The St. Paul hospitality industry: a teachable moment

One of the interesting stories about the shut down comes from the eateries and watering holes in St. Paul that are so severely affected. There have been several articles in the Twin Cities' dailies about them: hard to hang on, having to let employees go, rent still has to be paid, property taxes still have to be paid, etc.

It occurred to me that the plight of the hospitality industry in the Capitol City is a perfect example of some things in the current economic debate.

First, demand for products or services is what cause businesses to hire people. It matters not at all how rich or poor a coffee shop owner is, if she has no customers, she won't need employees to serve them. To hire the employees first and then expect the business to come is what is called supply side economics.

Second, the tax that kills small business, especially in downturns, is the property tax. You have to pay the property tax if you are a building owner, or you pay it as part of your rent for the coffee shop, or whatever. You have to pay this tax whether a single customer walks through the door or not.

Parenthetically, the same is true of residential property owners; the property tax is no respecter of fluctuations in your income.

To have customers, you need to have not only people, you need people with money to spend. And enough confidence to spend it. Contrary to what Republicans will tell you, plunging the economy into the shitter is not the way to create people with money and the confidence to spend it.

What tax don't you have to pay if you aren't making money? The income tax, of course.

The hospitality industry in St. Paul is not carping about the income tax. Nor the sales tax, for that matter, because it doesn't have to be paid on sales not made.

Most of the jobs created by small business are not created by hot shot entrepreneurs racing around the country looking for the lowest tax rate. They are created by people like the St. Paul hospitality industry, who are hurt far more by the increased property taxes that will result from cutting off local government aid to St. Paul than a small income tax increase on incomes over a million dollars, or even $300,000.

The "job creator" argument is pure sophistry.

Now, we can't rely on the income tax alone, because as is obvious from the discussion, it goes down when people's incomes go down. The property tax for all its warts is pretty reliable (unless property values assessments decline severely). And the property tax is rather unavoidable, too. A similar argument can be made for the sales tax. People have to eat. Okay, not a good example, at least in Minnesota. But they have to buy clothing. Kidding. But the sales tax is more stable than the income tax, and it's pretty collectible, too.

But the case of the St. Paul hospitality industry during the shut down does illustrate quite nicely the Republican game that's afoot on income taxes.