Saturday, May 8, 2010

the Laffer curve applied to boats

The Laffer curve relates tax rates and tax revenues, particularly in the macro-economy. The punchline: at some point, higher rates yield lower revenues.

Here's a micro example from the WSJ editorialists...

What do you do about a tax that costs jobs and raises little money? Florida lawmakers have been pondering that question in relation to the 6% registration tax for owning a boat...

If you buy a $1 million boat and register it in Florida, you currently pay $60,000 in sales taxes. If you buy the same boat and register it in another coastal state like North Carolina, you pay a maximum of $1,500, in South Carolina $500, and in Rhode Island $600. Even more common is to register the boat in a nearby foreign nation like the Cayman Islands, where you pay close to zero tax.

So to refloat the boat business, the Florida House voted last Wednesday to cap the boat sales tax at $18,000....the state's official revenue estimators predict it will cost $1.4 million a year in lost revenue.

This ignores some basic math: Collecting $18,000 per yacht beats getting nothing....

An estimated eight in 10 expensive boats in Florida are registered somewhere else, mostly abroad, and a boating industry study estimates this costs the state $120 million in lost revenue. This also costs jobs, because the $18 billion boat industry in Florida, which employs 200,000 workers, gets fewer sales, fewer repairs, fewer crews and other business.

This tale is reminiscent of the 10% luxury tax on yachts costing more than $100,000 that Congress passed in 1990. That tax, also passed in the name of social justice, nearly ruined the boat-building industry in states like Florida and Maine, because the rich went to the Bahamas and elsewhere to buy their boats until Congress repealed the yacht tax in 1993....


At May 9, 2010 at 7:30 AM , Blogger said...

Alas, most politicians aren't business savvy, let alone economists, and many of the few who are embrace Keynesian's nonsense.

What is greater? 10 percent of 100 or 1 percent of a 1,000. They always opt for the 10 percent.

Sadly, some politicians DO UNDERSTAND the difference, but prefer to use abusive taxation to maintain central-government control.


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