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Macdonald-Laurier Institute

Economics in one yacht

August 3, 2010
in Domestic Policy Program, Economic policy, Latest News, Politics
Reading Time: 2 mins read
A A

An Associated Press story reaches me via MSNBC that Massachusetts Sen. John Kerry, the unsuccessful Democratic candidate for president in 2004, is parking his family’s $7 million yacht in Rhode Island rather than his home state, saving about half a million dollars in taxes in the process. Who said incentives don’t matter?

In a sense, the answer is Senator Kerry. No political party I’m aware of seems adequately to appreciate the role that carrots and sticks play in human behaviour especially while in office; if I had my way they’d all enter their caucus rooms under a sign saying “If you build it they will come.” But certainly Senator Kerry’s Democratic Party has not made getting incentives right a major part of its policy approach over the past, say, 40 years in tax, defence or almost any other area you can name.

I do not, let me stress here, begrudge Senator Kerry his yacht. Having been born into money and then had the good fortune to fall in love with and marry a woman who happened to have a good fortune of her own, he can afford such things and envy has no place in public policy or private life. (The construction and maintenance of yachts also creates jobs, I have no doubt, but to me the moral consideration trumps the econometric one here.) Nor do I begrudge him a docking slip whose amenities do not include some $437,500 in sales taxes and $70,000 in annual excise taxes. I would happily steer for the same thing myself, albeit in a somewhat less gaudy vessel. But that’s my cue for saying I certainly want him to apply the same rules to others as to himself.

According to MSNBC, “Kerry spokesman David Wade said Friday the boat is being kept at Newport Shipyard not to evade taxes, but ‘for long-term maintenance, upkeep and charter purposes.'” One expects such talk from politicians and their mouthpieces no matter how loudly they tout their character from the stump (indeed, as Samuel Johnson once said, “the more he talked of his honor the faster we counted our spoons”.) But it might even be true; back in 1993 Rhode Island repealed the onerous taxes Massachusetts still imposes and, the MSNBC story further notes, “That has made the state something of a nautical tax haven”. Quite possibly by now it offers far superior maintenance, upkeep and charter purposes.

All I ask is that Senator Kerry, as he reclines on his luxury yacht on its way to a low-tax docking haven, reflect on the notion that punitive taxes tend to discourage enterprise and the larger economic lesson of which it is just one illustration: incentives matter.

If he cannot bring himself to adopt this view and make it the foundation of policy, then surely honesty requires a “helm hard to port” command and a 180 back to Massachusetts.

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