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99 IRET Byline 1 (1991)

handle is hein.taxfoundation/iretbyln0099 and id is 1 raw text is: July 2, 1991 No. 99 Luxury Taxes: Exposing The Soak-The-Rich Con Game It's a rare occasion when the Congress recognizes, let alone admits, that it made a mistake in enacting a particular piece of legislation. This may be happening, however, in the case of the luxury taxes that were enacted as part of last year's budget fiasco. To put IRET By2in the best possible face on the increase in the Nation's history, most of which was imposed on middle America, Congress enacted a group of new excise taxes supposedly targeting the wealthy. A ten percent tax was levied on the price of furs and jewelry over $10,000, autos over $30,000, boats over $100,000, and airplanes over $250,000. As usual, the decision to enact this legislation ignored even the most obvious response to the tax. Instead, it was guided by the false notion second largest tax estimates that 19,000 ...our legislators should discover in this unfortunate episode the basic fallacy and bankruptcy of a soak-the-rich tax policy focus. In an interdependent market economy such as ours, the effects of taxation cannot be segregated by Ur that the people who purchase such products are well off so wealthy people will bear the burden of the new tax. What was conveniently overlooked by our tax policy makers is that the buyers of these products can avoid the tax simply by not buying them. This is precisely what our well-to-do fellow citizens appear to be doing. The National Marine Manufacturers Association states that boat sales are down by 50 to 60 percent. A study by Temple, Barker, and Sloane, a boat builders will lose their jobs as a result of the boat tax. Automobile dealerships will be employing 3,320 fewer employees. And the small businessmen who sell, and in some cases produce, these products are closing their doors. These are the taxpayers picking up the chips for the luxury taxes. icome level. What tax policy makers overlooked, clearly, was the law of demand, one of the most basic laws of economics. This law states, very simply, that the higher is the price of a product, the less of it that people will buy. As is now being demonstrated, wealthy consumers obey this law no less than the rest of us. For the federal government, the likely result is a reduction in tax revenues compared to what they would have been without the new taxes. Relying on the usual static revenue estimating techniques that assume that tax changes have no effect on economic Institute for Research on the Economics of Taxation Lexington, Massachusetts, consulting firm, finds that high-line automobile sales have fallen by more than 20 percent. That's about a $1.31 billion loss in sales for the dealerships selling these automobiles. Obviously, the luxury product buyers are staying away in droves. As a result, they aren't paying the luxury taxes. Primarily, the tax is causing these consumers to shift the composition of their purchases, or in many cases, move their purchases of the newly taxed items abroad, beyond the reach of the excise tax. It's a different story, however, for the people who work in the industries that produce and sell these products. They have no option to avoid the punitive effects of the luxury taxes. With fewer large boats and yachts, luxury cars, and expensive furs being purchased, fewer of them are being produced. With fewer being produced, there are fewer workers, blue and white collar, employed in the affected businesses. The National Marine Manufacturers Association IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote economic growth and efficient operation of the free market economy. 1331 Pennsylvania Ave., N.W., Suite 515, Washington, D.C. 20004 Phone: (202) 347-9570 J J

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