Letter to the Editor: Restaurant tax ignores basic economics

Letter to the Editor: Restaurant tax ignores basic economics
Photo Credit: K. Summerer for Visit Alexandria

To the editor:

The City of Alexandria’s web site promotes our location as “one of the best places” to do business on the East Coast. On page 18 of the city’s strategic plan, we commit to policies that make small businesses “flourish” and attract visitors. The specific plank reads:

“In 2022, Alexandria is a business destination and center of innovation. Alexandria’s business community is diverse, inclusive and robust. Mixed-use development is oriented around transit hubs and activity centers. Small businesses are supported and flourish, and the historic district and museums attract visitors that contribute to the tax base.”

The new tax on the restaurant industry is contrary to this stated principle.

Data from the National Restaurant Association indicates that the average restaurant profit margin is only 3 to 4 percent. A new tax by the city of 1 percent would be an unreasonable attack on those already-thin margins in a difficult business.

Advocates of this new restaurant tax make two arguments defending this approach and they are both false on their face and fail to mitigate the danger of the proposal.

First, the idea that the tax “would be paid by diners” and not the businesses demonstrates a failure to understand basic consumer economics: all added costs are paid by the diners and all externally added costs like taxes threaten margins.

Alexandria is already a high-cost jurisdiction due to high real estate expenses, high labor costs and an existing city tax and regulation structure that is one of the most expensive in Virginia. Restaurants are already charging diners as much as the market will bear for their product – any additional cost will necessarily come out of the owner’s potential take, even if it is assessed on the sale.

Second, advocates of this tax argue that more than half the cost would be paid by non-residents, therefore mitigating the adverse effects of the revenue mechanism. This argument implies that our visitors are hostages who have no choices and that a disincentive to visiting has no downside. Anyone making this case is willfully ignoring the multitude of choices available to diners in a diverse metropolitan area and the reliance of other business sectors on the visitors attracted to our city by our vibrant dining scene.

As a boutique owner of two stores in the heart of our restaurant district, I benefit from the region-wide popularity of places like Landini Brothers and Virtue Feed & Grain and need them to have competitive price advantages against their competition across the river. If you tax restaurants, you tax me in the form of lost traffic.

Lastly, this proposal is a continuation of a troubling trend at city hall of failing to exercise budget discipline when new priorities arise. If the city wants to fund new priorities like affordable housing, then city leaders should have the courage to cut existing spending programs, or hold their growth flat in real dollars, to pay for the new items.

Our city’s businesses do this every year – we cut existing expenses to make way for new initiatives. It is only reasonable to ask city government to meet its own priorities with the existing revenue sources in what is already one of Virginia’s highest taxed jurisdictions.

-Elizabeth Todd, The Shoe Hive and The Hive