Newly confirmed Commerce Secretary Howard Lutnick signaled potential tax policy changes in a recent Fox News interview, where he cited the cruise industry as an example of companies that “don’t pay taxes” and “need to pay their fair share.”
In this clip from The Call @ Hedgeye, Gaming, Lodging & Leisure analyst Sean Jenkins says it might be harder than the administration thinks to tax that industry.
“The cruise industry operates under IRS code Section 883, which allows them to avoid paying federal income taxes,” Jenkins explains. “Over 90% of their operations occur outside U.S. waters, and this provision has been in place for decades.”
The Trump administration’s stance on the cruise industry introduces potential policy risk, but Jenkins pointed to historical precedent showing these efforts have failed in the past.
“D.C. has thought about taxing the cruise industry before, and it hasn’t gone anywhere. In 2017, representatives from Alaska and California successfully blocked similar efforts,” he says.
Hedgeye’s JT Taylor weighed in on the political realities of this proposal.
“If you piss off Alaska, you’re done in the Senate. If you piss off Texas—those are big states with cruise industry ties,” Taylor says.
Taylor also noted that Congress has already allocated $4.5 trillion for tax cuts, leaving little flexibility for additional measures.
