When a government imposes higher costs on business by increasing taxes, generally you will get less of that thing. When you cut costs or taxes, then you get the opposite: A growing business sector.

This is why GregoryBresiger.com is almost always for lower taxes .

The lower taxes prejudice comes with caveats: Governments cutting taxes should spread the cuts around and should also reduce spending at the same time.

Paying More

In New York City, a difficult place for small businesses because taxes are already outrageously high, the state government recently imposed higher costs on small business. It insisted that everyone working in restaurants most receive a minimum $15 an hour wage, regardless of the effects of the move on small, vulnerable businesses. It is also considering other high costs on restaurants through reducing a popular credit.

So what is happening to these New York restaurants?

Bad Times for New York Eateries

New York City restaurants are eliminating jobs, reducing employee hours and raising prices owing to higher costs, often mandated by government. A once growing industry is contracting.

That’s according to a survey conducted by the New York City Hospitality Alliance, an association representing restaurants in the city.

Andrew Rigie, executive director of the trade group, said last year “full-service restaurants recorded a 1.6 percent job loss, which is the first recorded annual loss in two decades.”

The survey also said about a third of Alliance members will eliminate jobs and most will raise prices this year owing to higher costs, including the required $15 an hour law, backed by New York Governor Andrew Cuomo and most other New York officials. Few of the latter have ever run a small business.

In an environment of higher costs, “76.50% of full-service restaurant respondents reduced employee hours, and 36.30% eliminated jobs in 2018, 75% of limited service restaurant respondents report that they will reduce employee hours, and 53% will eliminate jobs in 2019 as a result of mandated wage increases that took effect on December 31,2018,” according to the online survey.

The Governor Responds; The Mayor Doesn’t

The governor, through a spokeswoman, defended state policies: “All New Yorkers deserve to make a living wage and under the Governor’s leadership more minimum wage workers than ever before have received an increase in their wages. The fact is that increasing the minimum wage puts more money in the pockets of hardworking New Yorkers, which creates more demand for local businesses and increases economy activity.”

A spokeswoman for Mayor Bill de Blasio, who has spent a lot of time out of town exploring a potential presidential run, didn’t respond to repeated interview requests.

The Alliance said that “the results of this survey, and other industry trends signal that a once growing industry; responsible for hundreds of thousands of jobs, and billions of dollars in economic impact, has become stagnant.”

Alliance officials said another higher cost could be coming through the potential elimination of the tip credit. This is the amount of tips earned by an employee that the law allows the employer to take as a credit against minimum wage requirements. The governor wants the tip credit reviewed. But the governor’s spokeswoman emphasized the New York State Department of Labor (DOL) will decide the issue. The DOL says it is reviewing it.

An Observation

At this point, I must offer this prejudiced comment: The governor’s comment reminds me of when he said he had nothing to do with the state decision on prohibiting fracking a few years ago—a decision interestingly announced just after he was safely re-elected—that it was not up to him but up to the state Department of Health as though he had no control over it. He appoints the head of the department; indeed, he appoints the heads of all executive departments in the state government.

The basic problem with much public sector business regulation businesses is that it is made by professional politicians. Most of the latter have never run a business. Most of these men and women have little idea of how difficult it is to start and keep a business going. They tend to think that most businesses have huge profit margins, which isn’t so.

Politicians generally are looking not at the nuts and bolts of running a business or at the long-term economic effects of their decisions. By contrast, they are usually trying to find politically popular policies that will help them win re-election.

The Governor’s Decision

Governor Cuomo, Rigie says, “should choose policy over politics and keep the restaurant industry tip credit.”

Restaurant owners, he adds, are living with the $15 an hour mandated wage, but warn higher costs mean fewer jobs, and higher prices, trends happening now.

Higher costs hurt the people state policies are designed to help, Rigie says. “Yes, employees can get a higher rate, but then many of us have to reduce hours so employees often get about the same or in some cases less.”

Politicians may think it is an easy thing just to order higher costs and taxes as a way of winning political points with voters. But they should remember the damage they could be doing to the economy. Some of that damage is already happening here in New York as detailed in the Alliance study (Please see below).

Some Highlights of the Survey of Restaurant Owners

*74.50% of respondents report that they will reduce employee hours; and 47.10% will eliminate jobs in 2019 as a result of mandated wage increases that took effect on December 31, 2018.

*87.30% of respondents report that they will increase menu prices in 2019 as a result of mandated wage increases, compared to 90.20% in 2018.

*60.80% of respondents will rework food & beverage menu offerings in 2019 to reduce costs in response to mandated wage increases.

*34.40% of respondents report that their repeat customers dined at their restaurants less frequently after they raised menu prices in 2018.

*40.20% respondents report employing fewer people in 2018 than 2017, but their payroll stayed about the same.
Source: New York Hospitality Alliance

 17 total views

Gregory Bresiger
Gregory Bresiger

Gregory Bresiger is an independent financial journalist from Queens, New York. His articles have appeared in publications such as Financial Planner Magazine and The New York Post. The eBook version of his latest book "MoneySense" is available now for Free Download by clicking HERE

Leave a Reply

Your email address will not be published.