Talking Points

1. The Indiana Restaurant Association opposes food and beverage taxes because our members know from experience that this tax will be paid by both diners and the restaurant owners.

 

Though it may seem to be a fair tax because all diners pay the tax, it is not fair when only one industry is singled out to bear the cost of additional local spending.

 

National studies and recent experience in Indiana show that diners are not the only ones paying a food and beverage tax. The tax comes out of the diner’s budget but at the expense of the restaurant industry and its employees. As diners see their bill increasing they have many choices and opportunities to keep the bill from rising- even choosing to see it decline. They can choose less expensive menu items, fewer menu items, or choose a less expensive dining experience. Consumers are extremely cost conscious with their household budget. The recent increase in the price of gasoline showed a decline in restaurant industry revenue, while consumption of gasoline was not as effected. There is no doubt that a food and beverage tax will harm the restaurant industry in Indiana.

 

2. From an economic point of view it does not make sense to harm the restaurant industry in Indiana.

 

• It is not good to tax (harm) an industry that is so labor intensive because it will effect employment. For each additional one million dollars spent in eating and drinking establishments, Indiana restaurants generate an additional 45.6 jobs in the state. Clearly the opposite is true, for each $1 million dollars the diners shave off their restaurant bill, Indiana will loose 45.6 jobs.

 

• It is not good to tax (harm) an industry that yields benefits to the community. Every $1.00 spent in restaurants generates an additional $1.19 in sales for other industries in the state. Every dollar not spent at a restaurant will harm other businesses too.

 

• It is not good to tax (harm) an industry that has an extremely low profit margin. Typically restaurants operate with a 5% profit margin. If restaurants could raise their prices 1% without losing customers- they would have done so. Operating on such slim profit margins, restaurants are vulnerable to losses from relatively small increases in costs or decreases in revenue. This is a major reason so many restaurants have a short life.

 

• It is not good to tax (harm) an industry that has a very high elasticity of demand. A small increase in the price of a meal can cause a diner to spend much less- by choosing less expensive items or a less expensive restaurant.

 

3. Raising this tax will only be a temporary fix to revenue problems but it will become a permanent tax on an industry.

 

4. Food & Beverage taxes are extremely regressive

 

Most counties that do not have a food and beverage tax have lower average income levels and more “working poor” who typically need to dine out or carry out after work. Every dollar you take from customers is a dollar that customers no longer have to spend on food.

 

The Indiana Restaurant Association believes that necessities such as food, shelter and medicine should not be subject to the sales tax. Family Meals Taxes are extremely regressive because they tax a basic necessity of life that everyone, regardless of income, must find some way to include in their budget. The percentage of household income that food away from home represents increases as household income decreases. For households with incomes in the $5,000 to $9,999 range, average household expenditures on food away from home represent 9.1% of household income. For households with incomes of $70,000 or more, it's only 3.6% of household income.

 

5.  An additional restaurant tax will harm the already suffering restaurant industry, harm low-income diners and it will negatively impact jobs and spending in Indiana.

 

The restaurant industry has been hit by a “perfect storm” of price pressures. The economy, rising food prices and higher wages have exacted a huge toll on Indiana’s restaurant industry.  Many hometown restaurants have closed or are closing their doors.  Nationally, 53 percent of restaurant owners reported a sales decline and lower customer traffic levels each month during the first half of 2008.   The second half of 2008 will be worse.  An October 2008 report by Technomic Consultants showed:

• The vast majority of consumers (91 percent) who are cutting back on restaurant spending say they are dining out less frequently. However, one-third (32 percent) are purchasing less expensive food when eating out, and one-fifth (19 percent) are ordering smaller amounts and portions.

• Overall, consumers are cutting back more at full-service than at limited-service restaurants. Lower income consumers are decreasing purchases at both types of venues.

 

Restaurants are fighting to keep customers coming in their doors with food specials and lower prices while costs continue to rise.

 

Restaurants are least able to absorb the economic impact of an additional tax. A small price increase can mean a decrease in sales to a restaurant when diners decide to purchase less.  Any change in revenue especially in this economy -will hurt the bottom line of the restaurant and cause employee hours or jobs to be cut.

 

• The restaurant business is highly competitive with a high price elasticity of demand. 

• Restaurants operate on a very low profit margin.

• Restaurants are very labor intensive with one of the smallest profit per employee of any industry.

 

6.  The restaurant business is important to Indiana:

• Indiana restaurants are the largest private sector employer in the state.

• Indiana restaurants are a cornerstone of economic development in our communities. National statistics show that every dollar spent in an eating-and-drinking place generates $1.98 in sales for related industries, from farms and factories to general contractors and truckers, according to the U.S. Department of Commerce's Bureau of Economic Analysis.

• Indiana residents want restaurants as a place to gather, socialize and supply their basic need for food.  Restaurants provide a quality of life in our communities.  In most Indiana cities restaurants cater to the local citizens.  Dining out is a way of life.  More than one-third of all adults (34%) of all income levels say purchasing takeout is essential to the way they live and nearly one-half of all adults (43%) say restaurants are essential to their lifestyle. 

                                                                      (2006 NRA Restaurant Industry Forecast) 

 

 

http://www.restaurant.org/pdfs/research/Mid-Year_Review_Restaurant_Industry_Economy_July_2008.pdf

http://www.restaurant.org/research/news/story.cfm?ID=311



Misguided Assumptions
     -It is not true that only “tourists” would pay the tax – it would mostly be paid by local residents.
     -It is not true that only those who can afford it would dine out and pay a food and beverage tax.
     -A food and beverage tax is not just pennies.