Wednesday, April 07, 2010

WFP's Luxury Boat Tax

You gotta give the Working Families Party credit for consistency. Faced with an out of control state budget, a high tax burden and a bloated public payroll, the party might have been forgiven if it had strayed just a bit from its orthodoxy of promoting more taxes and bigger government-but such innovative responses aren't about to happen-as Daily Politics points out: "With lawmakers and Gov. David Paterson at loggerheads over the state budget - now almost a full week late - the Working Families Party is proposing a temporary tax on Wall Street bonuses in hopes of preventing deep spending cuts. The WFP sent a letter to all 211 state lawmakers today outlining its proposal, which calls for taxing bonuses between 25 percent and 50 percent (and not just for TARP recipients) for the next two years, and also launched an on-line petition drive."

Talk about golden egg goose killing time! Wall Street has been the only economic niche, a cash cow if there ever was one, that has enabled both the state and local NYC government to overcome their profligate ways-so it comes with no surprise that the private sector hating WFP would single the Street out for its counter productive attack. But the reality here is that any confiscatory attack on bonuses in this area could lead to the same situation that confronted the New Jersey luxury boat business after a luxury tax was instituted in 1991.

As you might recall, the tax laid waste to that industry and lead to its demise: "The imposition of a luxury tax on yachts all but destroyed the centuries-old shipbuilding industry in New Jersey. Making matters worse for the government, tax revenues diminished, because the feds were dumb enough to assume a perfectly inelastic demand for luxury yachts. And the vig in this case was only about an additional 10%. Ocean Yachts in Weekstown trimmed its workforce from 350 to 50. Egg Harbor Yachts entered Chapter Eleven bankruptcy, going from 200 employees to five. Viking Yachts dropped from 1,400 to 300 employees. According to a Congressional Joint Economic Committee Study, the boat industry nationwide lost 7,600 employees within one year."

So, in our view, a bonus slash and burn tax on Wall Street could easily have a similar impact-with firms-and their jobs in this case-leaving a newly (even more) hostile climate for a more hospitable home elsewhere. And, of course it goes without saying that the tax's short term benefits-if they were to even materialize-would simply postpone the desperate need to reduce the size and scope of the NY State government Leviathan.

But, for its part, the WFP can't rid itself of its defining class warfare: "Given the magnitude of the cuts that are about to be inflicted on the people of the State of New York, it's hard to understand what's not fair about asking this particularly privileged group of people to do a little extra over the next couple of years," Master said."

What Masters is doing is protecting not, "the people," but, "his people," the public employees who comprise the WFP's core. But all devastation aside, can the average homeowner in Juniper Park, Pelham Bay, New City or Canarsie, somehow manage to survive with the "drastic" cuts being proposed? We think that they will.

But alleviating the burdens of these families is not on the WFP agenda-so let's tell it like it is. The state government has gotten too big and NY is simply a horrid place to do business in. Confiscatory taxing of our one remaining profit center is a crackpot way to deal with the fiscal reality of our profligacy on both the state and local levels. After all, we don't want Wall Street to go the way of Jersey's boat building business.