My mailbox has been stuffed lately with slick campaign flyers exhorting me to vote no next week on the cruise ship tax initiative. Similar ads blanket the airwaves. The ads argue that the cruise companies will pass the $50 per passenger tax through to their customers, and that this pass-through will deter folks from cruising to Alaska.
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I've been interested in the economics of cruise pricing since earlier this month when I plunked down $3,000 to buy my wife and I our first-ever cruise vacation. It turns out there is a persistent worldwide glut of cruise ship capacity. Carnival Cruise Lines, for example, has ordered 12 new mega-ships, and rival Royal Caribbean recently announced it plans to put a new 6,400-passenger behemoth to work in 2010. Because of the oversupply, together with competition, cruise lines are finding it extremely difficult to pass on rising costs to their customers. As with the similar situation in the airline industry, it's profits that get squeezed.
In the longer run, if the squeeze induces cruise companies to scrap older vessels, supply and demand could come closer to balance. That would allow rising costs to be passed through to passengers. Even so, the effect of the new $50 Alaska tax is likely to be small, and overwhelmed by more important factors, such as higher fuel prices.
Notwithstanding the industry's shaky economic claims, the vote-no campaign could succeed. As one might expect, if a company can't pass a tax on to customers, it has an incentive to contribute generously to a campaign that could defeat the tax. As of July 21, the vote-no forces had spent $1.2 million. Proponents of the initiative lack these deep pockets, so don't expect to see them hitting the airwaves with the kind of paid ads that would be necessary to counter the vote-no blitz.
Moreover, the vote-no campaign is tactically well conceived. "We know what it takes to sell the story," advertises PacWest communications, the Oregon-based firm orchestrating the cruise industry campaign.
The vote-no onslaught supports the company's claim. Protecting cruise corporation profits doesn't make an appealing sound bite, so the PacWest has featured attractive Alaska small-business owners who say the ballot measure threatens their livelihood and the Alaska economy. The unifying concept is that voting yes will hurt our friends and neighbors.
The local business folk appearing in the ads are economically dependent on the patronage and promotional services of the big cruise lines. Sincere as they may be in supporting the vote-no campaign, when PacWest "invited" them to participate, they had little real choice. According to the most recent campaign spending report, 99.9 percent of the financial support for the campaign comes from the big cruise lines. That suggests the local folks are little more than actors.
The vote-no campaign is a classic case of the weak claim being promoted by a strong claimant. Alaska needs the cruise industry, but is doesn't deserve a free ride. The companies already escape paying income taxes on vessel operations, and compared with other jurisdictions, operate nearly tax-free in Alaska.
On that point, I have a powerful piece of anecdotal evidence - my invoice for that cruise I just bought. It shows that "taxes and port charges" for the two ports my wife and I will be transiting (Bayonne, New Jersey and Kings Wharf, Bermuda) total $389.32-almost $100 per person, per port.
Do I like paying twice as much as the proposed Alaska tax? Heck, no.
Are we going anyway? You bet!
Gregg Erickson is a Juneau economic consultant and editor-at-large of the Alaska Budget Report, a newsletter covering the state budget and economy. He can be contacted at firstname.lastname@example.org.