It is not surprising that the D.C. hotel industry opposes raising the hotel tax by 1 percent to help pay for modernizing D.C. public schools [Close to Home, Nov. 6]. But evidence does not support its claims that a tax increase will affect the health of the hospitality sector. Consider:
* When the D.C. hotel tax was raised in 1995 and again in 1998, sales continued to grow at a healthy rate of more than 7 percent a year.
* Occupancy rates in D.C. and New York hotels are higher than in nearly every major competitor city, even though hotel rooms in Washington and New York cost more than rooms in other cities. Visitors are willing to pay more to visit popular destinations.
Across the country, it is common for jurisdictions to impose relatively high tax rates on hotels because the tax is paid largely by nonresidents and because demand is relatively inelastic. Studies show that hotel taxes generally do not harm business.
This does not mean that taxes don't ever matter, but it suggests that a moderate increase in the D.C. hotel tax would not affect the industry. Under the recent proposal, the tax would rise to 15.5 percent, which is lower than the rates in Seattle and Houston and within two points of rates in Atlanta, Chicago, Dallas, Denver, Los Angeles, Philadelphia and San Francisco.
As evidence of the harm that a tax increase could do, William A. Hanbury, president of the Washington, D.C., Convention and Tourism Corp., cited the experience of New York City in the 1990s. There a hotel tax increase was followed by a decline in occupancy. But that was a 6 percent increase, from 13.25 percent to 19.25 percent, far larger than the 1 percent proposed for the District. And the New York increase occurred during an economic downturn. During the same period, hotel stays in Los Angeles fell nearly 10 percent in two years, so the drop in business in New York cannot be attributed solely to the tax increase.
The D.C. hotel industry should be able to absorb a modest increase in the tax without any noticeable effect while contributing to the modernization of the city's public schools.
The writer is executive director of the D.C. Fiscal Policy Institute.