goes vacant.”
You know what? I simply do not believe that people decide whether, or where, to dine out based on whether the meals tax is 5%, 6%, or 7%. I just don’t. Especially if we’re talking about Boston. What are people going to say — “you know, I’d love to do dinner and a show in the Theatre District. I’m super-interested in Frost/Nixon, and I’ve always loved the food at P.F. Chang’s. But that extra 2% on the meals tax blows it for me. Let’s do a movie and Cheesecake Factory at the mall instead. Or let’s watch a DVD at home and order in.”
Nope. I just don’t believe it. Dining out is a luxury. When you go out to eat, you know for a fact that you’re going to spend a lot more than it would cost to eat in. Having made that decision, are you really going to reconsider because the price went up 2%? Think about it: with a 2% meals tax hike, a moderately priced meal (let’s say $50 for two people, including drinks) will now cost $1 more. An expensive meal ($100 for two people) goes up by $2. How many people would decide to dine out for $100, but stay in for $102?
Not many. IMHO, rigid supply/demand curves just don’t accurately explain how human behavior is going to work in these circumstances — especially because, in most cases, the price of a dinner out is not known in advance (you may know exactly where you’re going, but you probably don’t know exactly what you’ll order, or exactly how much everything will cost). I’d guess that the uncertainty of how much you’re actually going to spend on dinner is at least 2%, and you can control for that at dinner by ordering a slightly less expensive glass of wine or not having dessert, if you really want to. When it comes to eating out, if you’re in for $100, you’re in for $102 in all but the most unusual circumstances.
And one more thing: yes, things are tough right now in the restaurant business, just as you’d expect in an economic downturn. But I stand by my basic point: when people are deciding whether to purchase the luxury item of a dinner out, the level of the meals tax will not be a significant factor in that decision.
There’s an aggregate effect though. I’ll use a place I’m quite familiar with, both to live at and to travel to — North Carolina.
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p>It costs more to rent a car in Raleigh than in Cambridge. This is insane — labor and land costs are higher in Cambridge. Why is NC higher? Taxes. North Carolina has done an ab-fab job taxing the hell out of furriners, be they from Britain or Baltimore. High taxes on rental cars, hotels, and restaurants.
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p>No one tax will change many minds, but I do think that there is an aggregate result with an impact on tourism that should be considered. How much tourism will Boston lose because of a meals tax? Not much. If, however, a trend of taxing the out-of-towners starts showing up, it will have a negative impact on tourism. Good or bad? I guess that depends on your view… but it is something to consider.
I’m not saying that we should treat tourists like the goose that lays the golden eggs, ’cause sooner or later the eggs stop coming. But this proposal, alone, I don’t think will amount to the kind of effect you’re talking about.
GOING OUT TO EAT IS DISCRETIONARY SPENDING do people not freaking understand? Or $.50 IS NOT GOING TO MAKE PEOPLE NOT GO OUT TO EAT IF THEY CAN ALREADY AFFORD A $50 MEAL BILL?
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p>Sorry for the caps. I’ve had too much coffee today.
maybe you’d skip it and give our eyes and your caps lock key a break?
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p>If so, I’m all for the tax! đŸ˜›
About a lot of unrelated things (today) but this is one of my pet peeves…the argument that adding %.50 to my $50 tab at the local restaurant is the reason I’ll not go.
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p>I mean, a big huh???
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p>Dude, I’d just be happy to have the money to go out to eat…
It is the principle. Fifty cents today might not make a difference. Neither will the additional fifty cents next quarter, or the dollar next year, of the five dollars the year after that, all because, well, we can’t cut spending, can we?
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p>I mean, when have you guys ever argued against a tax hike?
Flaherty was not objecting to it on some anti-tax principle but because he claims that it would force restaurants out of business. It is that claim we are debating.
It’s at least a decade. You question as if there’s tax hikes every day, when in reality over the past decade or two it hasn’t even been appropriate discourse in government to speak the words “raise taxes.” You get a 4 for not thinking before writing.
Why don’t they put a floor on any additional meals tax, so that anything under a certain amount doesn’t get the new tax? That way, the diner/neighborhood family restaurant patron doesn’t take the hit, while the big ticket eateries do. Similar to the under $200 exemption that clothes get with sales tax.
He argues that the average profit margin for restaurants is 4% and that every 1% really hurts. I asked why he doesn’t raise prices 10% and make some more money and he said the competition is so tight that people “will” decide to eat at one place vs another for a few points.
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p>I’m in agreement with David that it blows my mind to think someone would choose a restaurant based on 1% or 2% but this is from someone who doe sit for a living.
This doesn’t do anything to profit anything. It’s added onto the total, unless you as a restaurant decide to lower your prices or something. I mean, huh?
I rather doubt that it would, but I assume the argument would be that more people would choose to eat outside of Boston in order to avoid the extra 2%. I really don’t see it making much of a difference for most people.
but it sure as hell wouldn’t be rational. How much money in gas and time am I going to spend going to another town to eat in order to save a buck in Boston?
