Off the Kuff Rotating Header Image

yachts

Bad ideas never die

And so we find ourselves once again talking about tax breaks for yacht buyers.

Just think how much you would save on this baby

From capping the sales tax on yachts to phasing out the state business levy, some lawmakers are pushing for tax breaks even as others say the system is already riddled with too many special-interest exemptions.

The breaks are most often cast as a driver for economic development, and a Monday hearing on the yacht tax break was no exception.

Senate Bill 862 “is not about giving tax breaks to the rich. It is all about jobs and protecting our Texas economy,” said Sen. Larry Taylor, R-Friendswood, who pitched it before the Senate subcommittee on fiscal matters as necessary for the state to compete for boat business.

The subcommittee, which left the bill pending, is trying to have hearings on at least a representative sampling of the tax breaks that have been proposed, said its chairman, Sen. Glenn Hegar, R-Katy. “Obviously, the question always becomes do they, at the end of the day, provide a benefit to the taxpayers overall?” said Hegar.

[…]

A similar measure sank two years ago. Backers emphasized then, as they are now, a decision by Florida to cap its sales and use tax at $18,000. They said that has prompted buyers to purchase and keep their boats in Florida.

As filed, the legislation would cap the amount of boat tax at $15,625 per retail sale, the amount typically paid for a $250,000 yacht. Taylor has a substitute to change that to $25,000.

The subcommittee left the bill pending while it awaits a new fiscal note on the change.

As noted, a similar bill was introduced last session, but it did not pass. The fiscal note for SB862 says it would cost $2,893,000 for the upcoming biennium, which is slightly more than the fiscal note of the previous bill. Perhaps the Legislative Budget Board is forecasting more yacht purchases for this biennium, or maybe it’s just that yachts are more expensive these days. In either case, I doubt that Taylor’s substitute bill will make that much difference in this department.

I expended all the snark I have on this two years ago. There’s only so much time available in a legislative session, and it really says something about John Davis and Larry Taylor that they think this particular issue, which would greatly benefit a very small number of people at the expense of the general revenue fund, is worth their limited time and energy. I haven’t even seen a bogus “economic benefit” report on behalf of the yachters, making the usual dubious claims about how much more money this would actually mean for Texas despite the fiscal note, which is telling in itself. As Rodney Ellis says in the story, our tax code is already an unmanageable jumble of bizarre, obscure, and often needless tax breaks that cost billions for no clear reason. We don’t need to add to that.

Sorry, yacht owners

Your champion has failed you.

Rep. John Davis, R- Houston, said he’s given up for this session on capping the sales tax for big yachts to try to compete with Florida’s more favorable tax laws. But Davis said he’s still trying to find a legislative vehicle for a “safe harbor” provision that backers also say is meant to help keep jobs in Texas. The safe-harbor provision would exempt the vessels from the sales tax if they’re bought by non-residents and taken out of Texas within 10 days. It also would allow people to bring yachts to Texas to be repaired or remodeled and keep them here until the work is done without incurring the use tax, which kicks in after 90 days. With an eye toward floating the tax cap again in the 2013 session, Davis said he would like his Economic and Small Business Development Committee to study and develop data on the drift of yacht sales to Florida.

Poor babies. In a world where our schools were fully funded, where Medicaid was on solid financial footing, and where our tax code could reasonably be described as adequate to meet the state’s needs, I’d be perfectly fine with the “safe harbor” and yacht-repair provisions that Davis is still pursuing. In the world we currently inhabit, one wonders if there aren’t any higher priorities he could be pursuing – things that might actually help a larger portion of the population than the yacht-owning portion of it – in the extremely finite time remaining in the session. And I trust that if the data the Economic and Small Business Development Committee develops shows that the demand curve for yacht sales is not significantly affected by the sales tax rate that this will be the last we hear of this ridiculous issue. Right?

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.

What we need right now

Is a tax cut on yachts.

As some lawmakers look high and low for money to ease cutbacks in education and human services, the House Ways and Means Committee has approved a tax break for big yachts.

The committee voted 8-3 Thursday for House Bill 2187, which Rep. John Davis, R-Houston, casts as an effort to preserve the economic activity that goes along with having big yachts purchased and kept here.

Other states — most notably Florida — have limited their yacht taxes and Davis said that means Texas is losing out on sales and service.

Davis’ bill initially would have limited the the amount of boat tax to $15,625 — the amount normally due on a $250,000 vessel — regardless of sales price. He changed that to match Florida’s $18,000 maximum.

The bill next goes to the full House, where Davis said he’s optimistic about its chances.

Voting against the bill in committee were Reps. Wayne Christian, R-Center; Trey Martinez Fischer, D-San Antonio; and Mike Villarreal, D-San Antonio.

Here’s some background on this ludicrous piece of legislation. According to the fiscal note attached to HB2187, it will cost the state $2,782,000 over the next biennium. (That works out to just over 25 teachers, at $55K per year, for the biennium.) Without any way to pay for it, of course, because tax cuts always pay for themselves. It’s a law of the universe, I believe. Anyway, if you’re in the market for a new yacht, as most of us are, be sure to wait till this new law passes so you can save yourself a few bucks. It’s the economy-boosting thing to do. A statement from the “flabbergasted” Rep. Villarreal is here. Hair Balls has more.