Luxury Tax Boomerang: Target Rich, Hurt Average Joe

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To help achieve their goals, advocates of high taxes push division, jealousy, and class war. 

They portray all rich people as somehow being responsible for every undesirable condition in society.  To them, it’s inconceivable how “regular” people benefit from their accumulation of wealth and their decisions on how to spend it.

Leading politicians on the left have been advocating for wealth taxes in addition to income taxes. Their followers virtually never pause to ask if taxing the production of wealth could actually have unintended (yet totally foreseeable) consequences.

I’d bet every penny in my bank account that 99% of them would also support a 10% tax on “luxury” items like private planes, yachts, expensive cars, and jewelry. 

“It would raise money for much needed government services!” they would claim.

But the US tried that nearly two decades ago.

Luxury Tax in 2019

It backfired.

Soon after the tax was implemented, Viking Yachts, the largest U.S. yacht manufacturer at the time, reduced their staff from 1,400 employees to 68.  Ocean Yachts cut their staff from 350 to 50.  Egg Harbor Yachts, who once had 200 employees, filed for bankruptcy.  

The Joint Economic Committee estimated that 25,000 people lost their jobs building yachts. 75,000 more lost jobs associated with supplying yacht building companies.  America went from being an exporter of yachts to an importer as jobs shifted elsewhere. Additionally, over 300 people lost jobs manufacturing jewelry and 1,470 lost jobs manufacturing airplanes.

Neglecting to recognize that tax payers and wealth producers are moving targets and that prices affect decisions, Congress projected that the tax would increase revenues $31 million per year.  The net effect of the tax was a $7.6 million loss in fiscal year 1991 resulting in a miscalculation of $38.6 million.  The Joint Economic Committee estimated that the value of the jobs lost in the first six months to be $159.6 million.

What are the odds this would change the approach of politicians like Elizabeth Warren and Bernie Sanders?

To even raise the question is to answer it.

Nothing will change their greedy ways. 

While only a select few can afford to own luxury goods, their purchases support the livelihoods of many more. 

Governments may compel payment of taxes through violence but they cannot legislate taxable income into existence.  Establishing conditions that attract capital, in recognition that the benefits it provides extend far beyond a tax bill, is preferential to the open hostility displayed by so many. 

You don’t need to be a tax whiz to avoid a 10% luxury tax like the one imposed many years ago. Wealthy people will happily hire people like me to help them maneuver around more complicated tax matters. 

Cry about it all you want but my clients do more to uplift the common man through building successful companies and spending money on toys than any government.

 

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