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?