One of the more difficult concepts to get across to the
general public is that government’s annual revenues usually increase without
raising taxes. As a result, tax increases often significantly increase revenues
above and beyond a usual annual increase. The difficulty in understanding is
that, due to generally rising costs, net revenues of a small business or of a
household do not increase without a price increase or an increase in rate of
pay.
A recent example of the government system is the significant
increase in revenues enjoyed by Rhode Island and cities and towns from the
meals and hotel taxes. The government collects a 6 percent tax
on the price of hotel room stays, with 1 percent returned to the host community
and the rest distributed to state and local agencies for tourism according to a
statutory distribution formula. On top of the state’s 7 percent sales tax, the
state collects an additional 1 percent meals and beverage tax on ready to
consume meals and drinks sold in restaurants and grocery stores and elsewhere
for cities and towns.
In the budget year that ended June 30,
2014, the government collected $3.1 million in the 1-percent hotel tax and
$22.3 million in the 1-percent meals and beverage tax — $25.5 million for
local government. The previous year, the taxes produced only $24.3 million for
cities and towns. Through the magic of an improving economy – more people
eating in restaurants and visiting Rhode Island and staying at hotel and
motels, the state and local governments have higher revenues. No tax increases
necessary.
