One month ago, liberal New York governor Andrew Cuomo, when warning his state’s citizens that income tax revenues were coming in $2.3 billion below the budget expectations of just a month prior as a result of the new federal tax code which limits state income tax deductions to $10,000, he demonstrated a moment of rare fiscal insight when he said that “I don’t believe raising taxes on the rich” as “that would be the worst thing to do. You would just expand the shortfall. God forbid if the rich leave.”
Cuomo said Albany can’t go to the well and tax the wealthy again because that would only worsen the situation, citing “anecdotal” evidence that high-income New Yorkers are already fleeing the state to lower-tax jurisdictions.
While he was absolutely correct, we are confident that behind the scenes he got roasted by the far-left of the New York Democratic Party, which has spawned such Democrat Socialists as AOC. Of course, New York state already has a steeply progressive tax code as the top 1% of earners pay 46% of all the income taxes. And because of the unexpected budget shortfall, Cuomo, as governor of one of the deepest-blue states in America, would almost certainly be pushed hard to raise taxes on the rich.
Sure enough, it did not take long for Cuomo to make a hard left turn, and as Bloomberg reports due to pressure to find revenue to finance a $40 billion fix for New York’s subways, buses and regional commuter rail, New York has taken a page right out of the Vancouver playbook and is now considering a tax on wealthy non-residents who own luxury city apartments.
In other words, just one month after Cuomo said he doesn’t believe in hiking taxes on the rich, New York is planning to do just that.
As Bloomberg reports, Cuomo’s budget director, Robert Mujica jump-started the idea Wednesday in a statement that totaled up potential revenue sources for regional transit funding: $15 billion from congestion pricing, $5 billion from Internet sales, and $2 billion from yet-to-be-legalized cannabis. The so-called “pied-à-terre tax” on non-resident owners could raise as much as $9 billion, Mujica said.
The irony: not even taxing luxury apartments will cover the city’s gaping budget holes”: “Even that leaves a shortfall to get to the low end of MTA’s capital budget, which is projected at $40 billion,” Mujica said.
Devout socialist and New York City Mayor Bill de Blasio had preferred a millionaires’ income tax on city residents. However, since that proposal failed to received support in the legislature – even among democrats – the mayor said Thursday he could back the luxury-apartment tax.
“We need to tax the wealthy more,” the mayor said like a true socialist as he emerged from a subway ride for a news conference to promote congestion pricing fees on motorists entering Manhattan’s central business core. “Now if the governor is saying he thinks there’s a way to additionally get a pied-à-terre tax, I’m all ears.”
As Bloomberg notes, under a 2014 proposal by the Fiscal Policy Institute, a research group, such a tax would raise about $665 million annually, requiring part-time New Yorkers to pay surcharges on dwellings valued at more than $5 million. The revenue could then be leveraged into billions of dollars more to pay off bonds for making transit-related capital improvements. Absentee owners pay no city or state income taxes.
Meanwhile, confirming that New York is shooting itself in the foot yet again, the Real Estate Board of New York – the trade group for an industry that accounts for more than 30% of the city’s tax revenue – opposed the proposal realizing that it would result in a collapse in transactions and, drumroll, transaction taxes. Not only that, the board has said it would harm the city’s economy by suppressing investment, cutting jobs and lowering demand for high-priced apartment towers.
Finally, for a vivid example of what happens next look no further than France which several years ago instituted a draconian, 70% tax on the wealthy, which resulted in a liquidation firesale of all luxury apartments as the wealthy fled to more hospitable jurisdictions while dumping all their local assets, to the point where their price was no longer considered “luxury.” Then again, if New York is hoping to crush the New York city housing bubble which has already popped anyway…
… this is precisely the right way to go about it.