Skip to comments.Inside Politics: A hard-earned lesson
Posted on 01/09/2003 4:44:51 PM PST by NonValueAdded
"Most Americans celebrated as the ball fell in Times Square New Year's Eve. But for auto dealers this new year is especially sweet. January 1 marked the expiration of the federal luxury tax on cars, the last vestige of the destructive luxury tax package in the infamous 1990 budget deal," the Wall Street Journal says.
"Starting in 1991, Washington levied a 10 percent tax on cars valued above $30,000, boats above $100,000, jewelry and furs above $10,000 and private planes above $250,000. Democrats like Ted Kennedy and then-Senate Majority Leader George Mitchell crowed publicly about how the rich would finally be paying their fair share and privately about convincing President George H.W. Bush to renounce his 'no new taxes' pledge," the newspaper said in an editorial.
"But it wasn't long before even those die-hard class warriors noticed they'd badly missed their mark. The taxes took in $97 million less in their first year than had been projected for the simple reason that people were buying a lot fewer of these goods. Boat building, a key industry in Messrs. Mitchell and Kennedy's home states of Maine and Massachusetts, was particularly hard hit. Yacht retailers reported a 77 percent drop in sales that year, while boat builders estimated layoffs at 25,000. With bipartisan support, all but the car tax was repealed in 1993, and in 1996 Congress voted to phase that out too. January 1 was disappearance day.
"The end of any federal tax is such a rarity that it's well worth celebrating. And the luxury-tax lesson of economic damage is worth keeping in mind as politicians begin to wail that President Bush's new tax proposals aren't punitive enough on the rich."
(Excerpt) Read more at washtimes.com ...
Now fast forward to the year 2000 and catch this excerpt from a rant on May 26th on ABC's 20/20 Tax Break Keeps Rich Afloat http://abcnews.go.com/onair/2020/2020_000526_gmab_yachts_feature.html.
Patrick Kennedy of all people "proposed a tax credit for those who purchase an American luxury yacht at least 50 feet long." This is just too amazing. I don't know where to start. Talk about a target rich environment! "Cleaning up after Uncle Ted" "PK courts his Newport constituents" But I digress ... the 20/20 article it goes on to say:
Rich people can go anywhere to buy their boats, he says. What my tax cut will do is hopefully encourage them to buy their boats here.
Here includes boat-building communities in Kennedys district of Rhode Island and in North Carolina, home to companies such as Hatteras Yachts in New Bern, N.C. Hatteras executive Bryant Phillips agrees with Kennedy that there are multiple reasons to encourage the wealthy to buy American-made yachts and, in the process, help preserve the jobs of the people who build them.
You see, every time they buy one of these, Phillips says, they are keeping a thousand families in New Bern clothed, fed, educating their kids. Its a positive industry.
So don't tell me the democRATS don't get it - they know damn well how an economic stimulus works. One boat, a thousand families gainfully employed, paying taxes, feeding the American Dream. $600 isn't going to have this impact. What if the question was do you want $600 or a job? What would the opinion polls show then?
My fervent hope is some Congressional staffer sees this and should Patrick Kennedy open his mouth when the Bush stimulus package is debated, someone rams a yacht down his throat.
This argument is not intended to be intellectually honest, is it? Are you really saying that the yacht industry would not have been affected by the sales tax if there were no income taxes?
False. You have completely ignored the elasticities of supply and demand. The final cost is greater than Y but less than Y+L. The actual cost depends on the elasticities of supply and demand. Since the tax targeted luxuries, and luxuries have highly elastic demand, we should conclude that the cost including tax is closer to Y.
The other taxes, whether income tax or not, are built into the price of the boat.
False. Since when do taxes, or any other cost, directly impact the cost of anything? Supply and demand determine the price of the boat. As shown earlier, you ignored the elasticities of supply and demand.
If there were no "income tax" cost to build into the price of the product, then the price would be P. If you add ONLY a sales tax, then the price is P+ST.
False. This is basically a restatement of your fallacy above.
That final price, then, is the issue. Is it a price that a consumer will pay? If it is, then consumers will buy. If it isn't, then they won't.
Nice Keynesian demand-side argument you make here. But Keynesian economics, like Marxism, has been thoroughly discredited. The basic fact is that consumers still want to buy yachts (I'd like to own one myself). The problem is that the luxury (sales) tax made it so that producers weren't willing to build them. The tax harmed the *producers* who lost their jobs! That is the supply side argument.
However, there won't be tax costs hidden in the price of the yacht.
What about the producers who never paid the luxury tax? Weren't they harmed? You bet they were! They lost their jobs! Sales taxes are hidden income taxes, mighty destructive ones at that.
It will be pure production + pure sales tax. Everyone will know what is product and what is tax. As it stands now, no one knows that, do they?
Again, this statement indicates that you think price is dependent on costs, which is false. Price is dependent on supply and demand. Also, since sales taxes are also hidden income taxes, how will the producers know their tax burden? (Well, it's easy in this case. The sales tax was a 100% income tax because the producers lost their jobs.)
Rid the nation of all taxes except sales taxes and you will have CLARITY.
False. Sales taxes are hidden income taxes. Producers will not know their actual tax burden. There is always some problem with calculating tax burden, but your statement is false.
You need to acquaint yourself with certain economic terms:
statutory tax incidence
actual tax incidence
elasticity of demand
elasticity of supply
Above all, recognize that demand is infinite. Human nature means that we all want more than we have. Supply is limited. In order to increase wealth, we do not have to increase demand, we have to increase supply (become a supply sider!). Tax laws should be created so that they place the smallest wedge between producers and consumers. In the final analysis, this means the flat tax, not the sales tax.
Prices are not dependent on costs. You statements indicate to me that you believe in some sort of Marxist intrinsic value theory. In my experience, without exception, EVERY SINGLE supporter of the sales tax believes in MARXIST intrinsic value theories. EVERY SINGLE ONE! It makes me wonder what the connection between sales taxers and Marxists is.
Link to discussion of Marxism and intrinsic value theories in comparison to market-exchange theories.
if what you're preachin' about economics is what's being taught in school....then no wonder the economy is for sheisse!
I'm a supply sider. Supply side economics is not taught in any school in America. I was taught monetarism, but Jude Wanniski converted me to a supply sider. Your statement that supply side economics is taught in the US convinces me that you are ignorant.
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