New York is facing a budget deficit, and lawmakers in Albany, in search for new money to fill New York’s revenue gap, are increasingly in support of a so-called pied-à-terre tax. Essentially a wealth tax, it would add a surcharge to second homes in New York.
But business proponents like Kathryn Wylde, president of the Partnership for New York City, think levying such a a tax on the rich could backfire. Wylde particularly worries about how such a tax would be received in the business community.
One possible cause for the state’s revenue shortfall, along with stock market volatility and general economic slowdown, is out-migration of wealthy New Yorkers reacting to changes in federal tax law in 2017, in particular the cap on state and local tax deductions.
City & State caught up with Wylde to talk about the prospect of a pied-à-terre tax, how to fund improvements to the subway system, and what she likes – and doesn’t like – about Gov. Andrew Cuomo’s budget. This interview has been edited for length and clarity.
Previously you seemed to support a pied-à-terre tax, or at least a similar tax on wealthy New York City residents. Why did you change your mind?
The nature of the tax changed, and the times changed. I think the passage of the federal tax act and the elimination of state and local deductibility have created a huge amount of uncertainty among high earners generally – who pay half our income taxes and a good share of our real estate taxes – about whether it’s worth it to stay in New York, from a tax standpoint.
So I think the timing for pied-à-terre – to pass it as part of this budget right before the first time the SALT impact will hit – is not great.
Don’t policy experts generally reject the claims that this tax would make a large number of people change their mind about buying property in New York?
Policy experts on the left say that. Other policy experts do not say that. Call E.J. McMahon (of the Empire Center for Public Policy), and ask him about the out-migration studies.
Can you say a little bit about that?
Well, I’m not the defender of an elimination of the tax either. I am just trying to explain why, at this point in time, that another tax that sounds punitive on the wealthy comes at a bad time.
There is discussion about, rather than making the pied-à-terre tax an ongoing and annualized increase in overall taxation, having it be a one-shot transfer tax (i.e. when you buy the apartment you pay it) which was the original one – the one that I supported.
What was the structure of the version you supported?
The one I supported was a one-shot tax. You knew upfront that you were buying an apartment, and you were going to pay a tax. You didn’t get hit with a new assessment midstream. The original pied-à-terre tax was structured like a mansion tax.
It was a one-shot tax, as I understood it. This tax strikes me as more punitive. It’s an ongoing tax. It’s not when you acquire an apartment, so it’s taking advantage of a situation where people have already invested.
Some say that this is just a way to get billionaires to pay their fair share in property taxes by taxing the most valuable properties at a rate closer to their market value. Is this accurate?
It’s really not because these properties are paying taxes at the basis of their assessment. What’s wrong is that we ought to change the assessment practices, particularly on co-ops, which is where the problem is. There are a number of underassessed, high-value apartments, but that’s because of current real estate law, not because anybody’s avoiding taxes. That has to be changed, and I certainly support a change in that law.
Cases like Kenneth Griffin, who purchased the Central Park South apartment for more than $200 million, are driving the renewed interest in a pied-à-terre tax.
Residents and policymakers are trying to find a way to get more financial benefits for lower income New Yorkers from second-home purchases like this one.
Totally! And I totally agree. And we could look at luxury good taxes, sales taxes on luxury goods, because a huge amount of those are bought by non-residents.
I think we should be thinking about lots of creative ways to raise revenues. I don’t disagree with that. I’m just saying that we need to better understand what the sensitivities are.
Right. And as the head of an organization of business leaders, you know better than me what those sensitivities are and what suite of tax reforms business leaders would support. What do those reforms look like?
We’re talking now about taxes to support the MTA and the subways. We are leading support for congestion pricing, which our members will pay, but they’ll also get the benefits of reduction in traffic and of a better transportation system for themselves and their employees. So, that’s a clear value proposition.
It’s not aimed at any particular group. It’s not a tax on you because you committed the sin of being wealthy. It’s a tax if you choose to drive your vehicles into the Manhattan central business district. So, we’re supporting congestion pricing. We think that’s the right way to go and can raise $15 billion over the next ten years for the MTA.
We were strong supporters of the payroll tax, which was enacted in 2009 to fund the MTA’s current five-year plan, and every employer in the region was asked to pay a percentage of their payroll to support the MTA. We led support for that tax.
Importantly, local corporate payroll tax is still deductible at the federal level, so that is a tax that the federal government is still honoring and not double-taxing. There’s a logic to what we support. We’re not anti-tax unlike some business organizations.
Let’s shift the conversation a little bit. I saw the letter you released on behalf of your organization about lifting the cap on charter schools. Can you expand on that letter and your support for charters?
Yes, so we have been supporters of charter schools from the beginning. The charter schools were authorized in New York state at a point before we had mayoral control of the schools and when the schools were in terrible crisis.
We saw charter schools as offering a laboratory for what reforms and what educational improvements were needed in the public schools. We’ve continued to support the expansion of charter schools as they’ve proven to be a great option for residents of low-income communities, in particular, where the district schools have not performed universally well.
We also support public schools, however – the district schools – so it’s not an either/or. We just think that charter schools are an important option to keep out there so that there is an opportunity to innovate and try new approaches to education or tailor the educational experience to something beyond what the Department of Education is currently offering.
I want to ask you about the Gov. Andrew Cuomo’s budget –
Is there anything in it that you want to highlight that particularly appeals to you?
Well, yes. It appeals to me that the governor’s continuing to focus on capping increases in expenditures, which is important.
And what are your biggest budget concerns?
I guess what we’re most concerned about is the federal threatened cuts in health care – to health care and hospitals – and what impact that’s going to have on the state budget. We support the fact that they have generally tried to keep a lid on tax increases.
Anything else that stands out to you?
The biggest other concern we have is with the prevailing wage provision in the budget that could make it more difficult to do affordable housing and economic development projects that rely on tax incentives and would subject them to 20 or 30 percent increase in costs. That’s our biggest concern, I would say.