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Burger, fries and fast-food tax to go?
Detroit may be set to become the first place in the country to impose an additional tax on fast food
May 9, 2005: 3:52 PM EDT
By Parija Bhatnagar, CNN/Money staff writer

NEW YORK (CNN/Money) - An additional tax on fast-food may be a distasteful idea for whopper-lovers but at least one major city in the Midwest is seriously considering such a proposal.

In an effort to curb a looming $300 million budget deficit, Detroit Mayor Kwame Kilpatrick last month floated what he called a "different budget than has ever been presented to our city council."

The budget includes a proposed 2 percent tax that would be levied only on sales at fast-food restaurants, among other items that would generate additional revenue for the city.

"That means if a Happy Meal costs $2.99, the total cost will be $3.05, with the 6 cents coming to the city," Kilpatrick said in his budget proposal. " If you buy a medium fry for $1.05, the total cost will be $1.07. It's a small amount for the individual customer, but it adds up to a meaningful amount to preserve essential city services."

A spokesman for the Mayor's office said a vote on the budget will take place before July 1, which marks the start of the city's 2006 fiscal year.

If approved by city voters and the state legislature, Detroit would become the first locale in the nation to impose a tax on fast-food. Consumers already are charged an average nationwide rate of 6 percent on restaurant tax, according to the National Restaurant Association (NRA).

Kilpatrick's proposed fast-food tax would be in addition to the 6 percent general restaurant tax, a spokesman for the mayor said.

Critics said Kilpatrick, who Time magazine recently included in its 2005 list of America's worst mayors, shouldn't expect consumers to applaud his creative thinking.

"We think these type of restrictive tax penalizes consumers for enjoying their favorite foods," said Katherine Kim, spokeswoman for the NRA.

"In a sense, it's almost discriminatory," she added. "It targets just a section of the food services industry. The impression is that it will restrict consumers' free choice in participating in a lifestyle they enjoy."

Andy Deloney of the Michigan Restaurant Association said he already sees loopholes in the proposal.

"The Mayor's office hasn't released too many details about this fast-food tax but one basic question is about how they differentiate between a McDonald's or a Wendy's or a casual dining chain like Chili's that also sells curbside and offers takeout," he said.

"If you're targeting so called 'unhealthy food,' which is the better option -- a bigger tax on salad sold at a McDonald's or a bigger tax on ribs and mashed potato sold at a casual dining restaurant?" he added.

Pete Sepp, spokesman for the National Taxpayers Union, agreed.

"The implications of a fast-food tax is that we'll see a more Balkanized tax system than we already have," he said.

"Defining what is and isn't 'fast-food' per se is a difficult task in itself. In theory, the tax will fall harder on consumers who progressively eat more fast-food. But why should consumers who occasionally go there be penalized? Something like this has the potential of a massive public backlash."

The tax could also end up hurting workers at fast-food outlets, the NRA's Kim said. "You're already penalizing the consumers, but this could also put at risk the livelihood of the workers if sales fall," she said.

Officials at McDonald's (Research), the No. 1 fast-food chain, did not immediately have a comment.

Officials at Wendy's (Research) and Burger King said the chains hoped to have a comment later in the day.

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