A state lawmaker from Jackson is working on a bill that would allow voters in Teton County to decide whether to tax the sales of million-dollar homes. Rep. Andy Schwartz said it would allow county commissioners to ask voters to approve the tax on homes that sell for $1 million or more. It would range from 1 percent to 2 percent based on the price. The bill would only apply to counties where annual property sales exceed $600 million. Teton County is the only one that meets that threshold although Schwartz, a Democrat, is open to lowering the figure if other counties want the taxing option. Wyoming Realtors president and Jackson real estate agent Devon Viehman says such a tax would make all housing less affordable.
For now, this idea is confined to Teton County only. However, don't expect it to stay there - this is a test run for a tax that, once established in one corner of the state, will slowly creep across county lines and start affecting properties that are much cheaper than $1 million.
This tax will have a dampening effect on house prices. Despite the usual, very predictable argument that this tax is just a pack of chewing gum per year for a wealthy person - or whatever analogy the tax hikers will use this time - the reality is that the market will quickly discount prices based on this tax. Sellers will want to get the money from buyers, who in turn will want to pay less because they know they have to factor in this tax in a future sale.
In 2014, Forbes Magazine explained this point:
A new study by two Columbia University economists finds that the extra 1% “mansion” tax New York state and New Jersey impose on home sales above $1 million actually reduces the number of total real estate transactions, in addition to pushing home sales that might have taken place for above $1 million to below that threshold. The tax, which is theoretically paid by the purchaser and not the seller, was adopted by New York state in 1989 and New Jersey in 2004. While it only applies to residential sales above $1 million, it is levied on the full purchase price, meaning a buyer who pays $999,999 for a house, condo or coop would owe no mansion tax, while someone who buys the same property for $1,000,000 would have to pay $10,000. Economists generally expect that sort of a “notch” or "cliff" to have a noticeable effect, with sale prices bunching just below $1 million to avoid the tax. But in a new working paper published by the National Bureau of Economic Research this week, economists Wojciech Kopczuk and David J. Munroe report that their study of property sales in New York and New Jersey from 1996 to 2011 found an even more dramatic effect. Sales did, as expected, bunch below $1 million. But there was such a large gap in sales of homes for between $1 million and $1,040,000 (with more sales missing in that range than bunched just below $1 million) that they conclude the mansion tax causes an “unraveling” effect, actually disrupting some sales of properties that would otherwise have taken place.
It is also worth noting that the flow of wealth across state lines is more pronounced than proponents of higher taxes are ready to admit:
In a four-year period before the millionaire's tax, the aggregate net worth in [New Jersey] increased by $98 billion, the report said. After the tax, the net outflow reversed "70 percent of the wealth gained in the prior four years," the report said.
The second reason why this tax is such a bad idea is that once a tax is in place, it will crawl upward and creep outward. As if to drive home this point, Bloomberg Politics reports on the tax plans that New Jersey's Governor-elect has put forward:
A New Jersey millionaire’s tax boost that Republican Governor Chris Christie vetoed five times will be Democrats’ top priority with their party newly in control of the executive branch, said the highest-ranking state lawmaker. Governor-elect Phil Murphy, the Goldman Sachs Group Inc. multimillionaire who defeated Christie’s lieutenant, Kim Guadagno, on Tuesday has vowed to enact the increase. With that revenue, plus higher corporate taxes and fees from plans to legalize marijuana sales, the strapped state budget will gain $1.3 billion, Murphy has said.
Is there anything a statist won't tax?
In addition, let us keep in mind that this new millionaire tax in Teton County - which would soon become a statewide tax - is going to create a nice little tax storm for property owners. This tax is being proposed at the same time as the legislative Revenue Committee has a property tax bill on its table that would raise the taxable value of a property from 9.5 percent to 11.5 percent (except for industrial property where the tax would go from 11.5 to 13.5). With the property tax creeping upward, and this tax topping off prices at the upper end, the effect on the property market in Teton County will be enough to be felt in the community.
A tax hiker never sleeps. Don't forget that.