Some Thoughts on the Proposed Sales Tax on Broadway Tickets

New York Governor David Paterson recently announced a proposal to add a 4% sales tax to Broadway tickets New York City. Broadway officials quickly denounced the idea, saying that the tax would put undue strain on an already struggling industry and inevitably lead to more layoffs and closings.

We have a quest blog today from Ethan Fein, an executive board member of the Local 802, American Federation of Musicians, who presents the issues from a musician’s perspective.

New York State is proposing a sales tax which would be applied to, among other things, tickets for Broadway shows. We at Local 802 and the musicians who work on Broadway think this is a very bad idea.

In order to understand why, some background is necessary. The price of tickets on Broadway is a big issue. Everyone is always angry at how expensive it is to attend a show. In fact, historically, the tickets are not very much more expensive proportionately to the rest of the economy than they have ever been, but try to tell this to anyone who wants to go see a show. The price without the tax discourages a lot of people from attending.

Broadway shows are a poor investment if you want to make money. Most close long before they return a profit to the backers. Backers still show up, maybe because once in a while they hit it big, and also because many people seem to find the investment glamorous and/or exciting.

When a show fails to cover its operating expenses it closes, and everyone who works at the show is laid off. On rare occasion a show will run at a loss if the investors think that they can make money in other venues after the show has closed, with road companies or in places like Las Vegas. Sometimes a show which has failed on Broadway can recoup because a touring company of a Broadway show can make money by advertising its Broadway heritage.

The margin is very narrow sometimes, so a small drop in ticket sales can completely wipe out a show.

This brings us to the question of the sales tax. Although the proposed New York State sales tax is 4%, an automatic additional 4 3/8% New York City tax will be tagged on, to make a total of 8 3/8%. If the top ticket list price is $120, the tax would raise the price to a bit over $130.

David Hahn asked me two questions:

1.) When the former sales tax revenue was designated for worker benefits in 1963, Broadway ticket prices were significantly lower. With ticket prices so bloated these days, isn’t there room for the Governors proposed 4% to be absorbed into the budget?

The sales tax is not a part of the budget of the show. The show charges what it can to keep going and maybe make a profit. The sales tax is paid by the purchaser. We feel that it is a large enough increase to discourage quite a few people from going to a show. If the show doesn’t keep going, it closes. As I wrote a bit earlier here, the Broadway ticket price is not actually historically particularly bloated. Also, the productions are more expensive than ever, because people expect a much higher technical value in their live entertainment than existed years ago. Additionally, there is a lot of negotiating on ticket prices. There is the half price TKTS booth, and specials offered on the internet all the time for reductions in ticket prices.

An important reason this kind of tax is not good for the state, besides the obvious reasons of having people working who would otherwise be unemployed, is that when people come to a Broadway show they do other things, like eat dinner, take taxis, stay in hotels, sometimes making a trip to New York a vacation. All these activities charge state sales taxes. If the ticket price discourages someone from coming to New York, all these other taxes are lost. It is pretty well agreed that this “multiplier effect” is real, and means a great deal of money to the city and the state.

In 1963, after there was a previously proposed sales tax, the Broadway theater owners and producers agreed that if there were no sales tax, which at the time was going to be 5%, they would put 4.5% of their gross revenues into a fund from which the Broadway unions would get pension benefits. Over the years, this fund has also been used for health benefits. The Broadway producers have hinted that if a new sales tax goes into effect, it may nullify this structure. There is a good chance of a loss of labor peace on Broadway if this goes down like this. The last time there was a strike on Broadway, a lot of money was lost not only by the Broadway producers, but also the restaurants, bars, hotels, and tourist attractions in New York. The state and the city both lost a lot of money.

David’s second question:

2.) Two of the things that the AFM is hoping for from the new administrations in NY and Washington is increased arts funding and health coverage. Is it fair to expect more from the government while at the same time refusing to accept higher taxes?

Local 802 is arguing that all these various sales taxes tend to get money from average consumers, who have already been forced to bear an unfair proportion of the tax burden. Over the last 40 years the income tax rates have deteriorated strongly in favor of the people with more money. In the old days with a more fairly distributed graduated income tax, the people with more money paid a larger proportion of the taxes. As we well know, the wealth in the United States has for money years accumulated, very unfairly, with a very small percentage of the population. To some degree, this is the result of the eroding of the income tax rates. We think this is unfair, not the other way around.

Local 802 is proposing a larger income tax rate for people who earn over $250,000 per year. A few percentage points in their rate will make a big difference. Also, if more money is in the hands of the average middle class consumer, the money which is circulating in the economy is circulated at a much greater rate than if the same money is in the hands of fewer people, who can’t really spend too much of it. I think that this accumulated money contributed to the growth of the various financial “instruments” which contributed to our current crisis.

This scratches the surface of the issues, but maybe it will be a good jumping off spot for further discussion.