Mayor Backs Extension of Higher Hotel Tax

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The hospitality industry isn't happy about it, but New York City is poised to extend higher taxes on hotel stays.

Guests who are overnighting in the city have had to pay a .875 percent surcharge on top of the existing 5 percent tax since 2009.

The surcharge was scheduled to expire at the end of the month, but Mayor Michael Bloomberg said he'll sign a bill to extend the higher tax for two more years.

Barbara Byrne Denham, an economist with Eastern Consolidated, said visitor numbers show tourism is unlikely to be hurt by higher taxes.

"It's not just that the supply of our hotels has grown but that demand for our hotel rooms has grown even more rapidly than the supply," Denham said.

From 2008 -- before the tax rate was raised,-- to 2010, the number of visitors to New York City rose from 47 million to 48.8 million, according to NYC & Company, the city's tourism and marketing organization.

Supporters of the surtax say it will bring in about $30 million next year.

"We recognize that the mayor has a significant gap to close,” said a spokeswoman for the Hotel Association of New York City. “We will continue our efforts to have the tax eliminated in two years.”

The impact of taxes on tourism is a matter of some debate among economists. In the early 1990s, the city lowered the tax on hotel stays from 21.35 percent to 15 percent, and visitor numbers surged.

But Denham said the current hotel tax surcharge is "inelastic,",that is, it's had little effect on how long people choose to stay in New York, or whether they come at all.

"It obviously didn't change behavior, because tourism has been growing," Denham said.