Note from the editor: This is a guest article and does not represent the views of FREA. It is for informative reasons only that we are sharing this article. It is a very debatable topic that can draw some clear lines in the sand with to how an individual feels about it. Please feel free to share your opinion in the comments section at the bottom. Please enjoy the article.
Despite the fact that California has some of the highest personal taxes of any state in the nation, it is nonetheless buried in debt. Governor Jerry Brown estimates that California’s current debt load is somewhere in the neighborhood of $132 billion, which has forced the government to make deferred payments to school systems, Medi-Cal patients and public employees' retirement funds. In light of these circumstances, one option the state might want to consider would be the so-called “mansion tax.”
What is the Mansion Tax?
The “mansion tax” would essentially be a levy or additional tax on homes that sold for more than an agreed upon dollar amount. A similar law has already been enacted in New York, where it has been very successful at increasing revenue throughout the state, for homes priced at $1 million and up. The best thing about this increased tax revenue is the fact that it comes from the wealthiest families who are often in a much better position to pay additional taxes than middle or lower-income taxpayers would be.
How it Could Benefit California
If figures from New York are any indicator, it seems that California could benefit tremendously from implementing a mansion tax. MSN reports that during the 2012-2013 fiscal year, New York was able to collect an astounding $259 million in additional levies. That figure was an increase of 22 percent over the previous year, and showed more than a 47 percent increase from 2009-2010, when the real estate market hit bottom.
The mansion tax in New York amounted to more than that state’s alcohol tax, and was more than double the revenue it collected in tobacco tax. As the number of homes priced at over $1 million continues to grow, the Empire State is likely to see even higher revenues as a result of this tax in the years to come.
California’s Budget and Mansions
Trulia provides some interesting numbers concerning home prices in Los Angeles - California’s most populous city. They report that the median sales price for homes is currently $485,000, which is an increase of 8.5% over the previous year. The average listing price is also currently $1,235,142, which means there are a number of homes that could be subjected to the mansion tax if it were to be implemented at New York’s $1 million dollar cutoff.
In addition, the Wall Street Cheat Sheet recently compiled figures from Coldwell Banker concerning the 10 most expensive places to purchase a home. Malibu, California topped the list, with the average home there being listed at $2,155,900. Other California cities that made the top ten list include:
· #2 Newport Beach, with an average listing price of $1.77 million
· #3 Saratoga, where homes list for around $1.68 million on average
· #4 Los Gatos, a town that has average listings of $1.36 million
· #5 San Francisco, having average listings of $1.3 million
· #7 Cupertino, where home prices list for $1.29 million on average
· #10 Redwood City, where the average listing is around $1.2 million
When looking at these figures, it’s easy to see that California stands to gain millions-if not billions-in additional tax revenue each year. Since this money would come from her wealthiest citizens, the odds are greatly reduced that it would negatively impact the economy.
Makes more Sense Economically
The mansion tax makes even more sense when you consider some of the other taxes California has imposed on her citizens. Caltax.org claims that California has some of the highest tax rates found anywhere in the country. They also claim that California has the third-worst business tax climate in the United States. This is largely due to some of the outrageous taxes imposed there such as gasoline, sales and personal income taxes that are the highest in the nation.
Accounting for Inflation
Implementing a mansion tax in California could be a very good idea, provided there is a provision in place to account for inflation. New York first implemented its mansion tax in 1989, and has made no such adjustments to account for an increase in home prices. With average homes in many areas now approaching the $1 million mark, a number of groups are calling on state legislators to modify the law so that it continues to affect only upper-class buyers.
Imposing a mansion tax could be a good idea for the state of California for a number of reasons. Doing so could allow the state to pay off a significant amount of its debt without placing an undue burden on the working class or hampering business growth.
Author Bio: Chad Dannecker is the team leader of Dannecker & Associates, which specializes in downtown San Diego condos. With over 40 years of combined local real estate experience, Dannecker & Associates has established themselves as a leading source for San Diego market information.