An increase in Connecticut’s sales tax on restaurant food could result in lost jobs, according to a study published by Yankee Institute for Public Policy, a Hartford-based think tank.
The study, “Taking a Bite out of Jobs: The Economic Effects of a Sales Tax Increase on Restaurant Meals,” found that a 1 percent increase on the sales tax for restaurant meals could lead to approximately 1,100 lost jobs and a $91 million evaporation of disposable income within one year. The study, which was prepared for Yankee by the Beacon Hill Institute, also predicted that the tax would net the state only $38.6 million per year [less than what lawmakers expected] and that the revenue would shrink over time, while lost employment and income would grow.
“Were Connecticut to raise the sales tax on restaurant meals, the state economy would experience a substantial reduction in private sector jobs, private investment and disposable income,” the study concluded. “When elected officials discuss tax increases, they tend to overstate the amount of revenue that proposed tax increases with yield. However, the higher taxes have negative economic impacts such as lower employment, investment, and incomes.”
Last year, a proposal to increase Connecticut’s sales tax from 6.35 percent to 6.9 percent and enable municipalities to levy an additional 1 percent tax was floated during the 2017 legislative session, but was never enacted. Gov. Dannel P. Malloy floated his own proposal to increase the sales tax to 7 percent, which state lawmakers also turned aside.
The proposed tax hikes came in response to news of the state’s budget deficit.