Will Chicago’s sales tax hike have an effect on servers’ tips?

Eric Giandelone of Chicago poses the following question to Thaler and Sunstein (and to other Nudge blog readers) about the potential effects of the one percent sales tax increase from 9.25 percent to 10.25 percent that recently went into effect in the city.

I was wondering what effects you believe the new increased sales tax in Chicago/Cook County will have on restaurant tips? My wife and I were recently celebrating our anniversary and when it came time to tip, we had to remind each other not to just double the sales tax. Previously, we would have done that for about an 18 percent tip, adding more or subtracting less based on service. For us, that 18 percent was our anchoring point. Now, with sales tax for restaurants at 10.25 percent, doubling down is way more than I am used to. Now, I believe, I will be more inclined to look at the pre-tax subtotal and tip accordingly, which will cause me to reflect on my service much more than a simple double the tax formula and that can’t be good for servers. However, for tourists who aren’t as aware of the new sales tax, this doubling may end up being beneficial to servers who work in tourist areas of the city.

If you’re dining at Navy Pier of McCormick Place, both tourist traps, watch out. The restaurant tax there is 11.25 percent. The servers there could be sitting pretty. Of course, that raises another question. How high would the tax rate need to be for an out-of-towner to do a double take at a restaurant bill and not use the double the tax rule?

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4 Responses to “Will Chicago’s sales tax hike have an effect on servers’ tips?”

  1. Dan Says:

    This feels like a situation where the involuntary nudge may not be as powerful as it first seems.

    Why?

    Well, I think this is much more likely to effect those who are already familiar with Chicago restaurant taxes.

    Whenever I travel, one of the things that I’m usually quite aware of is that the tax rates are different and therefore the heuristics that I might otherwise rely on for tips are not really valid. In other words – I don’t really have an automatic system reaction for tipping outside of my “home territory” – and hence I’m more likely to behave reactively. Context has a big effect on whether I have an automatic system reaction available to an event, after all.

    Now Chicagoans – who are more likely to tip based on automatic system, would seem much more likely to fall afoul of this nudge than out of towners – simply because they’re more likely to have an automatic system reaction available.

  2. luke Says:

    I was just charged 18 percent tax for a cheeseburger at the Parkside Café on 33rd st by sox park. (3.50 burger was $4.13 after tax). can anyone explain this?

  3. sasha Says:

    If you drink alcohol, think twice about tax-based tips anyway. I know many restaurants where the tax is already included in the drink price, therefore not included in the grand total tax at the bottom of the check. How hard is it to figure out 20% of the entire bill, anyway?

  4. Carey Federer Says:

    Just looking at my Rockit Bar and Grill bill from August 29.

    total (with drinks) 142.73
    tax on whole bill 14.73
    drinks 41.00

    total w/o tax or drinks 87.00

    so if the tax was already included in the drink totals, then we were charged a tax rate on the 87.00 of 16.93%.
    If the drink prices did not include the tax (which I rather doubt) then we were charged a tax rate on the 128.00 of 11.50%

    Being from out of town…I just figured a 20% tip on the $128.00 total, which was easy enough to figure out. Personally I think the servers are doing just fine either way, thank you.

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