The city of Omaha has implemented a new restaurant tax. The 2.5 percent tax will be applied to meals at restaurants, drinks at bars and bills for hiring Omaha caterers, according to an Omaha World-Herald article.

The tax, which took effect last Friday, is in addition to the 7 percent sales tax. Of that 7 percent, 5.5 percent is state sales tax and 1.5 percent is city sales tax.

In other words, if a student goes out for a $7 burrito and $3 beer, it will cost $10.95 instead of the $10.70 like it used to, said Tim Bastian, a professor of economics in the College of Business.

However, there are exceptions to the tax. Food and drink sales not subject to taxes before will not be taxed under the new ordinance, according to the World-Herald. This means food and drink purchased on campus will not be taxed. Other items exempt from the tax are prepackaged snack foods and food and drink sold from mobile food carts, vending machines and nonprofit venues.

According to the World-Herald, the city estimates the tax will generate $14.8 million annually. Officials said $13 million of that will be put into the police and fire pension fund next year to help address an estimated $620 million long-term shortfall. The remainder will go for city operations.

But the tax itself is not a solution to anything, Bastian said.

“The city of Omaha is doing this because they were spending more taxpayer dollars than they were bringing in from taxes,” Bastian said. “The mayor and city council picked this tax over other possible taxes, probably because they thought that the number of restaurant meals sold won’t be affected much by the added tax. It’s also a way to get tourists and business travelers to pay more taxes to the city.”

John Deskins, assistant professor of Economics, said the restaurant tax is not a good approach to increasing city revenues.

“A fundamental rule of tax policy design is that a tax should be broadly based with correspondingly lower rates, in contrast to a tax with a narrow base – on a certain good rather than on purchases in general – with a higher rate,” Deskins said. “This restaurant tax will lead to more inefficient distortions of behavior compared to more general tax increases that the city could have pursued.”

Bastians said he thought the tax was a horrible idea.

“A price increase is a price increase, and when prices go up, consumers buy less of that product or service,” Bastian said. “[Fewer] restaurant customers will be bad for restaurant owners and restaurant workers in Omaha. The bottom line is that I really don’t like it when governments pick winners and losers in our economy.”

City Finance Director Pam Spaccarotella said in her letter to the effected businesses that the tax is fair and just.

“Although restaurants and bars are valuable to the city and provide services that should be promoted, they place demands on the city’s resources, and their greater participation in providing general revenue for general city purposes is fair and just,” Spaccarotella said. “The tax burden will be spread broadly across many businesses that will collect revenue from both residents and nonresidents who enjoy the benefits provided by these businesses located within our city.”

There were efforts to stop the tax with an injunction, but they were stopped Sept. 30.

• A more complete look at what is and is not taxed is available at cityofomaha.com and in an omaha.com article.

• More information about the resistance to the tax is available at omaha.com.