Effects of Repeal of the Federal Luxury Tax on Boats
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JOE DOCKERY, Boat Owner: It’s nice to finally be able to see it completed, boy, and it has been two and a half years.
KWAME HOLMAN: Joe Dockery is, in a word, rich, on this particular day, rich enough to take delivery on this 72-foot sailing yacht, custom-designed and built by Alden Yachts of Portsmouth, Rhode Island. Cost: $2 1/2 million.
JOE DOCKERY: I’m very content. It looks just super.
KWAME HOLMAN: These are the carpenters, fiberglass, and metal workers, electricians who actually did the work. Most are first and second generation Portuguese, skilled craftsmen with a specialty in boat-building. They are not rich, but their glad Joe Dockery is. His one order alone kept 20 workers employed full-time at Alden for two and a half years. And that’s not counting the subcontractors who built the 100-foot carbon-fiber mast, molded the lightweight high-tech hull, and sewed the sails. Tony Abreau made all the customized stainless steel pieces.
TONY ABREAU, Metal Worker: This big piece over there cost between five and six thousand dollars.
KWAME HOLMAN: Joe Dockery, who owns a string of successful car dealerships in New Jersey, didn’t hesitate to choose Alden to build his boat. In fact, this is his second Alden. That’s his first, a 54-footer now for sale. But Dockery wouldn’t even consider having his new boat built here or anywhere else in the United States until Congress repealed the federal luxury tax on boats. That tax would have cost him about $240,000, a bill he could afford but refused to pay.
JOE DOCKERY: You’re being chosen as a special person to pay extra, and I didn’t see the logic behind it. I found it insulting. I was very close to building a boat in Finland, I mean, very close.
KWAME HOLMAN: According to David MacFarlane, president of Alden Yachts, Dockery’s order brought the company back from the brink of collapse. MacFarlane thinks back to November 1990, when President Bush and the Democratic majority in Congress agreed to levy the luxury tax. He says he still can’t believe they did it.
DAVE MacFARLANE, Alden Yachts: I don’t know anybody in the Marine industry that didn’t know that there was a total disaster to start, and it’s still amazing to think how somebody could come up with an idea that would shut off a business, and everybody that was in the business knew this would happen, and yet it floated right through.
KWAME HOLMAN: The theory behind the luxury tax sounded simple enough. Congress believed anyone willing to spend $100,000 or more on a new boat surely would be willing to pay an additional 10 percent to the federal government. But that didn’t happen. Rather than pay the tax, many people in the market to buy a boat either didn’t buy one, or bought one overseas. As a result, the luxury tax didn’t bring in much money at all, and the customers’ reluctance to buy put the boat-building business, particularly here in Rhode Island, out of business. We first visited Rhode Island in June of 1992. The luxury tax had been in effect for 18 months. Tens of thousands of jobs had been lost across the country, thousands in Rhode Island alone.
WALTER SCHULZ, Boat Builder: (1992) When that tax came down, I mean, it was just as if, I know the metaphor sounds exaggerated, as if someone turned the faucet off.
KWAME HOLMAN: At that time we talked with Walter Schulz, founder and president of Shannon Yachts. After 17 years of building boats, his company did collapse. Schulz was forced to declare bankruptcy.
WALTER SCHULZ: American boat builders, manufacturers were able to still dominate. We were able to compete head-to-head in terms of price. We were able to compete head-to-head in terms of technology. We were able to make the technological advances that still continue to dominate. We were able to make the design advances that dominate the world market. And that existed, by the way, right up until last year, I mean, and then it vaporized.
KWAME HOLMAN: We talked with Ken Kubic, manager of the East Passage Marine on Narragansett Bay.
KEN KUBIC, East Passage Marina: (1992) We used to do close to $400,000 worth of launching and christening work for these manufacturers, and that, that just dried up to nothing.
KWAME HOLMAN: When we talked with Dave MacFarlane in 1992, Alden Yachts had no new boats on order. MacFarlane had been forced to lay off dozens of skilled workers and at the time concluded the luxury tax was costing the government more money than it was collecting.
DAVE MacFARLANE: (1992) If you look at approximately say 35 or so people laid off at about say two hundred and sixty-five to three hundred and ten dollars a week in unemployment, if you add that up, you know, it comes to about $1/2 million.
KWAME HOLMAN: Some members of Congress realized almost immediately they made a mistake in levying the luxury tax.
