Volume 2 Issue 62
2009

Wrong Time for a National Sales Tax

Once considered unthinkable, a U.S. sales tax is getting a fresh look. The new tax is seen as a way to reduce deficits and fund health reform.

With budget deficits soaring and the administration pushing a trillion dollar-plus expansion of health coverage, some Members and staff are taking a new look at a money-making idea long considered politically taboo, a national sales tax. Common around the world, including Europe, called a value-added tax or VAT has not been seriously considered in the U.S. But, advocates of the tax say no other options can generate the kind of money the nation needs to fund the deficit and health care reform.

A VAT is a tax on the transfer of goods and services that ultimately is borne by the consumer when an item is purchased. Highly visible, it would increase the cost of just about everything, from eggs, to lobby fees, to boats. The tax is highly regressive, falling heavily on the backs of the poor and working class.

The surge in interest in VAT is powered by the extraordinary depth of the nation's money troubles. The federal budget deficit is projected to approach $1.3 trillion next year. The Treasury is borrowing 46 cents of every dollar it spends.

President Obama has said he wants to raise the taxes for high earners and impose new levies on business, but it is considered by Washington policymakers those moves would not generate enough cash to cover the cost of health care, much less balance the budget.

Enter the VAT, used by over 130 countries.

Among the industrialized nations, rates range from 5 per cent to 25 per cent. A 21 per cent VAT being used in Ireland is used to attract investment and business by lowering the corporate tax rate. Policymakers are estimating a 10-14 VAT tax rate in the U.S. would raise enough money to pay for health care with no deductible or exempt all American families with income less than $100,000 from the individual income tax.

Is it the wrong time for a VAT? From an economic point of view, progressive income tax is grounded in the theory that each additional dollar that an individual earns has less utility to that individual. A consumer at the bottom of the income scale will spend all or most of his or her income on essentials for the family. An individual at the upper end of income scale is more likely to save a portion of income. This simple truth about consumer behavior argues strongly against flat or regressive forms of taxation such as the VAT.

Some of us in the boating business can remember the effects of the 10 per cent luxury tax on private boats during the early 1990's. In less than a year, the boat building and retailing industry was decimated with its workers unemployed. Unlike the income tax, which is largely unavoidable, a national sales tax is avoided by not purchasing something or as many consumer goods. This is exactly the behavior we wish to discourage both now and after the recovery is well underway.

MRAA believes strongly that a national sales tax, or VAT, would have an awful effect on recreational boating as consumers elect not to purchase high dollar goods and would have a similar effect that the ill fated 10 per cent luxury tax had on the industry 17 years ago.

Expiring Tax Cuts and What to Do

The looming expiration of the Bush tax cuts offers an opportunity for Congress and the administration to support something that will benefit the nation's economy. A national discussion of tax policy should include thoughtful weighing of which tax cuts to keep in place. But this is clearly not yet happening.

What taxes should we keep?

There are several Bush tax cuts set to expire on December 31 which if kept would benefit the recreational boating industry. The federal deduction of the state sales tax would help consumers recover some of the cost of buying a boat. In addition, maintenance of the estate tax deduction set to revert back to original levels would help in the case of a death of a business owner.

Our message to Congress—let's get started now to re-authorize the Bush tax cuts, especially the sales tax deduction and the repeal of the estate tax.

Ethanol Not Sitting Well with Older Boat Engines

With ethanol-enhanced gasoline already causing headaches for power boaters, the Federal government is pondering boosting the use of the additive. Two-years ago a mixture of 10 per cent ethanol was added to gasoline at the pump. The problem is many boats, mostly older models, were not suited to the use of the new fuel blend with degradation of fuel systems, engine damage, and safety concerns.

Now, under pressure from the ethanol industry, the federal Environmental Protection Agency is considering increasing the ethanol content of gasoline from 10 per cent to 15 per cent.

In older boats with fiberglass fuel tanks, fuel hoses and seals are being damaged by the alcohol in the blend. The tank's reaction creates a sludge that fouls fuel systems. Carburetors choke and the engine dies. The fuel also creates more water separation problems, leading to more fuel-filter sales. The boat owner could face thousands of dollars of work to get a boat on the water. A tank conversion on an older boat could cost $6,000 or more and a carburetor job runs $250 to $300.

If you agree, join MRAA and NMMA in commenting to the EPA opposed to the EPA proposal to increase ethanol levels in gasoline to 15 per cent. Go to nmma.org and click on "NMMA Action Alert" and then follow the "Take Action" prompts. It is easy.

Full Speed Ahead for Mileage Tax

Rep. James Oberstar (D- MN) recently signaled his support for a new vehicle-miles-traveled or VMT, system and suggested the revenue-raising scheme would find its way into the upcoming highway and transit re-authorization bill.

So what is VMT?

A VMT pricing system has been long batted around by academic and transportation officials as a solution to the nation's transportation funding woes. It also had long been considered a political impossibility, akin to a value added tax and raising the federal fuel excise tax, but opposition to the idea has slowly waned of late as the Highway Trust Fund, which is funded predominately by federal fuel tax receipts, has struggled to remain solvent. Increases in fuel economy, coupled with the fact that the current federal tax on gasoline has remained stagnant at 18.4 cents a gallon since 1993, have taken their toll on the fund's ability to keep up with the demands of transportation maintenance and improvements. VMT is a mileage-based system with drivers being charged 2 cents per mile driven in a year.

