Difference between revisions of "1990 Yacht Tax"

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<noinclude>* <noinclude>Democrats in Congress passed a "fair share" luxury tax (30%) on airplanes, cars and yachts (as part of an Omnibus Budget Reconciliation Act of 1990), and promised it would bring in $9B over the next 5 years. What actually happened is:
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<noinclude>* </noinclude>Democrats in Congress passed a "fair share" luxury tax (30%) on airplanes, cars and yachts (as part of an Omnibus Budget Reconciliation Act of 1990), and promised it would bring in $9B over the next 5 years. What actually happened is:
 
** Sales dropped 56% in the first month, and got worse from there -- the larger tax package cooled the economy and contributed to a mini-recession
 
** Sales dropped 56% in the first month, and got worse from there -- the larger tax package cooled the economy and contributed to a mini-recession
 
** ≈25,000 workers in American Yacht Building lost their jobs, 75,000 more jobs were lost from companies supplying parts and materials to those yacht companies<noinclude>
 
** ≈25,000 workers in American Yacht Building lost their jobs, 75,000 more jobs were lost from companies supplying parts and materials to those yacht companies<noinclude>

Revision as of 23:28, 9 March 2019

  • Democrats in Congress passed a "fair share" luxury tax (30%) on airplanes, cars and yachts (as part of an Omnibus Budget Reconciliation Act of 1990), and promised it would bring in $9B over the next 5 years. What actually happened is:
    • Sales dropped 56% in the first month, and got worse from there -- the larger tax package cooled the economy and contributed to a mini-recession
    • ≈25,000 workers in American Yacht Building lost their jobs, 75,000 more jobs were lost from companies supplying parts and materials to those yacht companies
    • There was also another thousands more lost in small aircraft, and other jobs
    • The government not only didn't come close to target, they had to pay out billions in unemployment and lost income taxes instead
    • We went from net exporter to importer, as the rich just bought their boats made in other countries, and listed their livery in the Bahamas, to get around the taxes: and the industry has never recovered
    • Because George H.W. Bush (the elder) had promised "Read my lips, no new taxes", but compromised with the Democrats (and the economy was cooling because of it), the Democrats (Clinton) ran on George being a liar for compromising with them -- and it cost him the Presidency.


Details

There's some contradictions on facts around this, depending on who you listen to:

  • it was passed in Nov 1990, it went into effect in 1991, and was mostly repealed in 1993 in an emergency tax reform bill... but they left it on autos, which didn't get repealed until 1996 -- so you get different start/end dates
  • There are also different amounts of promises and impacts. In campaigns it was promised to be $9 billion over 5 years (for the entire tax package -- the luxury tax was part of a bigger bill), the luxury part of it was more formally estimated to be $119M over 2 years, and so on.
  • There's also ambiguity because tax revenues did go up over 5 years (mostly because of other taxes on gas and tobacco, etc) -- but the luxury tax was repealed after 2 years -- so it was not a contributor to the rise. And overall the result was spending and the deficit rose by more than the tax receipts (and net loss)... and if we had just stayed on the trajectory we were on BEFORE the tax, then we're down many billions.

So polemics can flam-flam the numbers and make it not look like the disaster it was, especially for people who want to believe that people don't respond to taxes. But the evidence for the rational is quite the opposite: it killed an industry, it cost jobs, it cost a ton of money -- and was cruel and unfair. The people most hurt were the blue collar workers that were put out of jobs -- and skilled yacht craftsman couldn't find like work easily, so that revenue/life setback was hugely frustrating. Any Democrat that defends the cut, cares more about his political agenda than the people they hurt.

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📚 References

The Bill:

Historical articles:

The Consequences: