TAX POLICY DEBATE #1

The Mayor of Muppetville City, Kermit Frog, has proposed a new local tax on all hamburgers sold at fast-food establishments located within the city limits. Muppetville City borders several other local jurisdictions which do not impose such a tax. Muppetville City currently imposes 20 different tax types and businesses have historically complained that the Citys tax structure is a deterrent to doing business in Muppetville. According to the Mayors press release, the tax will serve several critical purposes:

• Raise revenue for educational and social programs that would benefit inner-city youth, such as universal prekindergarten, improvements to parks and recreation centers, and community schools (tax revenue will be specifically allocated to these programs)
• Promote a healthy lifestyle by reducing the consumption of fast-food

Opponents of the new tax Argue that this is bad tax policy which will add to the Citys long-standing reputation of being unfriendly to business

Issues to consider:

• Should those individuals that follow a certain lifestyle pay for it to a certain extent?
• Do you consider this to be a regressive tax? Would it impact the poor to a greater extent than individuals with higher incomes (i.e. higher percentage of demand for fast food in poor communities)? Individuals with higher incomes could simply hop in their cars and travel to a bordering community to purchase less costly hamburgers.
• Would the revenue generated from this tax drop in the future, as consumption declines? If so, then how would the City continue to fund these programs? Some individuals may alter their lifestyles and reduce their consumption of fast-food hamburgers, resulting in lower tax revenues.
• Would this tax have a greater impact on small local hamburger stands (small businesses that operate on low margins) than large fast-food chains? How?
• How broadly is fast-food establishment defined? Why should there be a distinction between fast-food establishments and other restaurants that serve hamburgers?
• Would this provide more of an incentive for households living near the borders to do more of their shopping and dining outside Muppetville, thereby having a negative impact on the Citys economy?
• Would this be a slippery slope? Why stop at hamburgers and not tax other fast-food items (such as greasy french fries, onion rings, etc.)?
• How about the message this will send to businesses looking to expand or relocate here? Query whether this is a wise strategy from an economic development standpoint.