New York and other high income tax states are scampering to find new sources of revenue on the heels of the federal tax reform act that eliminated tax deductions for state and local income taxes. The politicians recognize that they cannot pile on more income tax levies, and at the same time, they are incapable of reigning-in spending or reducing expenses. So last week New York politicians announced that they are proposing to institute a Pied-à-terre tax on co-ops and condominiums with market values of $25 million or more, arguing that they are owned by the super-rich who can afford it.
Calculations indicate that the tax levy would cut the value of these properties by almost 50%. Not surprisingly, the real estate industry is furiously lobbying against the plan, rightfully arguing that the tax would destroy the upper-end of the real estate market in Manhattan where the development of luxury residential properties has fueled a construction boom. For example, from my office at the MetLife building I can count construction cranes for 5 luxury high-rise buildings.
Of course the politicians are not capable of calculating the cost of the loss of revenues associated with the construction industry, or the domino effect of the departure of the affluent who fuel the critical top end of the economy. Listening to the rhetoric among the emerging presidential candidates aimed at taxing the wealthy, and with nonsense such as the Pied-à-terre tax, we are on a slippery slope that, in the end, will undermine the robust economic growth that we currently enjoy.