Local merchants who sell cars, boats, jewelry and furs subject to the "luxury tax" in the proposed federal budget compromise say the resulting drop in sales could hurt the economy more than the additional revenue helps.
Proponents of the 10 percent tax Congress is expected to vote on this week as part of a $500 billion deficit-reduction plan believe it affects only the wealthiest Americans.But merchants fear their well-off customers will shut their pocketbooks once they see the higher price tags. And fewer sales will mean the need for fewer employees.
"We're going to have to lay off people. The people who make the boats are going to have to lay off people," said Don Robertson, president of Robertson's Marine.
"The number of people it's going to hurt and lay off are going to offset what it's going to gain," he said of the proposal to levy a 10 percent tax on the price of a boat beyond $100,000.
"We just sold one the other day for $300,000. This would make it $20,000 more," Robertson said, estimating that between 25 and 30 percent of his business is in boats that cost more than $100,000.
Car dealers who cater to customers with expensive tastes would also feel the effect of the luxury tax. As proposed, the 10 percent tax would apply to the cost of a car above $30,000.
"One of two things are going to happen," said Sean Harris, sales manager at Steve Harris Imports. "They're either not going to buy the car or they're going to expect the dealer to absorb it."
Harris said cars that cost more than $30,000 are the fastest-growing segment of the industry. But, he said, few of the people associated with the high-end market could buy the products.
"We're not able to afford the cars we sell and service," Harris said. For example, an Italian-made Ferrari sports car can cost $170,000. About 25 new Ferraris are sold annually by the dealership along with another 20 used models.
Even American car dealers say they would feel the pinch. "Everything I have is over $30,000," said Gary Palmer, sales manager of Carleson Cadillac. He said the luxury-car market is already suffering because of the increase in gas prices.
"Buyers see the name Cadillac, they already think gas guzzler, which isn't true. This is going to take a few more people out of the market," Palmer said. "People are money-conscious right now."
Jewelry stores that cater to a wide range of budgets worry that consumers will believe the luxury tax applies to all purchases, not just to the portion of an item priced above $5,000.
"People are afraid to buy luxury items all around because of the economy. This will just worsen it," said Joan Llewellyn, manager of the Morgan Jewelers in the Cottonwood Mall.
"Jewelry is a big necessity in getting married and so forth," Llewellyn said, adding that the store sells 1-carat diamond solitaires as engagement rings for more than $5,000.
Bill Bennion, president of Dick Bennion Jewelers downtown, said even though Utahns are more frugal than most Americans, about 5 percent to 10 percent of the purchases made in the store are for items that cost more than $5,000.
Like many of the merchants, Lynn Arent of Arent's Doorway to Fashion questioned why only certain products were targeted by the budget proposal. Furs selling for more than $5,000 would be taxed on the cost above that amount.
"It makes me a little angry. Although we don't carry them, there are $5,000 handbags and $5,000 evening gowns that won't be taxed," Arent said. "How do you decide what's a luxury?"