Luxury Tax Redux

[Nomad57]

I received an e-mail from Boattest.com, as follows:

In 1991, the U.S. Congress passed a 10% luxury tax on boats costing more than $100,000. Two years later, Congress had to eat crow and repeal the destructive tax. Canadian Lawmakers beware – crow is not an auspicious meal for one’s political career.

Earlier this week, the Canadian government announced that its proposed new tax policy includes a 10% to 20% tax on boats costing more than $250,000. This new tax will go into effect on Jan. 1, 2022. Canadian lawmakers say the tax on boats, along with cars and personal aircraft, will “boost federal revenues by $604 million over five years,” according to a press release.

If all of this sounds familiar, it is because 30 years ago in 1991, the U.S. Congress passed a 10% luxury tax on all new boats sold in the U.S. costing more than $100,000. Private planes, jewelry and furs were also targeted. The tax was supposed to raise $3 million the first year and $145 million over four years. It was enacted, not so much to raise revenue as to give politicians on the stump an appeal for votes by saying they were going to “soak the rich.”

Strangely, the rich decided not to be soaked. Within the first quarter of the year, sales of new boats costing more than $100,000 were down by 89%. Orders in the thousands for boats were instantly canceled by both dealers and consumers. Hatteras laid off 700 workers within weeks, as did boatbuilders across the country. After six months, 19,000 shop-floor and white-collar personnel had been put on the street, according to the NMMA. In the following year, that number grew to 35,000.

Almost immediately, boatbuilders started going out of business: Egg Harbor was one of the first. Then, Trojan Yachts, Irwin Yachts, Bertram Yachts, Post and others in 1992. Carver closed its plant in North Carolina and never fully recovered. Morgan Yachts went out of business in 1993, followed by others who hung for a while, like Tollycraft that ceased operations in 1997. Within the decade, half of the American large yacht builders were gone, and the rest were hanging on by a string.

BoatTEST urges all of its Canadian subscribers to contact their government representatives to tell them this tax tactic has been tried and failed in the U.S. Ironically, the party that enacted the tax was the one that repealed it two years later – swallowing a generous helping of crow. Unfortunately, by that time, the damage had been done. American boat building would never again fully recover. The permanent cost in terms of jobs, American manufacturing and the rising cost of doing business by the remaining U.S. builders has been enormous.

Of course, Canadians will pay the tax, will get soaked. We're used to it.

Nomad

[Lake-Effect]

I haven't run into many fellow Canadians, liberal or otherwise, who see the point of the luxury tax as introduced. Seems right out of Monopoly... I'm almost willing to bet that it won't make it through Parliament. Maybe that's the point - something silly that can later be lopped off.

[redneckrob]

Originally Posted by Nomad57

I received an e-mail from Boattest.com, as follows:

In 1991, the U.S. Congress passed a 10% luxury tax on boats costing more than $100,000. Two years later, Congress had to eat crow and repeal the destructive tax. Canadian Lawmakers beware – crow is not an auspicious meal for one’s political career.

Earlier this week, the Canadian government announced that its proposed new tax policy includes a 10% to 20% tax on boats costing more than $250,000. This new tax will go into effect on Jan. 1, 2022. Canadian lawmakers say the tax on boats, along with cars and personal aircraft, will “boost federal revenues by $604 million over five years,” according to a press release.

If all of this sounds familiar, it is because 30 years ago in 1991, the U.S. Congress passed a 10% luxury tax on all new boats sold in the U.S. costing more than $100,000. Private planes, jewelry and furs were also targeted. The tax was supposed to raise $3 million the first year and $145 million over four years. It was enacted, not so much to raise revenue as to give politicians on the stump an appeal for votes by saying they were going to “soak the rich.”

Strangely, the rich decided not to be soaked. Within the first quarter of the year, sales of new boats costing more than $100,000 were down by 89%. Orders in the thousands for boats were instantly canceled by both dealers and consumers. Hatteras laid off 700 workers within weeks, as did boatbuilders across the country. After six months, 19,000 shop-floor and white-collar personnel had been put on the street, according to the NMMA. In the following year, that number grew to 35,000.

Almost immediately, boatbuilders started going out of business: Egg Harbor was one of the first. Then, Trojan Yachts, Irwin Yachts, Bertram Yachts, Post and others in 1992. Carver closed its plant in North Carolina and never fully recovered. Morgan Yachts went out of business in 1993, followed by others who hung for a while, like Tollycraft that ceased operations in 1997. Within the decade, half of the American large yacht builders were gone, and the rest were hanging on by a string.

BoatTEST urges all of its Canadian subscribers to contact their government representatives to tell them this tax tactic has been tried and failed in the U.S. Ironically, the party that enacted the tax was the one that repealed it two years later – swallowing a generous helping of crow. Unfortunately, by that time, the damage had been done. American boat building would never again fully recover. The permanent cost in terms of jobs, American manufacturing and the rising cost of doing business by the remaining U.S. builders has been enormous.

Of course, Canadians will pay the tax, will get soaked. We're used to it.

Nomad

What's the tax rate on boats in France been for the last couple decade, as they grew to build the majority of the world's sailboats and maintained a robust domestic market?

And what was that "unsustainable" rate in Canada again?

Perhaps the world isn't so black and white?

[Stu Jackson]

echo


https://www.cruisersforum.com/forums...ts-249844.html

[LittleWing77]

Originally Posted by Stu Jackson

echo
https://www.cruisersforum.com/forums...ts-249844.html

Yeah, I was kinda wondering about that too, Stu. But Flying Fin's Thread was closed fairly quickly due to some mud-slinging...

Let's see how this attempt goes...