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p>It might be used irrationally to break ties, but I’d bet if its a local option tax that Boston, Cambridge, Somerville, Brookline, and Newton all go for it at minimum… so in that sense there won’t be much ability to leave the tax zone, so to speak.
if indeed they operate on a 4% profit margin to stay competitive. An extra 1 or 2% could make a difference. The saving grace for that restaurant will be that his direct competitors have the same tax increase.
The 1% doesn’t come off their profit margin unless they decide to lower their prices by the same amount. The only danger is that customers may decide that they want to go to some other town or stay home.
Is, if they feel they must hold profit margin to 4% to stay competitive, then even a 1% increase in price is important to them – ask them.
1% probably wouldn’t make someone visit Chez Boston as opposed to Chez Lowell, but it’s easy to imagine that they’d visit less frequently, no?
Wrong.
with a caveat – yes, if the tax was like 25%. We’re not talking about a 25% meals tax, however. We’re talking pennies.
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p>On sales tax free day, the stores are packed. For a meager 5%. Apparently 5% influences demand. Maybe 1% also.
Yes, there’s a difference between 1% and 20%. Yes, there might be a barely noticeable (if even noticeable at all) difference in people buying lunch at the local counter. However, it’s highly unlikely to make that much of a dent in people going out to eat. Period end of story. If you have the disposable income to buy $50 of someone else’s cooking, $.50 isn’t going to affect you.
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p>The tax holiday particularly is used by people to buy big ticket items that, generally, they NEED, and where 5% off IS actually a substantial sum of money.
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p>So again, what’s your point? Scale counts here.
Nobody needs anything sold at Best Buy* or Ikea. Most big ticket items are wanted, not needed.
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p>
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p>* On further thought, you might argue washing machines, dryers, and refrigerators. But, it’s pretty rare that the owner’s current model just so happens to die the week before the sale.
Tell that to my dead fridge…or my car which I’m certain has only a few good years left…
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p>I suppose the big flat screen TV I’d like is a want, sure…
Sales tax free does nothing to influence demand. It merely influences the timing of the demand.
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p>Economists pour over the data every year, and every year they discover, again, that tax free day does not lead to more consumer spending. It simply leads to more spending on that day, exactly countered by less total spending on other nearby days.
That is a fascinating outcome.
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p>Also, seems like generally, gary wants us to compare apples (a sales tax on goods, much of what you could consider in the “need” category) and oranges (a meals tax, much of which could be considered somewhat discretionary – and even if you say, go out for lunch at work every day because bringing a lunch is too much a pain, HOW much you spend is at your discretion).
On tax free day, I’m thinking most of the spending is discretionary, not in the need category.
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p>Anywazzz, sure sounds like a small cut in tax affected demand…:
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p>
Their analysis is based on a computer program not actual measurements. Take it with a bucket of salt. It totally ignored drop in demand after the end of the holiday.
You’re telling me that tax free day doesn’t influence demand on tax free day?
But it does not influence overall demand — i.e. it suppresses demand before and after. No one is suggesting raising meal taxes on just one designated day or two, so the situations are not comparable.
Traditional demand curve: prices go up; demand goes down.
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p>Liberal demand curve: prices goes up; and when monkeys fly out my ass demand is unchanged.
But you entirely ignored the point.
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p>You are right that when prices go up, demand tends to go down. But the relationship is not linear.
I did not notice the stores being especially crowded during last year’s tax holiday. And even where they are, a lot of those people are simply timing planned purchases to coincide with the holiday. That is, people aren’t buying more, just buying on a different day.
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p>I think that such holidays can have a small psychological stimulative effect, but not much of one. It is not at all clear that the state even makes its money back.
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p>Another point is that unlike the tax holidays, no one is going to be going out of their way to create publicity over a new meals tax, so the chances are that far fewer people would be aware there was a new tax.
that the huge press the day gets, almost treated like a holiday, with shit loads of commercials… and the fact that people are, in general, math-toxic and don’t realize that 5% is pretty much nada…. has anything to do with it?
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p>If you don’t, consider that many of the stores add sales on top of the sales tax. 5% isn’t much, but 10-15% is.
…living on the NH/MA line as I do, I do occasionally allow meals tax to be the deciding factor. MA is 5% and NH is 8%. I do sometimes eat in NH and no, the extra 3% doesn’t break the bank, but all else being equal it does come into play a bit – just saying.
There’s the rub. All else almost never is equal in this kind of setting. If you want to eat out in Boston, it’s probably because there are really good restaurants there, or because there are restaurants near something else you’re doing.
There are definitely people who live in places where it is sort of six of one half dozen of another. For example if you lived in North Allston and were deciding between Lower Allston and Harvard Square or if you lived near Longwood and were deciding between Coolidge Corner and Back Bay. Again it’s probably not a huge factor, but going into Boston isn’t necessarily the grand expedition you’re making it out to be.
People are going to check out which town has which tax, I really think it’s going to be a patchwork (with most towns doing it anyway) and this argument is just inane…
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p>I get what you’re saying and arguing but really, will that be a factor?
I was more objecting to the characterization of a “trip to Boston” as a big deal. Which for people who live nearby, it isn’t.
why are they eating out in Boston now? Brookline and Cambridge, as far as I know, have smaller sales taxes.
