Economics 101: Nothing is free

From Phineas Fahrquar:

Restaurant to charge surcharge to pay for Obamacare

Posted by: Phineas on November 15, 2012 at 1:01 pm 

It’s the iron logic of economics, really: either you recoup your costs and make a sufficient profit to justify staying in business, or you go out of business. In this case, not only is the owner of several Denny’s restaurants cutting employee hours to balance the cost, he’s also adding an explicit Obamacare surcharge to each check:

Florida based restaurant boss John Metz, who runs approximately 40 Denny’s and owns the Hurricane Grill & Wings franchise has decided to offset that by adding a five percent surcharge to customers’ bills and will reduce his employees’ hours.

With Obamacare due to be fully implemented in January 2014, Metz has justified his move by claiming it is ‘the only alternative. I’ve got to pass on the cost to the customer.’

The fast-food business owner is set to hold meetings at his restaurants in December where he will tell employees, ‘that because of Obamacare, we are going to be cutting front-of-the-house employees to under 30 hours, effective immediately.’

Obamacare requires employers with 50 or more workers to offer a state-approved (and more expensive) health plan or face fines of $2,000 per uncovered full-time employee. For operations run on typically thin margins, like restaurants, and with a bad economy already making things tough, the options offered are potentially crippling or even fatal to a business. Thus Obamacare creates a perverse incentive to contain costs by cutting hours, which hurts employees, and raising prices, which hurts the consumer.

(And, I don’t know about your area, but a lot of Denny’s customers I see are on fixed incomes. As anyone who understands basic economics1 knows, businesses usually deal with increased costs by passing them on to the customer. Ergo, Obamacare harms people on fixed incomes.)

Metz recognizes he may lose a fair amount of business by making the Obamacare surcharge explicit, but I say “Good for him” and I hope other service industries make that same decision. Why shouldn’t people know just what goes into their bill, aside from the cost of the meal, itself? We break out sales tax, don’t we? And there’s a separate line for tips, so why not one for our glorious new “free” health care plan?

Maybe, if there’s enough pain and it’s made clear where it comes from, voters will be motivated to do something about it in 2014 and 2016.

And maybe they’ll finally realize that elections have consequences.

via Pirate’s Cove, which has more.

Your Editor thinks that this is a great idea! The biggest problem that I see is that not enough of the taxes on business will be broken out on customers’ receipts. Every item you buy is loaded up not only with the direct taxes on the item itself, but all of the taxes which were paid during the production and distribution of the item: taxes on fuel, taxes on utilities, taxes on wages, taxes on materials, taxes on the toilet paper in the restrooms throughout the production chain, taxes upon taxes upon taxes.

And ObaminableCare isn’t even a tax. Rather, it is a cost of doing business, another expense imposed by the government on small businesses.2

Mr Fahrquar cited William Teach, who quoted Mr Metz, as cited in the Huffington Post:

If I leave the prices the same, but say on the menu that there is a 5% surcharge for Obamacare, customers have two choices. They can either pay it and tip 15 or 20%, or if they really feel so inclined, they can reduce the amount of tip they give to the server, who is the primary beneficiary of Obamacare. Although it may sound terrible that I’m doing this, it’s the only alternative. I’ve got to pass the cost on to the consumer.

There is, of course, another choice that customers have: they can choose to take their business elsewhere. However, whether it’s directly on the receipt, as Mr Metz plans, or hidden in slightly increased costs for the meal, the customers will be paying the increased costs to businesses imposed by the health care reform act.

Your Editor likes the way Mr Metz is planning on doing things because the American people really don’t seem to understand business and economics. Our friends on the left probably understood that the costs of doing business would increase, but thought that somehow, someway, the wicked business owners would just shrug their capitalist shoulders and somehow absorb the additional costs rather than passing them on to their customers.3 BlueOregon, writing on the Daily Kos, showed his ignorance, saying:

Move over Papa John’s, Jimmy John’s and Applebee’s, Denny’s & Hurricane Grill & Wings trumped all of you in the race for dickish RW owners.

Apparently, BlueOregon was one of those who thought that corporations would just absorb the additional costs. For at least one leftist, it is “dickish” of a “RW owner” — by which I assume he means “right wing owner” — to pass on the costs of doing business in the prices charged for his products. The public really need to understand that every tax, every regulation, every cost that the government imposes on businesses is a cost passed on to the end consumer, though your Editor wonders if such understanding is even possible for the likes of the Kos kids.
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  1. This of course excludes leftists, Democratic members of Congress, the President, and the average Obama voter.
  2. Most larger businesses already had health insurance plans, and those which did not rely on large numbers of part-time employees won’t see the same impact, because they were already paying for health insurance. That isn’t to say they won’t feel any impact, because the regulations being placed on insurance policies will increase costs, and thus insurance premiums.
  3. There will doubtlessly be some businesses in which companies cannot pass on their costs for competitive reasons, but the cost structures are pretty much even throughout an industry like food service.

2 Comments

  1. It’ll be interesting to see what companies actually do once ObamaCare kicks in in full, and the effects are no longer debates, but reality. I have a feeling that the ObamaNuts will suddenly realize that it is bad for their own wallets.

  2. Mr Teach, I have long thought that Obaminablecare would fail because it is designed to fail. It was designed to reduce payments to doctors, but the Congress has to do the “doc fix” every year now, or doctors will cease seeing Medicare patients. They are adding regulations which deny Medicare payments to hospitals if a patient is readmitted to the hospital for the same problem within 30 days of discharge; that will drive smaller hospitals broke. The one thing that really needed to be done to get costs down, get the lawyers out of the system, was not done because the bill was written by lawyers.

    Then, after Obaminablecare collapses, they’ll throw up their hands and say, “Well, we tried to work within the private system, and it didn’t work, so single-payer is the only option left.”

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