What I do know is that here in Ontario, the Boating Ontario Association https://www.boatingontario.ca/cpages/boatingontario and its Director, Rick Layzell, has been tirelessly working for more than two years to try to prevent implementation of any luxury tax, so boating would remain accessible to any and all boaters (that's the theory, anyway).

They must be really gutted about this announcement...
LittleWing77

[smac999]

How many boat builders in Canada making 250k recreational boats? Likly not many if any

The tax won’t really effect much as people will just buy boats / cars/ planes under a business name and not a personal one.

Capital gains on primary residents is the bigger worry. Everyone retiring and downsizing will lose a huge amount of there retirement capital

[Macblaze]

Originally Posted by LittleWing77

Yeah, I was kinda wondering about that too, Stu. But Flying Fin's Thread was closed fairly quickly due to some mud-slinging...

Did something happen in that thread that I missed? Seemed pretty innocuous to me.

Like all taxes it is going to piss some people off and the rest will ignore it until it affects them. I'm in the $200,00 market so its no big deal. When ima in the $400,000 market I will be outraged. I will say though I little sympathy for anyone buying a car for over $100,000

[Nomad57]

Originally Posted by Macblaze

Did something happen in that thread that I missed? Seemed pretty innocuous to me.

It was innocuous. My guess is that it was closed because it was a duplication of this thread, which preceded his by about a half hour.

Back in the eighties, the exchange on the dollar, duty, and federal sales tax and provincial sales tax added 89 percent to the cost of an imported boat, and some people still bought them, so maybe the government thought we wouldn't mind the "luxury" tax. After all, anything more than the roof over your head and your daily bread is a "luxury".

Nomad

[boatpoker]

The US luxury tax wiped out Canadian boat manufacturers ... C&C, CS, Tanzer and others. We have no boat building industry left to worry about.

[Nomad57]

Boatpoker, with all due respect, Michael McGoldrick wrote an article in 2001 for the sailquest.com website, wherein he offers a slightly different take on the decline of the Canadian sailboat building industry:

Retrospective of the Sailboat Market in Canada

Regards,

Nomad

[Group9]

Originally Posted by boatpoker

The US luxury tax wiped out Canadian boat manufacturers ... C&C, CS, Tanzer and others. We have no boat building industry left to worry about.

It wiped out a lot of long time boat (and small airplane) manufacturers in the US as well.

It has has pretty much been the poster child for unintended tax consequences for thirty years now.

The only fear is how many politicians today don't even know about this fiasco.

[redneckrob]

Originally Posted by Nomad57

Boatpoker, with all due respect, Michael McGoldrick wrote an article in 2001 for the sailquest.com website, wherein he offers a slightly different take on the decline of the Canadian sailboat building industry:

Retrospective of the Sailboat Market in Canada

Regards,

Nomad

The actual link is Retrospective of the Sailboat Market in Canada

Thank you for providing that. Some bits of interest for those who might not have enough energy to read the article:
-"by the end of 1980s the sailboat industry in central Canada would have all but disappeared"
-C&C went into receivership in 1987.
-The reason for the decline in the industry was, ironically given the inaccurate memories of the posters on th se threads, the fact that boat prices fell too much.

Remember, the luxury tax cut cited here that supposedly killed C&C and the rest of the Canadian boating industry happened in 1991, 4 years after the industry actually imploded.

Again, maybe the world is a little less black and white than we like to think, and maybe memory remembers timelines it wants to, which may not match reality. Aided by I'm sure some revisionist history on the part of boat manufacturing who wanted a convenient scapegoat that didn't implicate their own overproduction.

[pcmm]

The luxury tax is a liberal political tool. It likely will get stripped as a compromise to pass the budget, but then when the election rolls around they'll be able to use the fact that the other parties killed it as evidence that "they" are for the rich and the corporations and the Liberals were fighting for the "middle class"

[Group9]

Originally Posted by redneckrob

The actual link is Retrospective of the Sailboat Market in Canada

Thank you for providing that. Some bits of interest for those who might not have enough energy to read the article:
-"by the end of 1980s the sailboat industry in central Canada would have all but disappeared"
-C&C went into receivership in 1987.
-The reason for the decline in the industry was, ironically given the inaccurate memories of the posters on th se threads, the fact that boat prices fell too much.

Remember, the luxury tax cut cited here that supposedly killed C&C and the rest of the Canadian boating industry happened in 1991, 4 years after the industry actually imploded.

Again, maybe the world is a little less black and white than we like to think, and maybe memory remembers timelines it wants to, which may not match reality. Aided by I'm sure some revisionist history on the part of boat manufacturing who wanted a convenient scapegoat that didn't implicate their own overproduction.

Because, if there is one thing we all know, making something cost more, makes more people want to buy it.

What a great idea to finish off industries that were already having a hard time.

[Mike OReilly]

As I wrote elsewhere on this topic, I think the tax is largely symbolic, although sometimes symbolism matters. I doubt it will raise much revenue if it ever sees the light of day, which is doubtful. And even if it does, there will be sufficient loopholes to render it meaningless (as usual).

The theory about killing our local boat building industry doesn't wash -- we don't have much of one anymore. And the evidence doesn't support the notion that the American foray into this tax caused our builders to implode. Oil prices and market forces did that prior to the US tax.

But this all seems like a tempest in a tea pot to me. What is the market for new $250k boats? Pretty damn small. And as our Finance Minister said:

“If you’re lucky enough, or smart enough, or hard-working enough, to afford to spend $100,000 on a car, or $250,000 on a boat – congratulations!,” Freeland wrote in the budget’s forward. “And thank you for contributing a little bit of that good fortune to help heal the wounds of COVID and invest in our collective prosperity.”