The hotel and hospitality industry is feeling the severe pinch of the underperforming economy as the US is in near zero growth presently. Of course, tax receipts for city governments are also down and with more and more social programs and demands from voters we find that city governments are looking for ways to increase their tax rolls. So, many cities are proposing tax increases on hotels; bed tax or room taxes, however any economist will tell you that this is a horrible idea.

Recently, at one well-known resort city, a city council person offered and proposed a plan to increase bed taxes on hotels. She was met with feedback from the business community such as:

• Now whose brilliant idea was this?
• Typical stupidity on the part of government.

And a local entrepreneur who stood up at the city council meeting and stated:

Has anyone looked at the travel industry lately? The airlines are removing capacity, AIG's aircraft leasing division is for sale, if Delta and Northwest do not merge, they both might be BK'd. We have the rental car industry in the tank, with bankruptcy announcements pending and downgradings from investment banks, which have been downgraded themselves and someone's brilliant idea to raise funds is to increase taxes on rooms? Are you kidding me? What the heck, hasn't anyone taken an economics class, where do you think most of the jobs in this valley come from?"

The reality is that if you want to help the local economy, then you need to lower the taxes by 10%. Thus, someone should have proposed a reduction on the hotel room taxes, not an increase. The increases in room taxes will only further hurt tourism. This is one huge dilemma right now in the hotel and hospitality industry.