Luxury Tax Plan Brings Cries of Pain in Newport
Down along Mariners Mile, where opulence is as common as leather seats in a Mercedes-Benz, the wealthy and those who serve them yelped in pain Monday over a proposed luxury tax on yachts, jewels, cars and other accouterments of the good life.
Jim McLaren, owner of Orange Coast Yachts in Newport Beach, was dour. “If the government is going to take 10%, there’s 10% less to buy boats,” he said, adding that a worsening economy had already hurt big-boat sales.
Another manager of a yacht brokerage, who spent the morning trying to sell a $13-million, 145-foot yacht, moaned that Congress was penalizing his industry “because people perceive it as a rich man’s pursuit, which it is not.”
The bottom line is that in Orange County--where one man has the floor of his car lined with mink, where women have been known to break out the furs when the temperature dips into the 70s and where walk-in jewelry vaults come with the mansion--there is worry over a tax on luxury.
President Bush and congressional leaders agreed Sunday on a package of tax increases and spending cuts aimed at reducing the federal budget deficit by $40 billion in the fiscal year that began Monday, and by a total of $500 billion over the next five years.
Among the proposals are a luxury tax of 10% on the portion of the retail price in excess of $30,000 for cars, $5,000 for furs and jewelry, and $100,000 for private airplanes, boats and yachts.
For instance, on a $35,000 automobile, the buyer would be charged an additional 10% on $5,000, or $500. A measly $7,500 diamond ring would cost an extra $250.
Yachtsmen, furriers, jewelers and luxury auto dealers interviewed Monday all held out hope that the big-ticket tax, which would take effect next year, will be voted down by the full Congress.
And members of trade associations with Washington lobbyists promised to bring the full clout of their organizations to oppose the measure.
John Malley, owner and president of Dana Harbor Yacht Sales in Dana Point, said the tax is likely to hit harder at sales of lower-priced boats than at million-dollar yachts.
“I think there are people that may be stretching to get into the $150,000 to $200,000 range,” said Malley. “They’re not wealthy people in the sense of being millionaires, but they still want to buy a boat. They may be compromising another facet of their life to make that happen. It may make people change their minds and not do it.”
Malley said that 25% of his company’s sales are in the over-$100,000 range. “I’ve been doing this for 14 years and I have clients that graduate every few years. Maybe they bought a $30,000 boat and then an $80,000 boat and their next step is $100,000.”
At Newport Imports Inc., a Coast Highway auto dealership that sells Ferraris, Aston Martins and a lovely cherry-colored Jaguar limousine with a compact disc player and fax machine in the back--all included in the $112,000 sticker price--owner Lee West called the proposal from Capitol Hill “an undue tax on successful people.”
Yet in a county where consumption is often conspicuous, West figured that the levy might not hurt sales too badly.
“If people want to spend the money to buy a luxury car and they like the product that we’re selling, they’re going to buy it.”
The Newport Beach broker trying to sell the $13-million yacht--which would cost $1.29 million more with the new tax--also looked for the silver lining.
“When you get to like boats, it’s something in your blood,” he said. “You’re not going to not do it because of a 10% tax.”
But a Newport Beach socialite wasn’t as sure. Gazing out the window of her house at her Rolls-Royce in the driveway, she said of the luxury tax: “It’s the pits.” The new levy will “absolutely” cut down on buying, she said.
“We’re talking about the kinds of gifts ladies like to get,” she said. “We’re talking about the kinds of cars we all like to drive. . . . Planes, boats . . . these are toys, these are things we can all relax with.” She didn’t want her name printed, though, because “I don’t like to talk about things like taxes, not where the IRS is concerned.”
Orange County, one of the nation’s wealthiest counties, is estimated to have 2.3 million residents, about 7.7% of the state’s population. But county retailers last year accounted for about 10% of the total taxable sales in California, according to the State Board of Equalization.
A partial breakdown of 1989 sales figures indicates the county’s affluence:
Residents spent nearly $2.9 billion on new vehicles.
More than $144 million was spent on boats, motorcycles and planes.
Almost $1.1 billion was spent on clothing and all other apparel, including furs.
About $131.5 million was spent on jewelry.
In New York, the chairman of Jewelers of America Inc., Michael D. Roman, said his industry has been suffering for the past 2 1/2 years, and the new tax could be the death knell for small stores and some large chain stores alike.
“Our product doesn’t create any health hazards, doesn’t destroy the environment,” said Roman, who put the membership of his group at 13,000, representing about 20,000 stores through the country. Jewelry just “makes people happy,” he said.
Roman asked why the tax was limited to jewelry, planes, yachts, cars and furs. “What’s a luxury? Is an $80,000 painting auctioned at Sotheby’s a luxury? A cruise? If you’re going to talk luxury, make it luxury. But don’t discriminate against our business.”
A local jeweler, Bruce Lambert, owner of the Wyndham Leigh store in Fashion Island, said he has an $80,000 ring for sale that would cost an extra $7,500 if the tax takes effect. But if someone wants to spend that $80,000 on a yacht, say, there would be no luxury tax.
“It is unfair to distinguish between luxury items,” he said. “When a man is considering a gift for his wife or his girlfriend, his choice may be a car, or a fur coat, or to remodel the kitchen, or to take a trip around the world. Quite clearly, he is going to stop and say that jewelry is not such a good deal anymore.”
Theodore Bizakis, owner of Bizakis Furs Inc. in Orange, said the tax will bring pain but “I can’t even begin to guess how much it’s going to hurt. People don’t like to pay an additional 10%, even if they could afford it. Who does?”
Marking down furs to attract business won’t help much either, he said, because many items can’t be reduced. “A Russian sable coat goes for more than $100,000,” he said. “What are you going to lower it to? It costs a lot to get it.”
He said furriers took a beating during World War II when a 20% luxury tax was imposed on certain lavish items such as furs and jewelry. That tax, later reduced to 10%, was finally abolished in 1965.
“I think it’s unfair,” Bizakis said. “The politicians had eight months to come up with a budget. They couldn’t do it. Yet in two minutes they got together and came up with this plan. I think they’re just sitting on their rear ends, getting fat off us.”
Times staff writer James S. Granelli contributed to this report.
BIG-TICKET TAX
The proposed federal budget accord would levy a 10% tax on that portion of the sales price of several luxury items above a certain figure. The tax could raise $200 million next year and $1.9 billion by 1996.
Item Exempted value before 10% tax Cars $30,000 Jewelry 5,000 Yachts 100,000 Private airplanes 100,000 Furs 5,000
Source: Office of Management and Budget