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p>My money is tighter than probably just about everyone on this site right now – and yet, I don’t even consider sales tax if I’m eating out in Brookline or Boston. I eat where I’m at. In the case of visiting friends in the city, 9 times out of 10 it’s around Coolidge Corner, because that’s where they live. If they lived in JP, I’d be spending my money in Boston. The point being that sales tax doesn’t weigh into my calculations, and I’m an extremely cash-conscious, tight-fisted SOB when it comes to my few spare dollars to spend out to eat.
It is currently not possible to predetermine the cost of a meal with any amount of precision between two restaurants in two different states.
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p>I generally know that if I eat at Friendly’s, I will spend less than if I eat at Outback. However, I can’t tell you within $5-10 how much I will spend at Friendly’s, and maybe $10-20 how much I will spend at Outback. It depends on what everyone orders.
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p>That is why people will not make price decisions based on a meals tax — they don’t know withing $5-20 or so how much they will spend — and perhaps more at a more expensive restaurant. They can’t do any comparison shopping.
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p>On the aggregate, this will divert some money in the economy. I don’t think anyone knows how this diversion will take place. Maybe people will spend a little less on cheap crap from China. Maybe people will go out a little less often. Maybe people will stop buying a daily newspaper. The point it, no one really knows.
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p>However, one thing for sure is that the money collected will most likely be spent locally. Economically, if the increased meals tax comes 100% from money being spent on Chinese crap, that will be a plus for the state because money will be shifted away from people less likely to re-spend it here. If the increased meals tax comes 100% from other local businesses, then that will be a minus for the state because the “velocity” of the money here will slow down.
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p>What I have noticed with Globalization is that although the amount of economic activity has increased, the odds of such activity happening locally have decreased. This results in pooling of wealth in certain places, among certain people, and that is bad for most people in this state and country.
I want to hear what he thinks will work. It is easy to criticize the mayor when times are tough. If you want to be mayor yourself, you had better have your own answers.
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p>Personally, I don’t think that Flaherty has the slightest idea of what to do about Boston’s problems. He just wants to be mayor really badly and got tired of waiting for Menino to retire.
The meals tax opposition is bad enough, but he’s also trying to curry favor with the public sector unions by coming out against Menino’s proposed one-year freeze. That’s not change I can believe in. I get that he has to differentiate himself, but none of his ideas are constructive or concrete.
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p>The city is short of cash, and 70% of city expenditures go to personnel. It’s not like there aren’t places to cut here (shift pensions from DB to DC, move all healthcare into GIC, e.g.). Menino’s freeze isn’t ideal because he should take this opportuntity to also fix the long-term budget picture. But at least he’s doing something to be fair and continue to supply city services.
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p>
http://www.bostonherald.com/ne…
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p>Mike, let me lay it on the line. I want to support you, but this is complete bullshit. You have been on the council since 1999, and you were Council President from 2002 through 2007. You know the city budget and you know where the bodies are buried. You know there isn’t a “waste, fraud and abuse” line item. You also know which programs are filled with political hires and could/should be phased out. Of course, saying as much means you will piss someone off. But most things worth doing will piss off somebody. It’s called leadership. Let’s see some.
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p>I’d love to see a breakdown on this. I believe that it’s high, but 70%? That leaves 30% for capital expenditures, utilities, office supplies, maintenance materials, debt service, etc.
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p>I could see 70% of the operating budget going to personnel, but 70% of overall expenditures? I’m skeptical.
But I think this organization is a reasonable source:
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p>
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p>http://www.bostonherald.com/ne…
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p>You’re right though, it’s probably operating budget. The Op Budget for 09 is $2.42b; the Cap Budget for 09-13 is $1.5b. So if you amortized that across each year for a global budget, the 70% figure would go down, but not as dramatically as you might think.
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p>Here’s a good resource for these questions: http://www.cityofboston.gov/Ad…
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p>Some tidbits:
– “Over 75% of spending growth is due to increasing personnel costs, including health and pension benefits, and the impact of collective bargaining increases.”
– “Employee and retiree health insurance costs are 11% of the FY09 Budget, up from 7.9% in FY02.”
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p>As Ed Rendell once said, “I don’t want to be a shit and I don’t want to be anti-labor, but I can’t grow hair and I can’t grow money.”
Sam Tyler and the Boston Municipal Research Board are a reliable source but you need to read very carefully and skeptically. They are a “small government is beautiful” group which tends to seize on every opportunity to argue against unions and for layoffs.
In this case, I think Sam is exaggerating a bit by using the term “tied to.” When you cite Tyler for the source of your own statement that “70% of city expenditures go to personnel” you re-introduce a level of imprecision that is misleading.
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p>We have several terms to define. You and stomv have argued out the “city expenditures” part but you haven’t clarified that “tied to” personal includes retiree benefits (pensions), health insurance for workers and retirees, other benefits, overtime pay and actual salaries.
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p>A couple of facts (from Sam Tyler) might help clarify:
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p>1. The City of Boston has increased its spending for personnel by about 30% since 2004. This increase is attributable to contract salary increases, rising employee levels, and the growing cost (up nearly 50%!) of health insurance and employee benefits.
