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I’d really like to buy a yacht in Texas, if only your tax policies would let me

I’m not sure which is more awesome, the idea that we’re even having a debate about giving yacht owners a tax break or that they yacht owners who would benefit from this are telling us it’s for our own good.

Clayton Reaser said he’s having big fun on the $1 million yacht he bought last year in Seabrook — so much so that he soon plans to purchase a larger yacht in the $3.5 million range.

But this time, he said, he’ll be heading to Florida to make his purchase unless Texas lawmakers follow that state’s lead and approve a tax cap for boats costing $250,000 and up.

Rep. John Davis, R-Houston, sponsored HB 2187, which would impose an $18,000 sales tax cap on the purchase of a yacht in Texas. The bill sailed through the Ways and Means Committee April 28 and could soon be headed to a House vote.

“I’m definitely going to buy my boat in Florida if this legislation doesn’t pass,” said Reaser, 31, a Dallas entrepreneur. “I would love to give my money back to Texas. My next boat will have Florida on the back of it instead of Texas if this thing doesn’t pass.”

See, now don’t you just want to rush out and support HB2187 on poor Mr. Reaser’s behalf? Surely you agree that he deserves to be taxed less for his yacht. He’s trying his best to be a good, patriotic, tax-paying Texan, but the man just keeps holding him down. Won’t someone please think of the yacht owners?

Rep. Mike Villarreal, D-San Antonio, said the measure is “crazy” given the state’s two year budget shortfall of $15 billion to $27 billion.

“We’re helping yacht owners while we are cutting our public schools by 21 percent and nursing homes by 33 percent,” Villarreal said. “We’re helping yacht owners … while we’re eliminating all scholarships for college freshmen in 2012-13.”

The bill is ill-timed, Villarreal said, because no data have been collected to show how yacht sales in Florida have been affected by the bill passed last year.

We may not know what the effect of Florida’s tax cut for yacht owners has been. I’m going to go out on a limb and guess that the kind of person who can afford to buy a yacht is unlikely to base his or her decision on a few extra dollars for the taxes, but hey, the rich are different than you and I. What I do know is that tax policy probably matters less than you might think as a general rule.

Anti-tax advocates contend that higher taxes on the wealthy lead to millionaire flight. They say this has been seen in Maryland, Rhode Island, New Jersey and New York. The rich are mobile, they say. They can take their money, taxes and jobs wherever they are treated best.

But a new study focusing on New Jersey provides some of the most detailed evidence yet that so-called millionaire taxes have little effect on the movements of millionaires as a whole.

The study, by sociologists Cristobal Young at Stanford and Charles Varner at Princeton, studied the migration patterns of New Jersey’s millionaires before and after 2004, when the state imposed a “millionaire’s tax” that raised rates on those earning $500,000 or more to 8.97% from 6.37%.

The study found that the overall population of millionaires increased during the tax period. Some millionaires moved out, of course. But they were more than offset by the creation of new millionaires.

The study dug deeper to figure out whether the millionaires who were moving out did so because of the tax. As a control group, they used New Jersey residents who earned $200,000 to $500,000–in other words, high-earners who weren’t subject to the tax. They found that the rate of out-migration among millionaires was in line with and rate of out-migration of submillionaires. The tax rate, they concluded, had no measurable impact.

“This suggests that the policy effect is close to zero,” the study says.

Maybe this doesn’t directly compare to the yacht situation in Texas, but it does suggest that perhaps people aren’t as influenced by these things as the Clayton Reasers of the world want you to believe. There is a cost in going elsewhere for one’s yachting needs, both in terms of time and money. And if this was really that important to the super duper rich folks, they could go to the Cayman Islands and avoid yacht taxes all together, which apparently was Florida’s motivation for engaging in this race to the bottom. Maybe the better choice is to leave things as they are and adjust later if the data says we need to. I’m just saying. See this Chron editorial for more.

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One Comment

  1. Ross says:

    The comparison of the NJ millionaire tax and sales tax on yachts is pretty meaningless. A NJ resident who makes a million dollars would pay an extra $10k or so in taxes. For Mr. Reaser, the difference in sales tax is about $200k on a single transaction. I would put my boat in Florida for that kind of money. $200k is enough to buy a lot of charter flights from Houston to Florida.

    Tax laws change behavior.

    Does anyone have any idea how the fiscal notes are done? Is there anything that shows how the LBB came to the conclusions presented?