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Instead of Tax Breaks for Yacht Owners, How About Closing Corporate Loopholes?

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Say you’re a Houston energy guy. You’ve done well for yourself, and now you’re in the market for a nice boat. Maybe you’ve got your eye on a 405-foot Frank Mulder-designed giga-yacht that comes with a salon, cinema, fitness center, helicopter garage and 10 luxurious multi-level VIP suites. List price: $209,423,500. At the current Texas sales tax rate of 6.25 percent, your tax would work out to more than $13 million. But wait! Florida, land of sinkholes and bad tans, caps the sales tax on boats at $18,000. Your loyalty to your money being greater than your loyalty to your home state, you go to Florida to buy your yacht and save yourself $12,982,000. Florida reaps all the ancillary benefits: the mooring fees, the maintenance costs, the fuel, the swabbies scrubbing your decks with endangered sea sponges.

This scenario bothers state Sen. Larry Taylor (R-Friendswood). Taylor, who once urged an insurance bureaucrat not to “Jew ’em down,” wants to “level the playing field and make Texas more boater-friendly” by capping the sales tax on yachts at $25,000. Our hypothetical $209 million giga-yacht would carry an effective tax rate of 1/100th of a percent.

You might think a huge tax break for yacht owners sounds unfair, but Taylor insists it’s all about the little guy.

“It’s not about giving tax breaks to the rich,” he told a Senate committee in April. “It’s all about jobs and protecting our Texas economy.” Yacht owners, he claims, are setting sail from Texas and taking jobs with them.

Yet the number of 40-foot-plus boats registered in Texas has remained steady since March 2009 (Florida’s law went into effect in July 2010). So has the total number of boats registered with the state, which suggests there is no mass yacht exodus. But even if there were, this is crazy policy.

I pick on Taylor not because his bill has a chance to pass this session (it doesn’t), but because it illustrates something wrong with how we fund government in Texas.

Typically, state government finances rest on a three-legged stool of sales, income and property taxes. In Texas, we famously don’t have an income tax. Property taxes are just about maxed out. That leaves revenue from the sales tax, which is both volatile (it fluctuates wildly based on the economy) and regressive (it falls disproportionately on poor folks). But it’s the sales tax that’s increasingly being called on to fund critical needs and to give tax breaks to the wealthy.

Much has been made of the reassertion of power by the business wing of the Texas GOP. It’s now considered an act of awesome political bravery to stand up to tea party absolutism. In March, Republican Sen. Kevin Eltife earned cheers from Austin insiders for saying he supported raising the sales tax by half a percent to pay for the state’s woefully underfunded transportation infrastructure.

Texas Monthly’s Paul Burka suggested recently that Texas could fund its needs by “raising the sales tax in small increments over time.”

Here’s a better idea: If we need more money—and there’s no doubt we do—let’s undo the massive tax breaks, tax abatements, corporate loopholes and big-business giveaways before we start raising the sales tax. In December, The New York Times calculated that Texas metes out more corporate incentives than any other state—about $19 billion a year.

Here are just two places to start: 1) Abolish the high-cost natural gas tax exemption. This $1 billion-per-year giveaway to natural-gas producers was created in the 1980s, when “fracking” was just a wild idea. The companies profiting from the booming shale plays in Texas no longer need this tax break. 2) Make it harder for local governments to give enormous property tax breaks to feedlots, wind farms and nuclear power plants. Created in 2001 by the Legislature, these deals don’t cost local school districts anything, but drain the system of dollars that would otherwise be dispersed to schools around the state. A bill reauthorizing the program would cost $4.38 billion over the next decade. Even the comptroller, who signs off on these deals, has said the program “over-incentivizes projects that create few or no jobs.”

Curtailing corporate welfare isn’t going to fix a broken system. But it’s a place to start before we stick it to working people.

  • Jeff Erdmann

    Sound tax policy is not as salacious as a good political sound bite, but makes more cents!

    After reading your post I felt compelled to share Florida’s boat sales tax
    success story. Prior to July 1, 2010 all boats sold in Florida were subject to a 6% sales tax since that date Florida capped the sales tax at $18,000 per transaction.

    Florida’s Revenue Estimating Committee (similar to Washington’s (CBO) said the measure would to “cost” taxpayers $1.5 million in lost revenue yhe first year alone. Instead of the projected loss Florida collected nearly 10 times more tax dollars! This helped Florida’s $17.0 Billion dollar recreational marine industry and its 202,000 jobs. A Win – Win Tax policy that was touted as “Tax Break for the Rich Yacht Owners” turned out to be a huge windfall for Florida’s tax coffers.

    Eliminating the mortgage interest deduction on boats /yachts is a politically good sound bite but does not hold water.

    Under current law mortgage interest is deductible for both primary & 2nd homes with combined principal balances up to $1 million plus an optional $100k line of credit. Qualifying 2nd home deduction includes: Homes – cabins – condos – town homes – RV’s – boats if they have a place to sleep cook & a toilet.

    Repealing the entire 2nd home mortgage interest deduction could raise $8 billion per year, about 1/4 of one percent of the $3.034 trillion projected revenue for 2014.

    If congress needs to eliminate the interest deduction on all 2nd homes the recreational marine industry would take its lumps along with the real estate industry and the RV industry. Singling out boats “a small drop in an $8 billion bucket” would not raise enough to justify scuttling more jobs in the already sinking recreational marine industry that currently employs about a million U.S. workers (that pay income taxes).

    We should learn from successes like Florida’s sales tax cap & mistakes, like the 1990 luxury tax designed to soak the rich that backfired devastating the U.S. marine industry eliminating tens of thousands of U.S. jobs while raising only a few tenths of a million dollars in its first year. Adding salt to the wound the government paid unemployment benefits for the jobs lost.

  • SoberMoney

    Mr. Wilder is on the right track. But unfortunately even now the Democratic Party is beholden to elitist economic policies and big corporate lobby money that rigs tax laws in their favor. As the decline of unions is hopefully hitting bottom (now only 12% of the American workforce), the Democrats are needing more and more of their campaign money from the rich and their corporate masters to stay in office.
    Sure, the Republican Party has become the aging white zombie elitism party; but slowly so are the Democrats selling out to the elite. With big corporate money now starting to control both parties, the only solution is for the intelligent libertarians and the eyes open progressives to start a viable third party and organize like hell before we fully become a corporate totalitarian state.
    The only other change agent is a massive national buycott and boycott campaign that will hit the capitalist fascists in the only area they understand – profits. We can start by everyone stop buying from all publicly-traded companies – if the consumer has the option. Next, buy only regional and local companies that have a good fair wage system and provide a minimum of health care that will protect employees from economic failure due to catastrophic illnesses.
    And we should immediately boycott companies that promote fear, greed, hate and social divisiveness against gays, women, and overall economic fairness.
    And don’t forget your investments. Get rid of all your mutual funds that hold stock in the companies that are bad for our nation and world. If you want to get off your passive butts and do something, you know who they are.