I read this today in an email from Stansberry and Associates and thought I would pass it on. It speaks of the need to be very careful about the “unintended consequences” that often arise from a seemingly painless change in tax policy …
In 1990, the government passed a 10% tax on yachts, luxury airplanes, jewelry, furs, and expensive cars. It was touted as a fair, easy way to soak the rich without harming the working man.
Within eight months, the largest U.S. yacht company, Viking Yachts, closed one of its two plants and laid off more than 1,100 of its 1,400-member workforce. Within 12 months, one-third of all yacht builders in the U.S. ceased production. The industry lost 7,600 jobs in the first year. Before the tax was finally repealed, 25,000 workers lost their jobs. The U.S. went from exporting yachts to importing them. Viking Yachts shrank to just 68 employees. Congress estimated the tax would generate $5 million in revenue the first year. Reality didn’t read the estimate … The Treasury lost $24 million in tax revenue because all the yacht makers either closed up or left the U.S.
Congress repealed the tax in 1993.
“According to a study done for the Joint Economic Committee, the tax destroyed 330 jobs in jewelry manufacturing, 1,470 in the aircraft industry and 7,600 in the boating industry. The job losses cost the government a total of $24.2 million in unemployment benefits and lost income tax revenues. So the net effect of the taxes was a loss of $7.6 million in fiscal 1991, which means the government projection was off by $38.6 million.”
By: Landon Anderson on August 16, 2011
at 10:21 pm