A Luxury the Economy Can’t Afford : Big tax bite on yachts threatens to sink a labor-intensive industry

The political symbolism could not have been much worse. At a juncture when so many Americans are out of work, others are struggling to make ends meet and no one knows where the economy is headed, President Bush takes the time to ask Congress to repeal the luxury tax on high-priced yachts and airplanes.

Ship of state, ahoy: From a political standpoint, that’s the wrong issue to go overboard with!

Truth be told, though, the Administration is as right economically as it is wrong politically. But don’t say this too loudly. People will think you only care about helping the rich. In fact, by repealing this tax, which has sunk the American pleasure-boat industry to the bottom of the economic sea, the Administration might help the economy. Indeed, those who have been most hurt by the luxury tax are the so-called little people.

The U.S. domestic boat industry alone employs 600,000 workers, and an estimated 100,000 have been put out of work since the 10% tax on boats costing more than $100,000 (and planes costing more than $250,000) went into effect. Though a chunk of that misery was caused by the general downdraft of the recession, it seems clear that the tax has had the unintended consequence of greatly dampening product demand.

The economic goal, when it was enacted in late 1990, was to notch up tax revenue--and to show for all to see that the rich had to bear a jolt of economic pain, too. Since then, however, boat sales went so flat that it is quite likely that the government is getting less sales revenue from these products now than it had before.

One industry spokesman describes the tax as a “job devastation bill.” A lot of people agree with that--including many Democrats. But can Congress put partisan politics aside and do the right thing by repealing this boomeranging tax? Stay tuned.