Opponents to the pricing scheme, which includes the White House, remain opposed to the idea of increasing any tax during the recession. Other complaints include privacy concerns over the GPS technology used to administer the tax and worries the system would increase the amount due from the average driver who lives or works in rural areas.

Nevertheless, Oberstar believes lawmakers should forgo further study and quickly move the proposal, perhaps as early as the end of June in his Transportation and Infrastructure Committee in the House.

SBA Launches New Loan Programs To Help Struggling Businesses

MRAA has been working on several programs with the Small Business Administration to help marine retailers, including no interest loans, floor plan financing, and capital improvements. In addition, a new program funded by stimulus money through the Department of Agriculture for rural areas has recently been announced. MRAA will feature these programs in a Washington Watch to be delivered in a couple of days, but MRAA has been keeping members informed through Dealer Alerts, Membership Advisories, and press releases.

The federal Small Business Administration will start guaranteeing America's Recovery Capital (ARC) loans on June 15. With small businesses suffering financially as a result of the slow economy, many small businesses may be eligible to receive temporary relief to keep their doors open and get their cash flow back on track through a new loan program. ARC loans are deferred payment loans of up to $35,000 available to established, viable, for-profit businesses that need short-term help to make their principal and interest payments on existing qualifying debt. ARC loans are interest-free to the borrower, are 100 per cent guaranteed by the SBA, and have no SBA fees associated with them.

As part of the Recovery Act, the ARC program was created as a no-interest deferred payment loan to help small businesses that have a history of good performance, but as a result of the tough economy, are struggling to make debt payments. ARC loans will be disbursed within a period of up to six months and will provide funds to be used for payments on principal and interest on existing debt including mortgages, term and revolving lines of credit, capital leases, credit card obligations, and notes payable to vendors, suppliers, and utilities. Repayment will not begin until 12 months after the final disbursement. Borrowers don't have to pay interest on ARC loans and payback can be made over a five year period.

Governor Palin Signs Alaska Dealer Bill - Becomes Effective Immediately

On Monday afternoon, May 25, Governor Sarah Palin signed H.B. 177, the Alaska Dealer Bill, in a special signing ceremony at Compeaus, a boat and snowmobile dealer in Fairbanks, making it a memorial Memorial Day. The bill's prime sponsor, Representative John Coghill and his chief of staff, Rynnieva Moss, Senator Jim Paskvan, and Senator Jim Thomas joined the Governor and representatives from the Alaska Marine Dealers Association for the signing ceremony. Governor Palin thanked all the dealers and legislative efforts on passing the important consumer protection legislation and afterwards test drove a new hi-performance jet boat.

Alaska marine dealers will have policies and procedures together to conform to the new dealer requirements set in H.B. 177. The state dealers association will be working with dealers and manufacturers to help educate all parties. The bill became effective when the bill was signed into law on May 25.

MRAA Supports Senate Efforts of Permanent Relief from Estate Tax

MRAA is supporting efforts in the U.S. Senate to provide permanent relief from the Estate Tax. On March 26, S. 722, the Taxpayer Certainty and Relief Act of 2009, was introduced by Senator Max Baucus (D-Montana) and Chairman of the Senate Finance Committee, which is responsible for tax writing legislation, to make permanent 2009 levels for taxation of family possessions and property, including farms, ranches, marinas, and small business properties. The bill language would also index exemption amounts for inflation.

Under current law, taxes must be paid on transfers of property at death with the top tax rate of 45 per cent on values over an individual exemption of $3.5 million and a couple's exemption of $7 million. In 2011, the estate tax is scheduled to revert back to pre-2001 levels with an exemption of $1 million and a 55 per cent tax rate.

The proposed amounts contained in the Senate bill were also included in the internal Congressional-management bill, called the Budget Bill, which sets parameters on spending and revenues.

MRAA has long supported full repeal, but understands the government is operating in an environment of strong budget concerns and full repeal may not be possible this year.

Effective Date of Red Flags Delayed

The Federal Trade Commission has delayed implementation of its Red Flag rule until August 1 to give banking more time to develop prevention programs.

Under Red Flag, boat dealers that provide or arrange financing are considered creditors and must comply with the special rules to identify, detect, and respond to patterns, practices or specific activities that could indicate identity theft. The FTC will now be allowing businesses of low risk of identity theft, which may arise from personal contact with customers, usage of a template to help them comply. This information would help explain what types of businesses are covered and how they might develop their identity theft prevention plan.

MRAA suggests marine dealers contact their financing institutions for compliance instructions and assistance in developing their prevention plan. MRAA also suggests contacting Leonard Bellavia at the law firm of Bellavia Gentile at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it , which has developed guidance programs for boat dealers.

Published by Larry Innis, Director of Government Affairs
Marine Retailers Association of America, PO Box 725, Boca Grande, FL 33921
Phone 708.763.9210