It is a pretty safe bet that increasing a tax on any given economic activity will lead to less of that activity.
Thus, Gov. Lincoln D. Chafee’s proposal to add 2 percentage points to the state’s meals tax seems pretty likely to cut back on the number of people who eat at the state’s restaurants.
With Rhode Island’s continuing jobs crisis leaving families with less cash to use on discretionary spending, the bump in the cost may be just enough reason for them to stay home.
It is also likely that some folks from communities bordering Rhode Island will make the same choice, given that they can stay in their hometown and enjoy a comparable experience for less.
The decline in business caused by the 10 percent meals tax would in turn create an incentive for local restaurants to consider relocating or expanding outside the Ocean State if the opportunity presented itself.
Still, while the decrease in business from individuals is likely to be real, it is difficult to quantify before implementation. On the other hand, there can be no doubt that the change would have a real impact on the state’s convention and meetings business.
In a very competitive regional and national marketplace, adding 2 percent to the bill may just price Rhode Island out of many deals.
In the end, of course, decreased business will mean that the workers in the industry will earn less in tips, if they aren’t just laid off.
And, the icing on this ill-conceived cake would be that it would generate less tax revenue than expected and thus not accomplish the goal it set out to meet in the first place. •