Less than a year after Congress implemented a spate of "luxury taxes" designed to "soak the rich," thousands of middle-class workers in the boat and private aircraft manufacturing industries are drowning in a wave of unemployment.
According to a recent study by Republican members of Congress's Joint Economic Committee, the cost of these layoffs in terms of lost income tax revenue to the Treasury and increased public expenditures on welfare subsides negates the revenue generated by the excise taxes.Congress should sink the boat tax, down the plane tax, and rebuff the jewelry tax.
Last year's tortuously produced budget agreement placed a surtax on high-end automobiles, pleasure boats, private airplanes and expensive jewels and furs. The Joint Committee on Taxation estimated their combined effect to be a revenue gain of nearly $1.5 billion over five years.
But it never considered the potential negative employment effects in those industries and their consequent budgetary impact.
This myopic view dramatically illustrates the inherently flawed methodology by which federal revenue estimators evaluate the merits of a proposed tax increase.
Declining employment in the marine, general aviation, manufacturing and jewelry industries attributable to the imposition of the excise taxes (after factoring out job loss from recessionary economic conditions) will total more than 19,000 jobs this year.
The cost of these lost jobs in terms of lost revenue from income taxes and Social Security payroll taxes exceeds $21 million, and increased outlays in the form of public subsidies will cost the government nearly $3 million more. The combined cost to the government of $24 million in this fiscal year exceeds the Joint Committee's projected combined tax gain of $5 million by a margin of nearly five-to-one.
A separate study sponsored by a coalition of import auto dealers demonstrated that the revenue the Treasury gains from the luxury auto tax is offset by the revenue it loses from lost customs duties, "gas guzzler" excise taxes, and federal corporate income taxes.
Senate Republican leader Robert Dole of Kansas and I have introduced bills to repeal all these so-called luxury taxes, and other members of Congress have introduced bills to repeal the taxes that have cost their constituents jobs.
But none of these bills frankly has much chance to pass.
Under current budget provisions, any effort to repeal these taxes would have to be offset by new taxes or spending cuts equal to the revenue the Joint Committee asserts would be lost if the luxury taxes are repealed.
If only one person in America were to buy a luxury boat in 1991 and pay $30,000 in luxury taxes, and every single blue-collar worker in the boat manufacturing industry lost his job as a result of the tax, the Joint Committee would stubbornly insist that the luxury tax gained $30,000 and any bill repealing it would have to include commensurate taxes or spending cuts.
It's easy for the job-secure government revenue estimator to insist that these taxes raise money, but it's difficult for the unemployed boat builder to understand that his job doesn't factor into the equation.
Until Congress revises its sophomoric economic approach to analyzing the effects of taxation, Americans will continue to be saddled with fiscal polices that stifle economic growth and lose more in terms of job creation than they gain in revenue.
(Rep. Armey, R-Texas, is an economist and ranking Republican on Congress's Joint Economic Committee.)