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Few Mourn Demise of Luxury Tax
Daily Policy Digest

Tax Issues / Effects Of Tax Cuts

Monday, January 06, 2003

The last vestige of the 1990 federal luxury tax disappeared on January 1, 2003 -- as the tax on cars expired. Economists had come to appreciate just how destructive the tax was only a few years after it took effect in 1991 and politicians began to repeal sections of it as early as 1993.

Starting in 1991, Washington levied a 10 percent luxury tax on cars valued above $30,000, boats above $100,000, jewelry and furs above $10,000 and private planes above $250,000.

Yacht retailers reported a 77 percent drop in sales in the first year, while boat builders estimated layoffs at 25,000.
The tax took in $97 million less in 1991 than had been projected -- simply because people stopped buying items subjected to it.
All but the car tax was repealed in 1993 -- and in 1996, Congress voted to phase that out too.
Some tax analysts point out that soak-the-rich tax schemes can backfire and leave the federal Treasury -- as well as taxpaying workers -- worse off than they were before the meddling began.

Source: Editorial, "Good Riddance to the Luxury Tax," Wall Street Journal, January 6, 2003.