Why Billionaires Don't Pay Property Taxes in New York (2015)
bloomberg.com
bloomberg.com
Really? New York politicians didn't realize that skyscrapers and luxury condos were a thing in the 1980s?
This article lays out all the tax code shortcomings and writes it off as expensive condo sales being a new and unique phenomenon in NYC, which is bizarre.
Here's a simpler explanation – these laws are working exactly as designed.
Except corporations and trusts don’t transfer the land from generation to generation, so it’s basically a tax on people who’s living situation changes (upsizing, downsizing, death, divorce).
So much for being a tax on speculators.
https://en.wikipedia.org/wiki/Billionaires%27_Row_(Manhattan...
I think that's overly cynical, and lacks historical context. In 1981, New York had gone through a decade of population decline. It was famously on the brink of bankruptcy before being bailed out by the federal government in 1975. There was New York City blackout of 1977. It was a much different, distressed, city at that time, and the idea of 90 million dollar condos would have seemed ludicrous.
(That said, I could definitely believe that NYC billionaires would have a very different distribution)
Of course, because democrats have higher presence in NY. It would be reversed otherwise. Remember that even D.T. was a democrat a few years ago.
Here's a more recent forbes one:
https://www.forbes.com/sites/chasewithorn/2020/10/20/even-am...
Both parties had prominent billionaires in the last presidential election so I think it's safe to say this is pervasive.
Died January 11, 2021 (aged 87) Malibu, California, U.S.
"Democrats now represent 65% of taxpayers with a household income of $500,000 or more, according to pre-pandemic Internal Revenue Service statistics."
https://www.bloomberg.com/news/articles/2021-04-19/democrats...
That's little divisive for no real reason. Smart people disagrees on politics but don't insult each other. I am sure we can find plenty of stats that reflect badly on Democrats eloctorat.
Democrats lead by 22 points (57%-35%) in leaned party identification among adults with post-graduate degrees. The Democrats’ edge is narrower among those with college degrees or some post-graduate experience (49%-42%), and those with less education (47%-39%). Across all educational categories, women are more likely than men to affiliate with the Democratic Party or lean Democratic. The Democrats’ advantage is 35 points (64%-29%) among women with post-graduate degrees, but only eight points (50%-42%) among post-grad men.
I like this paper's framework and cites. Will use it to better understand the work of Data For Progress and adjacent.
The person you are replying to never said anything about education being correlated to intelligence or superiority.
Claiming people who go to school aren't also living life and having generally a far more diverse set of experiences than dropouts is... well, it's certainly an interesting perspective.
500.000k y/y is no billionaires privilege. the billionaires annual wealth growth is much much higher.
https://docs.google.com/spreadsheets/d/1JThOdF95e0NYoea5pCWd...
source
https://www.forbes.com/sites/katiasavchuk/2014/07/09/are-ame...
The only people who suffer from the mass hysteria are the working stiffs who happen upon a couple windfalls in their lives, i.e., your typical tech workers.
Then, when a property is to change hands, it isn't actually sold at all. Instead, the subsidiary company changes owners. Actually not even that, only the majority of the ownership is transferred, or else some other tax laws would kick in. But this way, if you do it right, almost no taxes need to be paid by either party.
The last time I bought a house, I thought about creating one or more LLCs solely to own the house, so that when it came time to sell the house, I would sell each LLC one at a time to the buyer. Of course the idea falls down completely in practice in a number of ways [0], but for some reason my mind can't help but consider the law as a puzzle.
[0] you'd never find a buyer who was willing to do this weird LLC purchase instead of buying it through a realtor. also, the buyer would have to have some assurance that, after selling you one or two of the LLCs, you'd sell the remaining ones to them as well under the same terms... but that sounds a lot like a contract to sell all three, which is transferring whole ownership. absolutely any judge would look at this and be very cross with me. All of this is completely aside from the question of whether it's immoral to try to dodge property taxes to begin with (though in this case, I wouldn't be, I would be facilitating the next buyer to do so).
There are parent-child exclusions though and some weird rules with trusts.
The whole matter of finding an analogous rental unit and extrapolating effective tax value is absurd. It seems like the kind of kludge you'd invent to live with an incomplete process. The solution is not to complain about the results but to fix the process.
Also absurd is blaming the problem on how old the relevant laws are. Are these laws written in stone? "Law makers didn't anticipate this" is an excuse for a problem that is months old, not decades. Disgraceful.
I wonder if the situation is still as described here or if anything has changed in the intervening years.
The ARV (assessed rental value) system that produces low effective tax rates for ultra-luxury condos is state legislation that predominantly impacts NYC. This is what makes reform so difficult. Most of NYS are SFH owners who simply don't pay their share of the property tax burden so resist any attempt to reform the system.