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p>2. Over the past four years, personnel spending grew to $1.6 billion.
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p>This $1.6 billion includes all categories of spending but Tyler is already rounding up a bit to get the seventy percent figure he cites in the Globe.
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p>The reality is that “about two thirds” of the City’s operating budget is used to pay for salaries of current employees and benefits for employees and retirees. Without tackling these costs, it wil be hard to balance the budeget.
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p>Still this leaves one-third of the operating budget and the entire capital budget (City Hall in Southie anyone?) as potential areas for cuts before one even needs to look at tax increases or personnel costs.
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p>Menino got 64,000 votes in trouncing Hennigan (30,000 votes). There are over 17,000 City employees, most with spouses, voting age children and relatives, and close personal friends. This is just too large a portion of the electorate for Flaherty simply to ignore. To win, he must and will continue to reach out to these voters who wil naturally want to go with their “old boss” but for whom the “new boss”‘s position on their jobs is of primary importance.
Great follow up. I’m not familiar with that group, and what you’re saying stands to reason.
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p>I disagree that personnel costs should be sacrosanct — particularly where I am not talking about direct salaries but efficiencies in healthcare and pensions. I also am hesitant to shelve all capital investment to maintain city workers’ retire-at-48 pensions and zero-co-pay benefits. For every boondoggle like the Waterfront City Hall, there are many more of good projects. Moreover, these projects (the new school, the renovated branch library, and local park improvements) make people feel much more connected to and supportive of city government than paying 12% more in BCBS premiums for all city employees. Particularly when they often have to pick up the higher tab for healthcare personally.
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p>I agree wholeheartedly that the number of city employees and connected people makes challenging them very difficult for an elected official. It’s textbook public choice theory: concentrated benefits, diffuse costs. It’s why I am skeptical of the people on this board who profess the “sanctity of the contract” because I do not view this as an arms-length negotiation of two parties with similar and opposing interests. Unions want more pay and benefits for their members; city officials want to get reelected — it’s not like the industrial or commercial settings.
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p>Finally, this isn’t just a decision between paying them their raises or not. It’s a decision between paying the raises and then consequently laying off 5% of their departments. I would ideally like to find the cost-savings in better, more long-term ways… but it needs to be found. The unions’ position of allowing the layoffs is unwise and irresponsible.
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p>
– Barack Obama, January 20, 2009
It seems to me that the exact opposite would be the case: blaming city employees for everything makes perfect political sense. They are a marvelous target that Menino has exploited at every opportunity, to his great advantage. And, admittedly, there are indeed the ocassional egregious abuses that make it all the easier for him to do this. However, rising health costs are not really the fault of municipal employees, and salaries are not so high that slashing benefits won’t hurt quite a bit.
it will make figuring out the tip more complicated. Unless you want to give an 18% tip? : )
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p>The prices on menus will not change, I think that is where people will notice more. The final tab being $2 higher will not stop me from going to the North End. I think that argument is silly.
from the base cost of the meal (move the decimal point one place to determine 10%, then figure out from there), not the tax bill. Mostly because I was born and raised in NH and somehow, I can never remember what MA’s tax is versus theirs from when I lived back there (we used to just double the 8% tax total for our just-about-15%-tip mental calculation, I would catch myself doing that here, then come up short, then have to do it all over again anyway…) and eventually I got out of the habit of using the tax cost for tip calc…
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p>RE your second point, yeah I agree.
One still pays the meals tax, right? Plus a delivery charge and/or tip! I wonder how many killowatts of electricity/ therms or whatever of gas it takes to cook a meal at home, and what the relative cost is? Add to that the fact that “time is money”, but subtract the cost of gasoline to get you to the restaurant…
Screw it, hon- let’s not eat at all tonight.;)
trim the figure pretty quick…and I don’t mean finances…
But is there any data on this? If so, it might settle the argument fairly quickly.
What I see as worst about M.F.’s attitude here is that he appears to be yet another mayoral aspirant who’s a slave to businesses. Whether it’s restaurateurs or realtors, when local pols try to make corporations love them, the voters lose.
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p>The lies business sorts will tell to avoid any change or additional variable rarely have proof. They tend to fall in the class of it’s only common sense. That means there’s almost always no rational basis for the argument.
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p>For the lager picture, taking this tiny amount of strangling control from the legislature and giving it to income-starved municipalities is long overdue. People on the Hill are very used to making mayors and city managers come begging. They need to modulate that evil impulse.
A progressive tax at that! As opposed to the regressive property tax.
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p>If you don’t have the money to go out and eat, you won’t. This is a tax on discretionary spending.
I’m on the fence in the mayor’s race, especially if Yoon gets in. The last thing I want in a candidate right now is an anti-tax populist. The Patrick and Obama campaigns – not to mention the broad acceptance of a new era of massive government action – suggest the electorate is beyond being pandered to at that level and is grown-up enough to recognize that a bankrupt government hurts their quality of life. Besides, everyone I know is eating out less already.
My father owned a roast beef/seafood shop in Everett and I can tell you it WILL make a difference. Especially with the smaller pizza and sub stores in cities like Everett, Chelsea, Lynn and parts of Boston like Dorchester and South Boston etc… People eat out at the local pizza/sub store a couple of times a week and they get a fair amount of lunch business from people working around them.
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p>In some cases it is less about the money than it is about being pissed that they are being asked to pay an extra 2% (this is discretionary spending as you point out)and for some even that small amount will make a difference. Small pizza and sub stores are already under tremendous pressure with many shutting down.
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p>The only way this makes sense to me is to make it for bills over a certain amount (say $50 – a luxury meals tax).
Let’s say you’re at work and you decided to run out for lunch. You buy a sub ($6.50), a soda ($1.50), a bag of chips ($1.00) and a candy bar ($1.00) and all total, you’re in for $10.00. Currently it will cost you $10.50 with tax. With an extra 2% tacked on, it will cost you $10.70. You really think the average person who normally buys their lunch during the week is going to change their routine over the extra $1 a week that they’ll be paying to the State? I don’t see it.
noticed when I hit post….
we move the tax to 6%. I buy a sub for $6.95, the extra 7 cents I pay in meals tax is going to substantially impact me and the restaurant.
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p>If I buy that sub at that same shop twice a week for the entire year, the total impact is $7.28.
as it is somewhat on optional tax, and more progressive in that it hits those who can most afford it. And for Boston, it would draw a good percentage from non-residents. It is unlikely it would hurt the restaurant business in Boston, for the reasons you suggest.
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p>However, it is one more tax. At a time when one aspect of the economic stimulus plan is tax reduction, it goes counter to that strategy. The State should not cut local aid, but freeze it at the current level for FY 2010, and use additional reserve funds to carry it through those commitments. The level-funding of local aid will require the communities to make reasonable cuts by eliminating waste and improving efficiencies. The further diminishing of reserves will require the State to restructure its costs and revenue. Why did we think health-care-for-almost-all would not require restructuring of the revenue side? As I see it, the only way to solve that problem is at the National level, with a progressive sales tax to provide the funds.
With respect to my esteemed co-editor, I think every 1% does make a difference. This is similar to the feeble argument that Dunkin’ Donuts can easily pay more for health care by just raising the price of its coffee by $0.05: no one will notice. They will notice. It will make a difference.
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p>First, as comments from people who actually have some experience managing restaurants above indicate: every little bit does make a difference.
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p>Second, the weakness of this argument is revealed by the fact that it has very little ability to discriminate: if 2% is OK, why not 3%, or 15%, or 100%? The “I can’t believe it will make any difference” argument offers no principled way to explain why 2% is OK but 100% is not.
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p>The correct question is: does the value of what we could do with the extra money outweigh the costs to our restaurant industry.
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p>In sum: sadly, there is no free lunch.
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p>
that no one is going to argue for a 13% tax or tax increase.
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p>And also, while there is likely a smidgen of a measurable impact vis a vis customers and drop in sales, the impact of, say, laying off half your firefighting force in your town might hurt the community and the restaurant a lot more.
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p>Just sayin’.
but that analysis needs to be done. Merely saying that it’s a small percentage increase so no one will notice or care doesn’t cut it.
… but ‘back of the napkin gut-checks’ are useful data points in a pinch.
please look harder. lol. stomv’s posts, for example, have been excellent (as usual).
it’s not a disciplined approach.
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p>But not every amount is important, and our brains don’t do a good job of processing things rationally.
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p>In the case of restaurants, there’s a range of possible tabs that you’ll face if you go. No precision whatsoever. The range is at least 10%. A tax substantially less than the range is dominated by the range — the 2% tax doesn’t matter when your certainty on the tab isn’t within 10%. So, if you’re interested in getting a feel for how much a tax would have to be to influence decision, I think you start with the expected range of restaurant bills people generally have.
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p>What about lunchcounter restaurants, where the regulars order the same thing all the time? Well, here’s how I see it: if 12 cents on your $6 lunch is a concern, you’d already be bringing in a brown bag instead of shelling the $6 in the first place. Given the choice of
a) spending or not spending $6, and
b) spending or not spending $6.12
then (a) clearly dominates (b) to such an extent that those who are content to pay $6 will be content to pay $6.12. At no point does it “add up” because there are so many other ways to avoid paying the entire yearly increase in the first place — that $30 is made up by not getting one parking ticket or not buying 2 CDs or whatever.
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p>It’s too small to notice. It’s 12 cents. I’d bet that most people wouldn’t bend down to pick up 12 cents on the sidewalk.
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p>
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p>As for the coffee example, and lets use $0.03 since that’s roughly 2%, consider this: if Starbucks raised their price 3 cents, they might lose customers to DD et al. But, if they all raised their prices by 3 cents, my expectation is that their reduction in business would be extremely slight if at all. So sure, if one business raises prices they may lose customers to the others… but if all businesses raise prices in unison [a tax], it’s not so clear, especially if the expenditure is such a small amount of their customer’s income/wallet contents and is an entirely optional and avoidable expenditure in the first place. The coffee drinkers who are price sensitive don’t buy coffee at DD or Starbucks or anywhere else — they brew it at home or at the office because that’s where the real savings are.
