At a time when many Rhode Island businesses are fighting to keep their doors open and many of our citizens are struggling to make ends meet, it is more than a little disturbing to see state government try to make matters worse.
Governor Chafee's budget proposal offers a troubling array of tax increases, not the least of which being a 2% hike in the tax on meals and beverages. This proposal would move that tax from 8% to 10%. Rhode Island restaurants are already at a competitive disadvantage, as the meals and beverage tax is lower in both Massachusetts (7%) and Connecticut (6.35%). The Governor's proposal will only make things worse for the Rhode Island hospitality industry which is trying to keep people coming back to Providence and the state as a whole. It is a prime example of public policy being developed with a little regard for the economic realities facing real people.
Our state already has a staggering unemployment rate. People are hurting and businesses are trying to manage their costs in an environment where most of their clients are spending less. What does the Governor think will happen if he is successful in pushing through a menu of new tax hikes? Does he truly believe that increasing taxes will increase revenue to the desired amounts in this environment? If he does, he clearly needs to start listening to the people he claims to be representing.
Every day, people come into my pizza restaurant and talk to me about the challenges they are facing in terms of keeping their heads above water. I can tell the Governor what a 2% hike in the meals and beverage tax will mean--less revenue. People (and for that matter governments!) do not have an inexhaustible supply of money coming in, so when things change and taxes get increased, they will do the only thing they can do make adjustments to their spending habits and cut back on those items which now cost more money.
It's a simple rule that individuals and families live by all over the state. If only state government would try to adopt that same approach, we might not be in such a difficult spot. Tax policy has real world consequences and the hike in the meals and beverage tax will effect all eating and drinking establishments in the state--everything from restaurants and bars, cafeterias and lunch counters, drive-ins and roadside ice cream stands, to refreshment counters in movie theaters and bowling alleys. The new tax will send people over the border where the cost of a meal will be less or force them to cut back on eating out. As a result, our state faces the prospect of actually losing money with this tax. And on top of that, the tax hike hurts smaller restaurants and businesses whose clients have less discretionary income. And it could have a ripple effect on the hotel and convention industry, because potential visitors could be put off by the large variance in the meal and beverage tax between Rhode Island and its neighbors.
Bad economic policy is not going to improve the quality of life in our state and it certainly isn't going to do anything to promote economic development, something Governor Chafee points to as a priority for his administration. Quality of life issues are a key determinant in sparking economic development. That's an idea which has been promoted by Professor Richard Florida, whose book "Flight of the Creative Class" has been cited by Governor Chafee in his efforts to link passage of gay marriage to improving the Rhode Island economy.
How about generating economic development by not hurting businesses? How about generating economic development by reducing taxes and letting people keep more of their own money to spend as they see fit? And dare I say, how about generating economic development by getting serious about controlling state spending?
Because let's be honest. While the Governor's Director of Administration, Richard Licht, sought to make it easier to sell the meals tax hike by tying it to an increase in state aid for local schools, it's just as easy to point out that the new meals and beverage tax revenues could be helping to provide raises for top state agency directors already making as much as $156,000 a year. You see, the Governor wants to promote "fairness" by making sure these well-paid officials get a raise anytime union employees (making much less) get a raise. How about fairness for Rhode Island taxpayers?
The last thing we need in this difficult economic environment is short-sighted tax policy. The proposed increase in the meals and beverage tax is just that, a proposal which will not generate the promised revenue and which will only add to Rhode Island's economic malaise.