Here's what NYC needs:
1. Ultra-luxury condos need to pay a higher effective property tax rate than where normal people live;
2. SFHs and condos owned by corporations or those not tax resident in NYC need to pay a higher rate. NYC shouldn't be simply for billionaires parking money in a city they visit for 2 days a year;
3. No tax abatements (421a) for ultra-luxury properties. Why are we subsidizing this at all?
4. SFHs and condos of similar property value should pay a similar rate of tax.
Currently developers build ultra-luxury property because it's way more profitable than building affordable property. This needs to change.
It's possible that developers build 'ultra-luxury' because building affordable property isn't profitable at all. Developing real estate in any major metro area in the US is insanely regulated and time-consuming.
I have a friend that lived in a rent controlled unit that did not have hot water for almost an entire year. Requiring 'affordable' units creates really strange incentives. New York should just fix the root cause: zoning.
Upzone the entire city or just remove zoning restrictions everywhere.
I would support a policy that gave people with my surname $1,500 a month - but that doesn't mean it's a good policy.
Seems like the sales price should be far more of factor in these ultra-luxury sales; the market says a house is worth $100m and an assessor looks at that and says the value for tax purposes is $5m, how does that make any sense?
Joking aside, I wonder if there is any other nation with as much tax variation between regions as the US? (Excluding special economic zones.)
In most countries, the states get their power from the delegation of powers dictated by the union/federal constitution. In US, The union gets their power from the few matters that were delegated to them from the states.
For example, India used to have such disparity in consumption taxes (not income tax) which was recently removed and simplified. The federal govt collects all consumption and income taxes and devolves the receipts to states based on pre-defined formulae enshrined in law.
Edit: In an ideal world, instead of filing separate state and federal tax returns US should move to a common system where tax can be collected/enforced by one entity and the receipts devolved to states as per certain rules. This will remove income tax disparity between states and equalise business/opportunity costs (No more Delaware tax havens for companies to skirt taxation). This will simplify a lot of things. Most countries including mine have such a singular system.
The federal government also has the ability to regulate state and local taxes using the interstate commerce clause. After the provision in the Articles of Confederation limiting the federal government to collecting direct taxes in proportion to state land values was abandoned, the supporters of direct taxation influenced by the French Physiocrats lobbied for the interstate commerce clause in order to ban state and local governments from collecting excise and sales taxes on goods sold across state lines, so that state and local governments would be forced to rely more heavily on property tax.
You just don't like it because it's clear that low tax is a better and more democratically supported policy.
The richest man in the world - Jeff Bezos - did exactly this to try and shift the taxation burden away from him and on to the rest of America with his HQ2 stunt.
This is indeed better for a limited class of people.
If you don’t like the policies of a state enough, you can move to another one! It’s extremely rare that someone can move between regions with different laws if they don’t like the laws of their state. You get to choose your government by changing where you live, if you think one of the governments is wrong or bad somehow.
Sure, there are consequences. And inefficiencies. But if you’re French, you can’t just decide to live somewhere with different laws. It’s challenging to move to another country. Even though the EU has laws that make it easier to move and work in other countries, it’s nowhere near as easy as the USA. Forget it entirely if you live in a less progressive or allied country.
This forces the states of the USA to stay appealing - they compete with each other for population. This works because the Union of states allows people to leave if one becomes oppressive, else that state goes to war with the entire rest of the Union. So the states are forced to be accountable to each other and their people.
Each state is supposed to be independent for this reason, and it’s why I’m a big fan of limiting Federal government power and instead pushing changes at a state level
Tax variation like this is generally a side effect of federalized systems of government.
PWC's summary on Swiss tax system includes 2 of the cantonal tax systems: https://taxsummaries.pwc.com/switzerland/individual/taxes-on...
India does not have state income taxes, but they had wide variation with respect to state indirect taxes (which was eliminated in 2017 and replaced with a standardized federally-run GST), and the states are still free to impose more than a dozen other taxes, including land-use taxes, including a number of taxes not levied anywhere else in the world, such as agricultural estate taxes.
Canada's provinces have their own property tax and income tax rates (for example, compare Alberta, Sasketchewan, Quebec, and British Columbia rates), and generally also set their own PST rates (provincial sales tax, when combined with federal GST it is referred to as HST).
The income tax is also devolved as per law.
“How much is it?” would seem a simple question.
This opinion is most clearly expressed by Joel Barlow in "Letters Addressed to the Yeomanry of the United States: Showing the Necessity of Confining the Public Revenue to a Fixed Proportion of the Net Produce of the Land; and the Bad Policy and Injustice of Every Species of Indirect Taxation and Commercial Regulation" (1791).
That an interesting history, thanks.
The policy sort of misses the point when you are at the till and the item doesn’t cost what you thought it did. There is no way of telling if you have been hit by a broad-based sales tax, a targeted one or both.
I wonder if this was originally intentional, to prevent taxes from invisibly rising without the people being aware of the impact of the price.