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p>Same goes for cooking in vs. dining out vs. dining out + 2%.
“that $30 is made up by not getting one parking ticket or not buying 2 CDs or whatever.”
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p>Or getting one less meal at a restaurant.
Bob,
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p>The answer lies not in what you term David’s “fuzzy logic” but in the “fuzzy” way that most people think about money. Despite what most economists would have us believe (though an increasing group seem to be starting to recant), people do not usually (in fact they rarely do) make entirely logical economic decisions.
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p>Here’s an example from ECON 101. You know you are getting a $100 bonus in this week’s paycheck and you decide to spend $50 on a new video game you’ve been dying for. The other $50 is unspoken. You get your bonus, but upon getting to the store you realize that you’ve lost $50 dollars somehow. Do you buy the game with the remaining $50?
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p>What if you didn’t lose the $50, bought the game but then lost it? Would you buy a new copy with you’re remaining $50?
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p>What if you screwed up the calculation somehow and your bonus turned out to actually only be $50? Would you still buy the game?
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p>According to basic economic thought, the answer should always be the same. You either think the game is worth your last $50 or not. Whether you lost an additional $50, lost another copy of the game or never had the other $50 to begin with should be irrelevant. You have $50 now; do you want the game?
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p>The problem is, people don’t necessarily think this way. Some people would be so upset with themselves for losing the money that they’d punish themselves by not buying the game. Some people would lose the game and say, “Well it must be fate trying to tell me something. I guess I can live without it.”
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p>And to answer your question about 2% versus 3% or 15% or 100%, I’d imagine the answer has something to do with psychology. Why do prices in grocery stores always end in 5 or 9 ($2.99, $4.95)? Studies have shown that the difference in sales between $2.99 and $3.00 is much larger than straight economics would predict.
does anyone actually have any data and analysis about this one way or another about this?
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p>Otherwise I think this question is just one big Rorshack blot, onto which everyone is projecting their stuff.
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p>Including Flaherty. Which I take to be David’s point.
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p>In case you didn’t notice, you didn’t actually make an argument here. You just repeated the same thing others are urging the government to do and used that as evidence against doing it.
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p>Oh, you mean those biased sources? How about we try this: we institute the tax, do a study, and if it really did hurt the business, we get rid of that tax at the year’s end. Pretty simple. But until then, I don’t trust the biased sources of the restaurant industry when everything they say is so utterly illogical.
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p>Yes, and if we let Vietnam go communist, what about the next country after that? And the one after that? Or if all those screaming queens get married, what about incest and bestiality!
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p>Seriously, are you honestly offering a slippery-slope argument and going for serious debate? Bob, you should know better. Simply put, no one’s talking about 3 or 10 or 100%. We’re talking about 2%. Presumably, that could change one way or the other decades from now, but not without thorough study using the evidence we’ve then accrued.
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p>Without a doubt. As its a tax to consumers, this will cost the restaurant industry almost nothing. This is coming from a huge proponent of small business, including restaurants. Please remember that I oppose casinos chiefly because of small businesses – mainly being restaurants in this case. Many of the same people who oppose the meals tax are running to pass a slots bill, even though slots have the potential of absolutely destroying the local restaurant business (Atlantic City went from having 225+ restaurants, bars and pubs to less than 60 after casinos came in; Detroit’s lost 20%+ of their small businesses since casinos).
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p>So, if you’re worried about restaurants, maybe you should be more focused on its real threats while simultaneously recognizing that costumers at restaurants may have to give up a little, tiny bit extra to help this state meet its financial obligations and responsibilities. Passing a meals tax is the adult thing to do. Most who protests against such a measure are acting like spoiled brats. I suggest you not be one of them =)
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p>You called Bob out for not presenting a good case and then made your case with the above statement?
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p>Then this
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p>I can’t believe that you would mess with someones livelihood so cavalierly.
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p>
baby steps. there’s nothing cavalier about it. 2% can’t possibly hurt the industry that bad – and if it is, it will become obvious well before the year’s end and we can repeal it. But the truth of the matter is it won’t – and that’s the big intrigue here. You say we can’t do it, because it’ll hurt, but we’ll never know if it’ll hurt unless we do it. But to try it is to, apparently, be sympathize with the terrorists or something. Seriously, your argument is bizarre – and as I’ve already said, not mature.
Wow you really know how to raise the level of discourse! Terrorists, maturity because some doesn’t agree with your point of view – one you have clearly done no research on and clearly don’t care what the consequence are.
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p>It’s only funny because you have very little influence on this issue and disappointing because you might one day you might.
is, as stomv and SethJP in particular have pointed out, sadly misguided. I can’t make the point any better than they have. I will simply restate my general point that I do not believe Econ 101 supply and demand curves apply in this situation. This is much more about psychology than economics; ignoring that fact could end up depriving the city of much-needed revenues for no good reason.
