Beware, the tax glutton cometh

"Glutton" may be a bad pun here, but this big government certainly has an appetite when you have one:

Detroit Ponders Fast-Food Tax

Would you like fries with that? Either way, the Detroit city treasury would like a bite. Faced with a $300 million budget hole, Mayor Kwame Kilpatrick is hoping people in this already heavily taxed city won't mind forking over a few extra cents for their Big Macs and Whoppers.

Kilpatrick wants to ask Detroit voters to approve a 2 percent fast-food tax — on top of the 6 percent state sales tax on restaurant meals. The mayor says consumers will barely notice the extra cents at the cash register, but critics say the tax would unfairly burden the poor and hamper economic development.

It reminds me of the generally unwatchable "Popeye" movie starring Robin Williams. Bluto had a tax on just about everything, even an "exercise tax" (bad pun).

"Just tell him we're going to go to Bloomfield Hills to McDonald's if he puts a tax on it," said 18-year-old Ebony Ellis, referring to an affluent Detroit suburb, as she and four friends ate at a Golden Arches in Detroit. The high school classmates eat at McDonald's every day after school because their schedule doesn't leave them time for lunch.

Even if their time had no value, they'll probably spend more on gas than they'd have paid in taxes. Are they being foolish? No, not really. Before the American Revolution, when Great Britain levied taxes on tea, many colonists preferred smuggled Dutch tea, though it was more expensive than taxed British tea. It was out of pure principle, and I'm glad to see these teenagers doing the same thing, though I suspect they're ignorant of their historical predecessors.

Other cities and states have special taxes on prepared food, and some have tried "snack taxes." In New York, Assemblyman Felix Ortiz has proposed a 1 percent tax on junk food, video games and TV commercials to fund anti-obesity programs.

Government must save us from our sins, didn't you know? Jesus doesn't save, but big government does -- or so it would have you believe. The reality is that big government prevents us from saving for ourselves (in the literal sense) in the first place.

But if approved, the Detroit tax would be the country's first to target fast-food outlets, the National Restaurant Association said. The tax would apply to anything sold at a fast-food restaurant — even salads.

Opponents have been quick to call it a "fat tax" in this city dubbed the nation's fattest in 2004 by Men's Health magazine. Detroit fell to No. 3 for 2005.

A "fat tax" indeed! If you buy a very healthy salad, you'll still have to pay it.

City officials say the proposal, part of the draft budget Kilpatrick presented to the City Council last month, is more about Detroit's financial health than anything else.

Ah, isn't their honesty refreshing? They straightforwardly admit that they want your money to feed their spending addiction.

Although the tax would not come close to fixing Detroit's financial problems — officials predict it would bring in $17 million in the next fiscal year — every dollar counts in a city already bracing for mass layoffs and service cuts.

Enacting the tax would likely require a change in state law, potentially a tough sell in the Republican-controlled Legislature. The tax also would require the approval of Detroit voters.

I hope Detroit voters (and voters everywhere else) realize that what we all need is a leaner government, one that tightens its belt and learns to control its hunger pangs. If only we could levy a "fat tax" of our own on fat, bloated government. The next best thing is to vote the bums out of office, but that rarely works.

But Kilpatrick insists an additional 2 percent — a nickel on a $2.50 Big Mac — would have little effect on the pocketbooks of the average resident or the competitiveness of Detroit eateries.

This is the reality of raising taxes by $x million, or billion, or any amount. Regardless of what Krugman & Co. would have you believe, a tax never encourages economic growth. I've mentioned before that Bruce Bartlett stated a common estimate of tax disincentive is 20 cents for every $1 collected in taxes. I wouldn't be surprised if the figure is even higher for Detroit, which as the article observes has very heavy taxes already.

I'll even be generous here and talk about taxes as if they have zero disincentive. Detroit raises $17 million through a "fast food" tax, and maybe every Joe and Jane can afford it. Even the yearly figure for a family of four won't be that much, right? Figure that a person goes to a fast food restaurant three times a week and pays 10 cents each time in tax. That's only $15.60 a year. Surely each person can afford that every year, right?

Perhaps, but we must look at the aggregate effect, not the cost to any particular individual. By definition, Detroit institutes a new tax and brings in $17 million more only by depriving the private sector of $17 million. Since people have finite incomes, every dollar they're taxed means a dollar less than they spend at businesses. Or it's a dollar that they can't save. Saved money is also important because when government takes it away as taxes, the money is longer available when a business seeks a loan to expand its operations.

So Detroit's government will indeed get $17 million now, but at the cost of reduced business revenue and reduced business expansion. When a business has less revenue coming in, it has to cut hours or lay people off. When a business can't borrow money to expand because government has taken that money as taxes, that means a new job isn't created. Either way, even if taxes don't discourage greater economic output, taxes destroy jobs. Oh sure, government spending will create some employment, but it's never as efficient as the private sector. Then when you factor in the reality that taxes do discourage economic output, it's clear that government needs to balance budgets by spendings cuts, never by raising taxes.

And the fact is, there aren't many options.

"With Detroit, you're kind of grasping at straws because the tax base is so tapped into," Wassmer said.

There's always an option: cut spending! But nobody -- well, hardly anybody -- ever considers spending cuts instead of tax hikes.

And if you worry about the government employees who will be thrown out of work, read your Bastiat.

Michigan law limits Detroit's ability to raise income and property taxes, and high taxes are already cited as a major reason people and businesses have fled the city, further depleting the tax base.

In a study by the District of Columbia comparing Washington and the biggest cities in each state, Detroit in 2003 had the 10th-highest tax burden for a family of four with an income of $75,000. State and local taxes combined totaled 11 percent, according to the study.

Can you really blame people for wanting to flee from higher taxes? The same thing, the "death spiral" of taxes, has happened south of me in NYC. The recession reduced tax revenues, so Bloomberg raised taxes to increase revenue. Businesses and people left the oppressive taxes, reducing the tax base even more. So what was Bloomberg's response? Well, earlier this year he said he wouldn't rule out raising taxes again. But as I wrote yesterday, Bloomberg lucked out with an unexpected boost in tax revenues.

Big government just can't see that there's a certain threshold of taxation above which people will simply move. Detroit had better learn the lesson before it loses everyone. (New York had better, too. As Confederate Yankee recently said, "Will the last person in New York remember to turn off the light?")

An overall meals tax not limited to fast food is out, Deputy Mayor Anthony Adams said. The mayor likes to boast that 22 new restaurants have opened downtown in the last three years. A tax on all restaurants might hamper this fledgling development, while the city's fast-food market is "pretty mature," Adams said.

Detroit's mayor and his staff are afraid of a restaurant tax because it's more noticeable on the larger checks. They'd rather steal a few cents from a lot more people, which is not as noticeable to the individual, but as I just showed, it has a very noticeable aggregate effect.

I can't help but wonder how many of these new restaurants the mayor, his staff and their friends like to patronize.

And just how is "fast food" defined? Besides the obvious chains like Wendy's and White Castle, officials have mentioned takeout pizza places and Detroit's ubiquitous chili dog restaurants known as Coney Islands. It's uncertain, however, where Starbucks or the corner deli would fall.

The administration says it is still working on a definition.

It's a simple matter of determining which businesses have customers who will just "suck it up" and pay a few cents more per meal. Big government, of course, never worries about providing the best efficiency for all the money it saps from people. It does, however, worry about what tax gimmicks to employ so as few people as possible will notice -- and complain.