It also makes it much harder for national brands if they like to have nice round numbers as the cost of things (which they seem to) - they can’t charge $1.00 for a soda everywhere, or their margins would be crazy wonky depending on region
Of course, depending on where you are, your 2.16 coke could also jump up to 2.21 or 2.26 because of the bottle deposit. And then another 2.34-2.42 if there's a sugar tax. It could even go up to 2.46 - 2.54 depending on if you buy that coke in a store vs a restaurant.
There's some hyperbole there, but the cities and states get to tack on their own taxes for whatever reason and the public largely doesn't care.
Then there was New York Soda size cap that was almost immediate overturned in court challenges before it could even take affect.
Taxes make a pack of cigarettes $12 in NY but this was done slowly over time. And the loud protests have turned into teeny grumbles.
Though it also helped that Mike Bloomberg is not a man Big Tobacco can buy, given the fact that he is one of the richest men in town already, in a very wealthy town.
I live in a conservative area right now and can't remember a local sales tax ever being voted down. The only case I can think of was when I lived in the middle of a large city (very left leaning) and the local sales tax was voted down because the politicians pushing for it had not said exactly what it would be spent on other than "special projects". They had previously diverted a good chunk of property tax revenues to building a new sport stadium because the billionaire owner was threatening to move the team to another state. The public wasn't given an opportunity to vote on that gift of their taxes to a billionaire so there probably was both mistrust and a degree of blowback. Other than that case, local sales taxes, dedicated to a local purpose or project list, are popular here.
If the sales taxes all went to DC to be piled together and subject to the whims of whatever party was in charge at the time, they'd be far less popular. Asking locals to pay an extra 1% to renovate and expand the local schools is pretty easy. Asking the entire country to pay an extra 1% to "Make American Schools Great Again" is a much more difficult sell.
It's really hard to figure out how many more dollars I'm going to pay in taxes if the sales tax goes up 1%. I have to figure out how much money I spend on goods that have sales tax. Okay, so I put $X in my savings account which isn't taxed, and I pay $Y in rent, which means I'm spending $Z on other stuff. Oh right, but not all of that has sales tax, so I have to take that stuff out. It gets complicated, fast, and the best you're going to get is an estimate. If any of those numbers change, my sales tax burden changes.
Plus sales tax is deferred until you spend the money, so there's no immediate obvious impact. It's not like you have less money than you did last year, although your spending power does go down every so slightly.
Income taxes are unpopular to adjust because it's easy to see how much you're losing, and it directly impacts your paychecks, which people don't like.
Corruption is about why, not about the outcome. It's possible for a policy to be enacted through corruption that is good, and it's possible for a bad policy to be enacted with no corruption at all.
While corruption often leads to bad policies and outcomes, what this actually means is that you can't point to a bad policy and know it was bad because of corruption any more than you can point to a good policy and know it's good because of lack of corruption.
The whole article reads like a screed against the hyper-rich who 'aren't paying their fair share', but you have to ask, if they are merely taking advantage of (and helping shape) the tax code that incentivizes this behavior, who's really responsible here? Isn't it time we looked at our elected representatives much more critically?
This is a misdirection. de Blasio can no more screw over the real estate interests that control NYC politics than anyone else. He's an unpopular ineffective weak leader propped up by their system. His job is to take up space and be a punching bag, and he's doing a great job.
> "The combined 89th and 90th floor penthouse at One57 set the new high-water mark for a single-family residence sale in New York. While the owner paid nine figures for the penthouse, the city only taxed the unit for $17,000 in property taxes. That's an effective property tax rate of 0.017 percent—about one one-hundredth of the average national tax rate."
I find it immoral to tax people on things they already own and have already paid taxes on in the form of the income they used to purchase said item.
A big part of the upside of this will be cheaper rents for the rest of us, because right now, ultimately, real estate owners just pass the property tax responsibility to us in the form of higher rents.
In the short term, maybe, but in the long term this will just drive property values up even further, and I imagine it will make people more likely to hold onto property they aren't actively using.
From efficiency standpoint, property taxes will be more efficient than income taxes when it comes to expenditures for local infrastructure.
Having only income taxes and no property/land taxes implies a direct subsidy from the middle class to aristocracy billionaire class. The exact reverse of what your intention seems to be?
No property tax removes the need to return properties to the market, when underused. It would result in extremely high properry prices in the environment of zero interest rates. Pricing everybody out completely.
And no, property taxes are not passed down in higher rents. They do the opposite - decrease rents - by making the market more liquid. See "tax incidence".
Same reason as everything else.
https://www.youtube.com/watch?v=rStL7niR7gs (CGP Grey: Rules for Rulers)
Because it's very clear that the middle class in NYC ends up paying for the lower middle class... while the richest people get away with laughable taxes.
Take the Hudson Yards redistricting example...
You mean Southwest Harlem.
https://www.bloomberg.com/news/articles/2019-04-12/the-visa-...
Are there unsold apartments? Then no because it means there are too many of those.
If you don't give Billionaires what they want they will just buy up the next best thing, like the apartment that you are currently renting.