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p>The problem of uncertainty is, I think, especially important, and I believe it answers Bob’s second point. Dinner out is unlike many, many other commodities (including a cup of coffee at Dunkin Donuts), because you very rarely know exactly how much it will cost. And because (as stomv notes) that level of uncertainty is probably at least 5-10%, thereby comfortably exceeding the sales tax increase we’re discussing, it seems quite reasonable to me to assume that a 2% meals tax increase will have negligible impact. Folks who don’t care about the tax (which I think is most people) will continue to behave as before. The folks who do can easily make up for it by altering their ordering patterns — one less glass of wine, or the side salad instead of the grilled scallop appetizer, while still having the same lovely dining-out experience. Note that, to Bob’s second point, if the tax increase were to approach or exceed the level of uncertainty in the price of the commodity, then I think you could start to see an impact.
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p>Look at this way: do you really think that if we dropped the meals tax to 3%, we’d see significantly increased traffic at restaurants? I don’t either. Exactly the same argument.
There are lots of people who eats lots of meals out. They don’t eat at places with cloth napkins that remove crumbs between courses. Rather, they eat out because they lack the time, or they don’t have it together to cook in, or they need a break from frozen food and take-out. They eat out to eat not to be entertained.
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p>Such people, who will buy the same meal visit after visit, will be much more cost-aware and much more cost-sensitive.
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p>Frequent customers usually provide a disproportionate proportion of the revenue for any business. So yes a 1% tax could have an effect.
Frequent customers usually always provide a disproportionate proportion of the revenue for any business.
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p>That’s a tautology, no?
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p>That doesn’t mean I agree with your conclusion that those customers are more cost-sensitive.
<sheepishly>Yes, that is a tautology.</sheepishly>
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p>What’s empirical would be statistics like the proportion of revenue from customers who visit one or more time per week on average.
… with people who know their logic terms, but I do have a technical nitpick.
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p>[logic geek]It’s not a tautology because technically, a tautology is true (by virtue of it’s form usually) in all possible universes. I can certainly conceive of a possible universe where the Frequent Customers Postulate isn’t true.[/logic geek]
I suppose it is only untrue for the case in which more frequent customers make very small purchases and infrequent ones make comparatively larger purchases. For example, in a funeral home. They might do a small side business in used flowers but whatever they earn from plants is dwarfed by their business in plantings.
…all possible universes, as a test for tautology, includes all unreasonable and unrealistic universes (one where Pat Buchanan becomes president for example). So the application of reasonable reality is actually misplaced in trying to technically classify something as tautologous.
Don’t force me to choose between you and stomv.
Imagine a business where frequent customers buy cheap items, but more revenue comes from infrequent customers who buy very expensive goods. However, I am not sure what would be a good example of this.
Still I don’t think I would quite qualify as a “frequent customer”.
this is little different than the price change one would expect every few years due to inflation and increased costs. It’s that small.
If it’s not a big deal and it has no material impact on people then why is it so difficult to get passed or for that matter why hasn’t it passed already?
Concentrated costs to them (it will marginally lower demand for restaurant services overall); diffuse benefits to the public (not a lot of $ in the grand scheme of things).
This diary is getting a lot of comments on the meals tax idea, but no one is saying anything positive about Flaherty himself.
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p>Flaherty’s minimalist website is also not encouraging.
And you bring us right back to the point, with your usual clarity…
Hard to say, right? He’s been talking about this meals tax for almost a decade- you’d think he could have reasoned with DiMasi (or even Romney and friends) to get the damn thing passed by now.
Seriously? No way — never would’ve happened under a GOPvernor. And you saw how resistant DiMasi was, even with a Dem Governor’s strong backing. There’s lots to fault Menino for, but not getting a meals tax through isn’t one of them, IMHO.
Anybody know where DeLeo stands on this?
Better yet, any suggestions for reducing the power of the Speaker’s office?
And Governor Swift vetoed it.
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p>The Menino Administration did secure about $16 million in annual fiscal relief from the state a few years back, some of which came from updating fees, most of which came from a change in the old Tregor law, passed during the White Administration in Boston, requiring a higher level of reserves than in other communities.
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p>Funny, I was just in DC for the Inaugural and didn’t scour my bill for the meals tax. Yesterday, I found a study from about five years ago and DC had a 10% tax at the time. Had I known, I would have been in a cab to Virginia immediately!
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p>Or maybe not …
but at least in the neighborhoods I have lived in, I have seen an improvement in city streets and city services during Menino’s tenure. I don’t know if he is the greatest mayor, but he does seem fairly competent. If he runs again, I will probably vote for him unless one of his challengers makes a very strong case for why they would be better.
but hasn’t made much ground with the problems of the poorer neighborhoods, such as persistent gang activity, less-than-optimal educational opportunities, and unemployment. Roslindale square is cleaner and more interesting than when he began, but the homicide clearance rate is worse than it’s been in a long time, as reported in the Globe a few days ago.
If the price of something goes up then demand goes down. With less demand comes less supply. Less supply = less restaurants. When restaurants shut down they cause unemployment to rise. When those people are out of work it causes more businesses to fail. I could go on but what would be the point, you people don’t believe in the laws of supply and demand.
