Senator John Kerry's Yacht and Tax Cuts

July 28, 2010

In previous Hubs I have described the theory behind supply side tax cuts and how taxes influence the decisions of rock groups, like the Rolling Stones and other world class entertainers, when they are deciding things like where to live, where to store their assets and even the scheduling of concert tours.

However, logical explanations, even when backed up examples from ancient times to the present, fail to convince many people, especially big spending liberal politicians, of the power of supply side tax cuts to stimulate business investment, reduce unemployment and propel an economy towards economic growth

Now, three months before a critical mid-term American Congressional election, we suddenly have an ultra-liberal Senator from the state of Massachusetts (a state whose politicians are so fond of high taxes that it once earned the nickname of Taxachusetts) providing living proof that tax cuts work.

One of the criticisms of the Obama Administration and its liberal allies in Congress is that most of the people in the Administration and Congress have spent their entire lives in politics and government and have never run a business or had to meet a payroll with money generated by the business.

Massachusetts Senator John Kerry is the perfect example of a person who has spent his whole career in government and has always been a strong supporter of raising taxes (and repealing the George W. Bush tax cuts), large government spending and extensive regulation of business.

A couple of years ago Senator Kerry decided to buy a boat. Not just any boat but a 76 foot yacht custom built to his specifications.

Thanks to his marriage to the heir of the Heinz ketchup fortune, Senator Kerry can easily afford the reported seven million ($7,000,000) cost of this boat.

Cost was obviously no problem here. However, taxes apparently were a concern. Being concerned about taxes and taking steps to legally keep taxes to a minimum is simply prudent economic sense.

However, Senator Kerry and fellow liberals have spent their lives not only advocating high taxes but have also continually dismissed arguments that taxes affect economic decision making.

The first thing he did was follow the example of late conservative writer William F. Buckley Jr. and set up a business to buy the boat, specifically a Pennsylvania based LLC (Limited Liability Company) which offered a number of income tax advantages.

There may also have been a tax advantage to registering the company in his wife’s home state of Pennsylvania rather than his state of Massachusetts although no one, including me, seems to have checked this angle.

Despite the fact that Senator Kerry officially lives in the Commonwealth of Massachusetts and represents that state in the U.S. Senate, he decided against having his $7 million yacht built by one of the many companies in that state that build boats (Massachusetts is located on the Atlantic seaboard and its people have been building boats since colonial times).

The Massachusetts boat building industry has been hard hit by the current economic downturn, which conservatives are accusing the tax and spend policies advocated by Senator Kerry and his fellow liberals in Washington of prolonging, and a $7 million boat building order would have provided jobs for a number of unemployed workers in the boat building industry.

It was one thing to vote for the political pork laden, $700+ Billion dollar stimulus bill in 2009 (which increased rather than decreased the number of unemployed) as that was being paid for by the American taxpayers. However, when it came to Senator Kerry spending $7 million dollars out of his own pocket, he was far more cautious.

Like any prudent business person, as Senator Kerry was with his little boat business, the senator searched for the least cost producer so as to get the most boat for his $7 million.

Apparently looking to save money, this United States Senator from the Commonwealth of Massachusetts turned his back on the highly taxed, but economically depressed, Commonwealth of Massachusetts as well as the highly taxed, but also economically depressed, by the economic policies that he voted for, and took his business half way around the world to New Zealand.

Now New Zealand is not a nation of cheap labor, like China, and, when you take the cost  (to say nothing of the increased carbon footprint, but that is another story) of transporting the boat from the New Zealand shipyard to Senator Kerry in Massachusetts there is probably no economic advantage to building the boat in New Zealand rather than having it built by one of the many boat building companies in Massachusetts or the United States for that matter.  

Not advantage, that is, unless you consider taxes.  Thanks to the policies of Senator Kerry and his fellow liberals in Washington, high taxes in the United States relative to the low taxes in New Zealand give New Zealand boat builders a big advantage.

Beginning in the 1980s the then Labor (even left of center liberals can learn when their economic policies drive the nation to the verge of bankruptcy) government of New Zealand decided to follow the example of British Prime Minister Margaret Thatcher and U.S. President Ronald Reagan in cutting taxes, along with reducing government spending and excessive regulation, which restored economic prosperity.

A report published on January 31, 2001 by the OECD (Organization for Economic Co-operation and Development) described the tax system in New Zealand as one of the most neutral and efficient within its membership.
New Zealand’s tax system in 2000 was described in detail in Appendix I of the report and, on page 78 it stated that the VAT (Value Added Tax) in New Zealand was 12.5% and then added, with emphasis, that the VAT for exported goods was zero - a deal that even a super-rich, tax loving, Democratic Senator from Taxachussets would find it worth while to travel half way around the world to buy his boat.

While I wasn’t able to verify whether the zero VAT tax on exported goods, like yachts for millionaire U.S. Senators, was still in effect.

However, I do know that New Zealand still has a reputation for following the economic policies that were successfully used by Lady Thatcher and former President Reagan to revive the ailing economies of the United Kingdom and the United States in the late 20th century.

As a result, New Zealand has not suffered as much hardship in the current world economic downturn as have the U.S., U.K. and other nations whose leaders are addicted to high taxes.

According WikiPedia, using data compiled from the CIA World Factbook, New Zealand’s unemployment rate as of March 30, 2010 was 6% compared to 9.5% for the U.S. as of June 30, 2010 (the U.S. was higher than 9.5% on March 30th and New Zealand’s rate was probably lower by June 30th although June 30, 2010 unemployment data for New Zealand was not available at the time of this writing).

Even if tax rates in New Zealand have changed some since 2000, I think that one can safely assume that Senator Kerry paid considerably less in taxes for his yacht than if he had had his it built in Massachusetts or anywhere else in the U.S.

When Senator Kerry had his yacht delivered, it wasn’t to his home in Massachusetts, the state he represents in the U.S. Senate, but to neighboring Rhode Island.

As the Wall Street Journal frequently points out, the problem with states raising money through high taxes on the rich is futile since they usually own homes in more than one state and simply change their official residence to a lower tax state.

Fortunately for Senator Kerry (who can’t officially move out of Massachusetts and still legally remain its U.S. Senator) states have yet to find a way to tax their residents’ properties located in other states.

If Senator Kerry had had his yacht delivered to his Massachusetts address he would have immediately been slapped with a 6.25% sales tax (totaling about $437,500 based upon the yacht’s estimated $7 million dollar price tag) plus an annual, including the first year, boat excise tax of about $70,000.

While a half a million dollars is probably chump change to multi-millionaires who can afford to travel to the other side of the world to buy a $7 million yacht and ship it back to the U.S., even wealthy liberal Senators who love to tax other people, prefer to drive to a neighboring state to visit their boat rather than part, unnecessarily, with a half million dollars.

This, of course means that a Rhode Island employer, employing Rhode Islanders will be paid by Massachusetts Senator Kerry to moor, maintain, repair and manage the chartering (after all this yacht is owned by Senator Kerry’s business and will be used to earn money for the Senator during the times he is busy in Washington finding ways to take more money from American taxpayers) while the Senator’s Massachusetts constituents remain standing in the unemployment line.

Despite Senator Kerry’s blatant hypocrisy, he remains the perfect example of how low taxes encourage investment and job creation by investors and businesses - even little part-time LLC’s owned by left of center politicians.

However, in this case the $7 million went to creating jobs in New Zealand thanks to their enlightened economic policies, rather than the economically depressed United States, and the business of chartering and maintaining the yacht goes to Rhode Island rather than to the Senator’s home state which gave him his job in the U.S. Senate.