Luxury Tax May Scuttle Boat Makers : Builders blame the new levy for decimating sales and forcing the loss of 19,000 jobs.

At the Henriques Boat Works in Bayville, N.J., a small, family-owned firm north of Atlantic City that specializes in luxury sports fishing boats, workers are completing what may well be the last three vessels the company ever turns out.

A six-month-old federal luxury tax, approved by Congress as part of a five-year, $500-billion deficit-reduction package, is getting the blame at Henriques and at boatyards around the country.

“The recession was already hurting us pretty badly, but the tax made things 500% worse,” said Maria Henriques, office manager at the company founded by her father, Jack, 15 years ago. “We don’t have a single buyer for any of the three boats now in production . . . . We don’t know how long we can stay in business.”

Under the tax, purchasers of new boats must pay a levy of 10% on that portion of the price tag exceeding $100,000. For a $165,000, 35-foot sports fishing model like Henriques makes, the tax would be $6,500.

That is more than enough, critics in the industry say, to cause Washington’s “soak-the-rich” scheme to backfire against low- and middle-income Americans who build boats. Demand for high-priced watercraft is sensitive to price, with every 1% rise in price typically producing a 2% drop in sales, said Jeff Napier, president of the 1,700-member National Marine Manufacturers Assn.

According to figures compiled by Napier’s Chicago-based group, more than 19,000 jobs in the boat-building trades have been wiped out as a direct result of the tax. That is in addition to the estimated 80,000 to 90,000 jobs lost because of the nationwide recession.

“The Congress is like the gang that couldn’t shoot straight,” Napier said. “They aimed at the rich and hit the middle class and working people. This is a very labor-intensive industry.”

At a recent hearing by the Senate Finance subcommittee on revenue on measures to repeal the tax, however, Assistant Treasury Secretary Kenneth Gideon contended that it was too soon to judge whether the tax or the recession is to blame for the industry’s troubles.

Dennis Zimmerman, an economist with the Library of Congress, told the panel that there is considerable evidence that “the luxury tax probably is not responsible for the sales reductions being experienced currently by the boat industry.”

Although not discounting the heavy toll of the recession, those who speak for the industry describe the tax as “the nail in the coffin.”

Over the two years before the tax kicked in Jan. 1, the recession already had dropped annual sales of boats costing more than $100,000 to about 9,000 units from the usual level of between 12,000 and 13,000, Napier said.

So far this year, he said, the economic downturn and the new tax have combined to slash the sales level to about 4,500 units.

“All the prospects we had been working with from the middle of 1990 have just disappeared,” largely because of the tax, said Bill Shakespeare, marketing director at the San Diego firm of Knight & Carver, one of the biggest custom yacht manufacturers on the West Coast.

William F. West, executive of the Seattle-based Northwest Marine Trade Assn., terms the luxury tax act “the job devastation bill.”

In the first three months of this year, he said, only 24 boats costing more than $100,000 were sold in his region, which covers Washington and the Portland area in Oregon. That is down 75% from a year ago.

Industry spokesmen also contend that the tax is costing the government more than it is bringing in. The government’s take from the first year has been forecast to be $3 million.

But the industry estimates that the elimination of 19,000 jobs will result in a loss of at least $4 million in personal income tax alone, not to mention the added costs of unemployment benefits.

New cars costing more than $30,000, planes costing more than $250,000 and furs and jewels costing more than $10,000 are also subject to the tax, and those industries are also pressing for repeal.

The Bush Administration, which had resisted repeal of the tax, seems to be softening its stance.

Budget Director Richard G. Darman said of the tax in a recent TV interview: “I think it has, in a sense, been counterproductive . . . for boats, especially.”

But whether Congress can muster the will and votes to cancel the levy, which is part of a delicately balanced tax package, remains questionable.