A post makes a claim that, for several specific reasons, the simplistic, “Econ 101” supply and demand curves don’t apply in this situation. There are 87 comments discussing various aspects of the claim — some (including some by folks who know a lot about economics) agree; some would refine; some disagree, stating their reasons.
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p>You manage to ignore the entire conversation, instead repeating inane econ 101 trivia that, as has been discussed at length here, may well not apply.
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p>Heckuva job, fever.
did you know there’s an econ 102, 201, 202 and so on?
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p>There’s a reason why they call 101s rudimentary survey courses. Just say’in.
the sensitivity of demand in relation to price changes, a sub-set of supply/demand.
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p>Please let us also include in this discussion the cost to the purveyor of collecting, maintaining the required information and records, and remitting these taxes.
Since there’s already a mechanism to collect the 5% tax, the marginal cost to also collect the local tax [which, BTW, would be paid to the state and then sent to the locality] is downright trivial.
but I haven’t read any comments which include the costs borne by the restaurant. I have problems with the government making tax-collectors out of businesses, and penalizing them should they not follow the rules and regs correctly.
Stomv’s point is that all of those costs are already in place. So how does raising the current sales tax affect them? As far as I can tell, it doesn’t.
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p>Your argument is against sales taxes generally, not about the proposal to increase an existing sales tax, right?
My argument is just what you’d expect from me. No new taxes. Let’s cut spending, just as we do at home when the family’s revenue drops.
You name the percentage-across the board.
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p>I understand what stomv is saying, I was just commenting that with all the discussion about the impact of taxes on demand and the effect of a twenty percent increase in the current tax (5% to 6% is a 20% increase-not a 1% increase), I was just reminding everyone about the “external costs” (as those here like to describe when talkng about energy). I was just reminding everyone that businesses incur costs to collect, maintain records, and remit taxes, and are penalized if they fail to do so.
These people think that raising taxes has no impact on demand. If they can’t get their head around a simple supply and demand chart, explaining why a 1% tax increase is actually the same as raising taxes 20% they’ll never understand. And because money comes from trees they probably also think all one has to do plant more trees to collect the taxes.
Thanks once again for your well thought out contributions to the debate.
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p>When you graduate from high school, let us know.
that are more difficult to explain.
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p>For years, suburban communities have chafed at the amount of local aid that goes to the city even as mayor after mayor complains about Boston not receiving as much in tax benefits as the city generates. You can bet that if the city gets these independent revenue streams, the legislature will begin to chip away at it’s share of local aid and redistribute to the suburbs – that’s where the numbers are politically, and those are the communities that stand to benefit little from a local meals tax. The city may be helped in the short run, but over time, the city will lose out.
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p>In addition, for those of us who care about all state spending, eliminating a potential revenue stream for the state to use makes no sense. It sucks that we don’t have a grad tax, but until we do, I would much rather see the state retain control of state revenue streams than give that revenue over to cities and towns where we do not have any control of spending decisions.
Boy, you must go back a ways! đŸ˜‰
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p>Seriously, though, this is an interesting comment that I confess I don’t entirely understand. Remember that, as the Gov has proposed, the first 1% of an increased meals tax does not stay with the city — it’s statewide, and it goes into the local aid fund to be distributed to various cities and towns. Then, if an individual city decides to add on another 1% hike, that amount would stay with that city. So, as I understand it, the proposal is to increase the statewide meals tax to 6%, with an option for cities and towns to bump it to 7% on their own.
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p>Does that affect your comment?
the principle remains the same. I have no problem at all with raising the meals tax for the state. But there is no number where the city could tax, not even say only 1%, and not realize the affect over time that I noted in my previous comment. Ultimately, there would be a fairness and equity debate not over the percentage, but over the actual dollars raised.
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p>Thanks for geezer comment.
The City shelters the homeless, builds affordable housing, plays host to many tax-exempt institutions, puts up with the pollution of cars driving in or through from the burbs and beyond and copes with two of three local aid formulas that discriminate against the city (granted, “Additional Assistance” is a big help, but lottery and Chapter 70 formulas do not favor the capital city). That’s fine, that’s the role that cities play and that’s the debate that goes on, not just in our state, or country, but internationally as well (Paris gets preferential treatment, etc etc). I believe that the City generates about 25% of state revenues, it gets a far smaller proportion back in terms of local aid. But Boston is not asking to change the formulas, Boston (and many other communities) are asking for more fiscal tools to address their own budgets.
This is exactly my point. These arguments mirror those that mayors have been making for years. But,”why would suburban communities chafe?” For the same reason that they fight each and every year for a bigger share of the pie; their communities demand it as well. If Boston receives x amount of dollars from the meals tax and local aid increases at the state level are minimal, you can bet that those suburban communities will demand that the local taxing numbers from Boston be factored and that the pie be divided up in a way to favor those suburban communities more.
Although my first read of the proposed FY10 budget puts a pretty heavy hit on Boston, every community feels they are getting the short end of the stick, and the bigger the proportion of local aid you get, the bigger the impact of the cut when it comes (except when it come to Chapter 70, which was held harmless, probably a good thing for poor communities like Springfield and New Bedford).