« January 2013 | Main | November 2012 »

Monday, December 03, 2012

AVOIDING THE FISCAL CLIFF – CLOSING TAX LOOPHOLES

Everyone hopes we avoid the fiscal cliff and in all likelihood calmer heads will prevail and the ruling Democrats and recently defeated Republicans while get their act together, rather than tank the economy ... and for Republican Congress representatives avoiding the risk of loosing seats in the upcoming Congress election, at the vengeful hands of voters.

When Mitt Romney was on the stump and he referred to plugging tax loopholes rather than raising taxes he was referring to tax deductions like home mortgage, RV and boats. All three are likely going to be effected in the Fiscal Cliff negotiations. They are easy targets and will be readily agreeable to both parties. The home mortgage tax credit elimination is the big elephant in the room and can deliver some serious help in reducing debt but it is most likely to be capped ... as a first step, rather than eliminated entirely, because the housing market is just recovering and mortgage tax deductibility is very popular with voters.

As far as tax deduction elimination for boats (or yachts as they will be referred to), it seems only a miracle would stop the Congress and Senate from passing tax reform that would do away with this deduction. Sure all the boat based support organizations would lobby against it, citing irreparable damage to the boat industry and a hurtful thing to do to the economy, BUT saving a tax deduction on yachts is not high on the radar screens of most average Americans. For right or wrong, the fact is, the average taxpayer would see a tax deduction on a yacht as a no brainer “loophole” to close.

What would the net affect be? Likely it will further damage US and offshore boat manufacturing. Even more serious, it may have a very serious affect on resale boat prices as many owners may throw in the towel if they cannot deduct the cost of owning their boat. Many boats may go up for sale on the market at one time, driving resale boat prices to all time lows. We hope that this doesn’t happen ... and the recovering US economy takes up the slack on supply and demand but at first blush, moving forward it doesn’t look good in the USA for those wanting to sell their boats.

If there is a wave of US based used boats that flood the market due to changes in tax code, then in Canada we will get our fair share driving prices down here as well. Great if you are buying a boat – bad if you are selling. The silver lining is, manufacturing has slowed significantly over the last number of years and at some point there will be a shortage of boats built 2007 forward. When the economy really rolls forward, it should drive boat prices back up based on supply and demand. That may take a few more years though.

Posted by at 3:02 PM
Categories: