A soak-the-rich tax torpedoed working people

Mike Royko B

June 10, 1991|By Mike Royko

IT SEEMED LIKE a smart idea to congressmen at the time. In fact, it's always a clever political move, although not very original: Soak the rich. Let fat cats pay more tax because they can afford it.

And what better symbol of self-indulgent wealth than The Yacht? Yeah, look at those rich swells, in their fancy yachting whites, lounging in a harbor, guzzling gin and tonic while decent, hard-working folk can't afford a rowboat.

Nobody ever lost an election by boldly standing up to rich and pampered yachtsmen.

So Congress last year showed its concern for the middle class by enacting a special 10 percent tax on certain luxury items, including boats that cost more than $100,000.

They were in such a hurry to grandstand that they didn't bother to hold hearings, get opinions from the boating industry or talk to economists.

If they had, they might have been told what would happen. And they wouldn't be feeling as stupid as they are right now.

It didn't occur to them that somebody considering a $300,000 boat might say: "Let's see, in this state I have to add about $20,000 in sales tax. Now they want me to pay another $20,000 in federal taxes? So that's $40,000 more. And since I'm going to finance the deal, I'm also going to be paying interest on that $40,000. Hey, forget it. I'll buy a good used boat instead, or maybe I'll just charter one."

It seems that a lot of potential boat buyers thought that way. Which shouldn't have been a surprise. Not every big-boat buyer is a Rockefeller. Many are successful small businessmen, lawyers, doctors, and the boat is the big payoff of their professional lives. For some, it takes the place of the weekend house on a lake. Others use boats as retirement homes.

In a way, it was like slapping a 10 percent tax on any lake or beach house, weekend farm or other second home that costs more than $100,000.

But Dan Rostenkowski and those other creative minds wanted to show voters that they weren't afraid to soak the rich, even if the tax caused some fat cat financial pain.

And cause pain it has. But to the rich? Nah. Hardly any at all. The super-rich already have their yachts or can buy them in another country that isn't tax-goofy.

What Congress managed to do was put thousands of people out of work, close some small businesses and deprive the Treasury of taxes that these thousands of working stiffs would have otherwise been paying.

Apparently Congress didn't know that boats are built by people. That's not surprising, since congressmen don't build anything. Mostly, they babble. Just watch C-Span.

But it's true. Boats are put together by craftsmen. The bigger and more luxurious the boats, the more skill and time are required.

When the tax took effect, right on top of a recession, people stopped buying, and the luxury boat business sank.

Boat companies had to lay off workers. The National Marine Manufacturers Association estimates that more than 19,000 jobs will be lost this year because of the tax.

Nobody knows how many of those 19,000 people will stay unemployed or find lesser jobs. But the association estimates that without incomes, they will be paying at least $30 million less in income tax. Maybe as much as $60 million.

Some boat companies, especially small, family-run operations, went out of business. For example, David Walters, 49, has been building quality yachts in RhodeIsland for about 20 years. He sold about six boats a year, ranging in price from $300,000 to $600,000. He employed 40 people.

He had to close down. His 40 workers lost their jobs. Now he's in Florida, selling used boats, which aren't taxed, on commission.

"People are upset about this tax. They're not going to give 10 percent to the government, especially as a tax that doesn't apply to other recreations. Congress isolated on a very small group. It looked fashionable, going after people who have money. But it's the people who build boats that are being penalized.

"At the time I left New England, they had wiped out three of seven builders in my area. And the ones remaining are hanging on by their fingernails.

"Congress made a terrible mistake. This tax is revenue negative and put a lot of people out of work. I lost everything. I worked 60 and 70 hours a week, and everything I've built is gone. I could have stayed in business if they didn't have that tax."

And there is the ripple effect. The thousands of people who lose their jobs stop spending, and that hurts local merchants. The suppliers to the boat companies sell less, so they lay off workers, who pay less tax and spend less. And on and on it goes.

To show you how smart Congress is, this country's private boat industry is -- or maybe was -- the world's leader. It exported American boats. Well, maybe the Japanese will fill that gap.

And how much revenue has the boat tax brought to the federal government? Economists aren't sure, but they say it's possible that the cost of collecting it is wiping out what is being collected.

That means Congress came up with a tax that loses money, has wiped out thousands of jobs and deprives the Treasury of millions in income tax dollars. Not to mention the misery that comes with being tossed out of work or losing a business.

This is just another of many reasons congressmen should always sit up straight in their chairs. If they tilt their heads to the side, their brains might fall out of their ears.

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