A member of the Trump administration made a daring warning to overseas flagged vessels, together with cruise ships, concerning avoiding paying taxes.
Secretary of Commerce Howard Lutnick appeared on Fox News on Wednesday speaking about how U.S. President Donald Trump desires to abolish the Internal Revenue Service. He then went on a tirade about how cruise ships, super-tankers, and overseas produced alcohol do not pay taxes.
“None of em pay taxes…that is going to finish and people taxes are going to be paid,” Secretary Lutnick mentioned.
He then identified how massive ocean going vessels are all flagged in several nations, similar to Panama or Liberia, in an effort to keep away from federal earnings tax.
$CCL $RCL | Secretary of Commerce Howard Lutnick mentioned President Trump’s objective is easy—abolish the IRS and “let all the outsiders pay.” He even pointed to cruise strains not paying taxes for instance.pic.twitter.com/2sXbMucD2p
— Wall St Engine (@wallstengine) February 20, 2025
The assertion immediately despatched cruise line inventory costs down, with Royal Caribbean Group’s inventory down about 9% for the day on the Nasdaq alternate.
While nobody disputes the actual fact the ships are overseas flagged, Secretary Lutnick is lacking the larger image surrounding taxes and what cruise strains pay.
Cruise strains do a pay numerous taxes
Federal earnings tax is one tax, however there are numerous others that cruise strains, similar to Royal Caribbean, pay in great amount.
The main cruise strains have their headquarters within the United States. Carnival, Royal Caribbean, and Norwegian Cruise Line all have places of work in Florida, the place they make use of 1000’s of Americans of their places of work and throughout the nation. They pay payroll taxes in addition to a wide range of charges.
Those charges embody port charges, with simply over 30 million passengers crusing by way of U.S. ports in a given yr. As an instance, Alaska alone provides $250-300 per particular person to a crusing in port charges.
U.S. legal guidelines make it unattainable to construct a cruise ship with a U.S. flag on it
“You ever see a cruise ship with an American flag on the again?” Lutnick mentioned.
Modern cruise ships merely aren’t in-built America, as a result of the legislation has made it almost unattainable.
In 1886, U.S. President Grover Cleveland signed the Passenger Vessel Services Act into legislation to guard American jobs. Among the laws this legislation added, for a ship to qualify to be flagged by the United States, it should be made at a U.S. shipbuilding facility, owned by an American firm and staffed by an American crew. All the officers should be U.S. residents and 70% of the crew should be at the least resident aliens (Green card holders).
With that one exception, for the final 50 years, American shipbuilders haven’t riveted collectively a single cruise ship that fulfills the necessities set forth in 1886.
The solely U.S flagged ships working throughout the United States are river and coastal cruise strains which are fairly small and very costly. And Norwegian Cruise Line has Pride of America, which operates in Hawaii.
Following World War 2, the United States added sturdy protectionist laws meant to protect the maritime business, but it surely really had the reverse impact. Many shipyards domestically closed, and the few left are solely targeted on army work that depend on authorities paid contracts to make sure there’s a revenue.
You’ll discover most cruise ships in-built shipyards in Europe or Asia. In reality, all of Royal Caribbean’s ships have been in-built one shipyard or one other in Europe over time.
According to Commander Don Goldstein, Retired United States Coast Guard, American shipyards should not geared up with the expertise constructing trendy cruise ships, nor have they got the capability or provide chain to assemble cruise ships.
Even should you needed to transform a Royal Caribbean ship to a U.S. flagged one, it is unattainable as soon as once more to U.S. legislation.
Coast Guard laws present {that a} U.S.-built vessel should be assembled fully within the United States and all “major components of the hull and superstructure” should be fabricated within the United States.
The Coast Guard’s coverage by way of quite a lot of precedents, has decided {that a} “part” should exceed 1.5 p.c of the vessel’s steelweight to be thought of “main.”
Could further port charges be the reply?
The feedback concerning the cruise business prompted hypothesis about what would realistically occur, if something.
Vince Ciepiel with Cleveland Research thinks essentially the most believable “tax” could be to boost port charges for U.S. ports, just like what Greece and Mexico have alluded to.
“Taking a fast have a look at port passengers, the U.S. sees simply over 30M in passengers journey by way of U.S. ports (the 2 largest being Miami over 7M and Port Canaveral close to 7M). If the U.S. authorities had been to impose an extra ~$30 price (not anchored to this guess, we welcome any suggestions right here) on passengers, that may elevate about $1B in tax income,” he defined.
He believes if that situation did materialize, the added taxes could be handed alongside to customers, “An incremental $1B in worth hikes on what’s like $40B of ocean cruise business income touching U.S. shores could be equal to a 2.5% worth hike, which once more doesn’t appear that materials/might in all probability simply be handed on to the patron.”