While politicians are debating tax hikes in Washington D.C., the state of Alaska is learning firsthand what increased taxes can do to your local economy and the businesses that operate there. Preliminary results from the Alaska Department of Revenue show a 20% decline in cruise tourism in May from a year ago following tax increases that caused several cruise lines to drop itineraries to “The Last Frontier.”
The cruise industry typically sets itineraries two years in advance, so it took a little time for Alaska to see the decline after the $46 tax for each visiting cruise passenger was put into place a few years ago. Last year, Royal Caribbean, Norwegian Cruise Line, and Princess all announced plans to pull ships from Alaska once they saw their profit margin sinking under the new taxes.
Carnival’s CEO made a statement last year explaining that cruise lines operate primarily as a business, and if business is better somewhere else (e.g. a ship can make more money in Europe than Alaska) the line won’t hesitate to move a ship.
Earlier this year Alaska changed the law and lowered the tax rate (after much lobbying from local tourist associations and the cruise line industry) – but the effects won’t be seen until at least 2012 since ships have already been scheduled and booked for other itineraries around the world.
Unfortunately for businesses dependent on cruise tourism in Alaska, this could be too little too late. It will take years to recover the business cruise ships were bringing to the region and may force some local businesses to close.
Cruise lines have the luxury of taking their business elsewhere relatively easily by pointing their ships in another direction – land-based companies do not.
Poll after poll will tell you jobs and the economy are the number one concern in America – which is why it’s puzzling to me why a state would impose a policy that encourages business to leave the region – and in most cases the entire country. Lower tourism means fewer businesses and higher unemployment.
Alaska figured it out too late for it to benefit anyone in the next two years – I hope Washington D.C. doesn’t make the same mistakes.