New York City’s council passed a law allowing restaurants to add up to a 10% ‘Covid surcharge’ for eat-in dining. Mayor Bill de Blasio is expected to sign it. It is stupid.
- Restaurants can already raise their prices. This allows them to publish prices, but charge customers 10% more than those published prices.
- Surcharges are a deceptive way to raise prices, but the law requires the surcharge to be published on restaurant menus. So it’s really just about deceiving people for whom math is hard.
- And raising prices during a recession, and when many people are concerned about in-restaurant dining as it is, only serves to keep people away.
When I tweeted about this, one response that generated a couple of ‘likes’ was that customers should pay the surcharge “to support local business and their workers.” But that misses the point.
- Restaurants can charge higher prices, which customers can pay. Or customers can voluntarily leave big tips. No legislation is required for this.
Kalergis Dellaportas, the general manager of his family’s Bel Aire Diner, in Astoria, Queens, said that if the bill had passed at the start of the pandemic, he might have been tempted. But six months in, he has already planned for the extra costs of running a restaurant, including restarting indoor service at the end of the month.
He has raised his prices by about 5 or 6 percent, he said, and has noticed that other places have done the same.
- Higher prices may not maximize the welfare of restaurant owners or their employees if demand falls.
- Why is the moral obligation only in one direction? As one New York City restaurant owner puts it,
“Our customers are all families,” and during the pandemic most are neighbors and other regulars whose finances are as challenged as his own, Mr. Criscitelli said. “So why should we charge them any extra? It’s hard for them to come out now.”
Is this worth the fraud that one restaurant owner admits to?
Mr. Keyser said restaurant owners have always been afraid to raise prices, even when costs demand it. “The whole idea of a surcharge — and I am sorry to let the public behind the curtain,” he said, “is so we can charge $12 for a burger and make it look like it costs $10.”
If the surcharge wasn’t taxed that would be a benefit, similar to how airline fees aren’t subject to the federal 7.5% excise tax on domestic airfare (which was suspended by the CARES Act). In other words, that restaurants would benefit from fees the way airlines do, as a tax dodge. However it turns out that the allowable surcharge “comes before tax” so isn’t as helpful as a truly beneficent city council might have made it.
Restaurant lobbyists in the city have wanted surcharges for years, long before the pandemic. And they want it to be permanent, not limited to coronavirus or the duration of the pandemic as the new law provides.
Workers though are concerned that the surcharge will discourage tipping. Of course it will. People are willing to spend a certain amount for a night out, and for a given restaurant meal. That total cost is inclusive of the tip. If the restaurant adds 10% onto its bill, that’s money the guest won’t add to the discretionary tip line.
If there’s a real benefit to surcharges it’s likely shifting income from employees to restaurant owners. Put another way, it’s a way of reducing otherwise-sticky wages at a time of high unemployment.