Some Americans commit deliberate “tax evasion” – failing to pay the taxes they are required by law to pay. That might involve, for example, hiding income or overstating business expenses. That’s illegal.
Far more Americans engage in legal “tax avoidance” – using the law to reduce their tax burden. That can involve claiming a mortgage interest deduction or writing off legitimate business expenses. That’s legal.
Democrat Sen. John Kerry has a new $7 million yacht that he has kept docked in Rhode Island rather than in his home state of Massachusetts. He says it is in neighboring Rhode Island for maintenance and other purposes. He says he most definitely has not kept it in Rhode Island as a way to avoid paying $437,500 in Massachusetts sales taxes on the yacht and an annual $70,000 in Massachusetts excise taxes. He has even offered to pay those tax bills in Massachusetts to put any such accusations to rest.
We will take Sen. Kerry’s word for it that the 76-foot boat is in Rhode Island for reasons that do not have to do with avoiding a huge tax bill back in Massachusetts. He is a wealthy man, and we doubt he would have any trouble paying the taxes.
But we spotted this interesting passage in the article on Sen. Kerry, his yacht and high taxes: “Rhode Island repealed (sales and excise) taxes in 1993. That has made the state something of a nautical tax haven,” The Associated Press reported.
In other words, even if Sen. Kerry is not using Rhode Island to escape Massachusetts taxes on his yacht, many other boaters may be doing exactly that.
But does that mean Rhode Island is getting the short end of the financial stick? Not at all!
Rhode Island may not collect sales and excise taxes on the boats docked in its waters. But many boaters leave their yachts to visit Rhode Island cities such as Providence and Newport – where they provide business to local restaurants, stores, movie theaters and so forth. The boaters also have repairs on their boats performed in Rhode Island, adding to the state’s economic base.
That bears out the truth of this oft-forgotten economic principle: If you want more of something, you should tax it less.