An Economic Question
In regards to the economic question of whether or not it is wise for municipalities to tax consumption, one could argue that it is economically prudent to do so. Although states may be allowed to tax certain goods or services, such as meals and lodging, municipal taxes on top of the state taxes ensures that local municipalities also get a portion of the revenue derived from the overall taxation of the good or service.
Although some economists may argue that consumption taxes, such as those imposed on meals and lodging are regressive and not progressive (the way that income taxes are), other theorists could argue that a meal and lodging tax, and the local room occupancy tax charged by municipalities are very specific to those items, and not to be construed with income taxes or general sales taxes. (Burman & Gale, 2005) Consumption taxes are generally considered regressive, due to the fact that lower income households typically spend a larger percentage of their earned income on goods and services, compared to wealthier individuals who spend a much smaller percentage of their income or wealth on goods or services. (Gale 2005)
The particular laws referenced in the question, M.G.L. Chapter 64L and M.G.L. Chapter 64G, related to the imposition of Room Occupancy Excise Tax and the Sales Tax on Meals. The room tax only allows for tax on rooms over $15 per night. This alleviates the financial burden on low income persons, such as hostellers (both young and elderly). The local meal tax option is only allowed up to 0.75%.
In the simplest terms, one can opine that a meals and lodging tax is akin to a luxury tax, as lower income people are less likely to spend money on hotels and expensive meals eaten out. However, lower income households are more likely to purchase fast food, which would be considered a “meal eaten out” under the tax regimen. However, these meals are of a lower dollar value, which reduces the amount of tax paid, in comparison to a higher income earner who is more likely to eat meals in a more expensive establishment. Additionally, lower income people have fewer dollars to spend on travel, including lodging, so the room tax is less likely to impact them.
The benefits of a local tax on top of the state’s tax on meals and lodging could be seen as an economic benefit, as those dollars will likely go into the municipality’s coffers, to pay for goods and services, such as funding public school, improving local infrastructure, and providing for better and more efficient program delivery. Thus, the taxes can be seen as a way to create jobs, and improve society in general. Most rational people would agree that funding public school systems and investing in infrastructure are ways to generally improve the local economy, as a more educated workforce and improved infrastructure leads to economic growth, job creation, and a more stable, better managed local government.
However, on the converse, others may argue that increasing local taxes on lodging and meals will only diminish traveler spending on other things, thus reducing the economic impact of tourism in general. In nearby Maine, sales taxes on lodging and meals are considered a way to “export” the tax burden onto travelers and tourists, versus putting the entire burden on residents in the form of property and income taxes. (Haskell 2007)
In terms of “opening the floodgate” to passing other taxes, including a local income tax, I don’t think that a sales tax on lodging and meals will likely have this effect. On the contrary, many local municipalities and states pass consumption taxes as an alternative to property and income taxes, as a way to shift much of the tax burden onto others. Here, the “others” being targeted with the lodging and meals tax appear to be travelers.
In summary, local municipal taxes on goods and services, such as the recently enacted lodging and meals tax passed in Massachusetts appear to be one way to shift the tax burden from local residents to travelers from out of the region or perhaps out of state. They appear to be a more readily accepted form of taxation, and often have bi-partisan support, because the residents themselves may not necessarily be the ones burdened with paying the tax. However, many lodging and restaurant businesses, and tourism trade industry groups appear to be opposed to such taxes, as they may make it more difficult to attract travelers and patrons. In the era of internet comparison shopping for travel destinations, a sales tax on lodging may make Massachusetts a less desirable destination than a state with lower rates of taxes, or without the local tax option added on to the existing lodging tax. In terms of the tax “opening the floodgates” it doesn’t appear likely that this will be the case, especially in terms of increased property taxes or income taxes. However, it may result in municipalities trying to implement comparable consumption taxes in other areas, such as sporting events, rental cars, and other areas of spending that are less likely to be felt by the local constituency. If the tax burden becomes overly targeted, it may result in a decrease in tourism spending in the state, thus reducing the overall net economic benefit of tourism in Massachusetts.
Works Cited
Burman, Len & Gale, Williams, The Pros and Cons of a Consumption Tax, The Brookings Institute, 3 March 2005. Web. <www.brookings.edu/research/interviews/2005/03/03taxes-gale>
M.G.L. Chapter 64L and M.G.L. Chapter 64G, related to the imposition of Room Occupancy Excise Tax and the Sales Tax on Meals
Haskell, Meg, Tourism Group Decries Lodging Tax Hike, Bangor Daily News, 6 April 2007. Web. < http://archive.bangordailynews.com/2007/04/06/tourism-group-decries-lodging-tax-hike>
