Most people oppose Fairfax County’s consideration to increase the county restaurant or ‘meals’ tax. Currently, purchases at restaurants are subject to the same general sales tax as any other retail purchase. In Northern Virginia that’s 6 percent on top of the posted price. The Commonwealth of Virginia permits local municipalities to levy an additional meal-tax of up to 4 percent for a total of a 10 percent sales tax at restaurants.
Some people claim that the additional tax will lower employment, squeeze time-pressed families, suppress wages, and is a poor substitute for a thriftier budget. Regardless of the effects on particular interest groups, the proposed tax is poor policy even from a dispassionately economic point of view.
I’m not one to pass judgment on whether raising revenues or decreasing outlays is the appropriate fiscal response to the budgetary needs of Fairfax County. What I can tell you is that a prosperous community should have good tax policy. And a good tax policy is one which is simple and avoids pressuring the residents to make some purchases or avoid others. On these grounds the proposed tax is a bad idea.
What business would be hit by the new tax? Well, there’s a particular Commonwealth definition which tells us: “sellers of food for immediate consumption.” The tax would apply to establishments for whom prepared food sales constitute no less than 80 percent of total receipts. That’s kind of obscure, if you ask me.
There is a further litany of code and law which defines what constitutes “eligible food” with a maze of definitions and omissions. Is there an obvious economic reason to single out the restaurant industry in Fairfax County with a new tax? Not really. Virginia allows some discretion among localities to set tax policy. And taxing restaurants is one of those allowed ways. It appears that the primary reason that the county board members are singling out our restaurants is because “they can.”
There have also been mentions that the tax would primarily fall on commuters who don’t reside in the county. The implication is that other people will pay for our government. Such an implication is fallacious prima facie. Just because most restaurant customers are commuters does not make the cost lower for local patrons to visit a local eatery. Further, neighborhood restaurants will not be able to pass on the entirety of the tax to customers - restaurant revenues will fall. And since the value of each property is determined by profitability, property tax revenues will be lower to boot.
Consumers will also shift their consumption on the margin. Rather than going out to eat so frequently, people will cut back – even if just a little. It is true that grocers will see a small increase in sales as people shift purchases away from the higher taxed restaurants. But why give preferred tax treatment to grocers over restaurateurs? Is there any reason that the county board wants to push people away from restaurants? Is food from the grocery store inherently better than food from a bistro, café, or sandwich shop? The answer is surely not the same for everyone.
Of course, all taxes reduce the amount of money that is left over in the family budget. There is no such thing as a free lunch. The money has to come from somewhere. We should keep the sales tax uniform across as many goods and services as we can. The fact that adjacent counties have special meal-taxes has no bearing on whether the distortionary tax is a good policy for our county.
Maybe reducing the number of sales tax exemptions is an alternative. Tax experts across the political spectrum, such as at The Tax Foundation, agree that simple and neutral taxes are better for prosperity and growth. If we really need to increase taxes, then we should increase the property tax and be explicit about it. We should be transparent and above board about our municipal revenue needs rather than tuck various taxes into nooks and crannies of our local economy.
A ‘meal-tax’ seems like a ridiculous way to determine who should carry the greater burden of government expenditures. The Fairfax County government might indeed need more revenue. But the board members also have the responsibility to maintain a level playing field and ensure that we all bear our fair share of funding the local municipal services.
Zachary Bartsch, Fairfax