SEN. JOHN BREAUX, (D) Louisiana: (1992) Now there’s no question that the economy has hurt the boat-building business, but I think that they were just barely treading water. And what Congress did was come up and kind of put our foot on top of their heads and just shoved them under the water line, and as a result, they really are drowning.
KWAME HOLMAN: It took a relentless grassroots lobbying campaign by the boat builders, but Congress finally did repeal the federal luxury tax on boats in August of 1993. We returned to Rhode Island a few weeks ago to see if the boat-building industry had returned. It had for Dave MacFarlane. Joe Dockery ordered his $2 1/2 million yacht from MacFarlane five days after the luxury tax was repealed.
JOE DOCKERY: It was pretty close to immediately. We were just waiting for it to end, and as soon as it ended, we moved.
KWAME HOLMAN: Ray Lavoie, supervisor of all electrical and mechanical work at Alden, was one of the few survivors of the layoffs.
RAY LAVOIE, Alden Yachts: (inspecting yacht) I think we’re all set.
KWAME HOLMAN: He said once the luxury tax was repealed, the turnaround in business was instantaneous.
RAY LAVOIE: Almost immediately, almost immediately, we started selling some boats, and interest picked up, and most of the individuals that we called that were working here came back.
KWAME HOLMAN: Alden now has a backlog of half a dozen boats on order, and its full-time work force is nearly back to where it was before the luxury tax was implemented.
RAY LAVOIE: So it’s a good feeling.
KWAME HOLMAN: According to Ken Kubic, business also is up at the nearby East Passage Marine. That’s due in part to Kubic, who, after leading the national effort to repeal the 10 percent federal luxury tax, also helped convince his home state legislators to repeal Rhode Island’s 7 percent sales tax on boats.
KEN KUBIC: People like ourselves, who were really not influential, were not paid lobbyists, where people in small businesses had gotten together and got Congress to do something, correct something that was wrong. I thought it was a–it just shows that something like this can happen in this country. People complain about this country constantly, and I think the system really works both on the state and federal level.
KWAME HOLMAN: Walter, what’s different from three years ago?
WALTER SCHULZ, Boat Builder: Oh, just about everything.
KWAME HOLMAN: And Walter Schulz was able to rescue his Shannon Boat Company from bankruptcy. He said new orders for boats came in as soon as repeal of the luxury tax was signed.
WALTER SCHULZ: Now, there was a pent-up demand, people just waiting, people who had had it up to here, so when the moment did come, however, it was instantaneous.
KWAME HOLMAN: But Schulz says he resumed boat-building with mixed emotions.
WALTER SCHULZ: It’s been explained to me as the foxhole syndrome, where you’re standing next to the person and they get their head blow off, and you’re still alive, and you start feeling guilty, and that set in very, very rapidly, because while I was able to get back, or I’m able to be standing here talking to you, we’ve got an awful lot of good folks who aren’t working right now, and a lot of great companies that are closed.
KWAME HOLMAN: And Schulz is less than forgiving of the political process.
WALTER SCHULZ: I wish it was the great American political system, and that was all to me very–and I said earlier was a negative. It was the most disillusioning period in my 34 years of work. I still believe in America, all right. I’ve got a real problem with that 15 acres of what we call Washington that’s surrounded by reality, though.
KWAME HOLMAN: Joe Dockery isn’t happy with Washington either, particularly since he’s still trying to get Congress to repeal the luxury tax that’s still in effect on many of the new cars he sells, even though that tax is bringing in money for the government.
JOE DOCKERY: I hope they clean up that one too. You know, the more little taxes we have, the more confusing it is. If we could only get ourselves down to maybe one big tax, cut out a lot of bureaucracy, I think that would make more sense.
(BOAT CHRISTENING CEREMONY)
KWAME HOLMAN: There was a brief christening ceremony at Alden Yachts to launch Joe Dockery’s new boat, and afterward, a party for Dockery’s family and friends, but particularly for the boat builders, themselves.
DAVE MacFARLANE: There’s not too many fields of endeavor that people can get into where they leave a bit of themselves. If you’re in this business, you really have to live it. It takes an incredible amount of dedication, and I’d like to have all of the employees of Alden stand up, and I’d like to give them all a round of applause. (applause)
KWAME HOLMAN: Joe Dockery now is spending the holidays with his family, sailing the Caribbean in his new 72-foot sailing yacht. Most of the workers at Alden are spending their holidays a little closer to home, grateful they’ll be back at work, building more boats in 1996.