Curated by Melanie Cohen
Massachusetts’ plan for a “mansion tax” to address the state’s affordable housing crisis shows how more policymakers are opting for targeted tax policies rather than tackling politically divisive income or capital gains tax overhauls.
Such levies aim to ameliorate market inequities and help pay for affordable housing construction. Similar policies have been implemented elsewhere, with less-than-stellar results.
In Los Angeles, Measure ULA, created by a ballot measure in 2022, was projected to raise $900 million in annual tax revenue. It came in well short of that, raising less than $150 million between April 2023 and January 2024.
The shortfall may have been caused by some combination of the tax itself and rising interest rates leading to sliding sales of high-value real estate—with year-over-year sales of properties meeting the $5 million threshold dropping 68%.
It becomes difficult to disentangle the extent to which the tax caused the sales slump, but it’s not difficult to see how those decreasing sales undercuts the efficacy of these types of policies. Targeted tax policies pose a systemic issue: They’re beholden to the markets into which they are keyed. For mansion taxes, the revenue stream is tied to the ups and downs of the high-end housing market.
It’s easy to imagine market scenarios in which so-called “mansion” owners are disinclined to sell their homes and affordable housing remains in short supply—an overall depressed housing market can create exactly that combination of factors. In such a situation, mansion tax policies will raise little tax revenue, and tying the fate of affordable housing to it is ineffective.
Don’t expect the debate to end over to whether hyper-focused tax policies that aim to increase equity in specific market sectors actually relieve the political pressure to “do something” or strategic and pragmatic steps towards more general equitable tax reform.
As Massachusetts considers adopting their mansion tax, the outcome and success or failure of the policy may serve as a bellwether for similar policies nationwide.
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State Insights
ITEP’s Eli Byerly-Duke reviews Iowa’s shift to flat income tax, saying high-income earners will pay a lower rate than others overall.
Federal Insights
AB FinWright’s Rachel Wright and Simon Menkes review a recommendation from the Drug Enforcement Agency to reschedule marijuana, saying the move would help trim cannabis taxation but will take time to implement.
Hughes Hubbard & Reed’s Meaghan Gragg, Justin Cohen, and Samantha Lauri examine IRS art deductions, saying qualified appraisals and statement of value are key to avoiding probes.
Crowe’s Devin Hall analyzes energy tax credit transfers, noting that partnerships and S corporations must follow special rules.
Locke Lord’s David Gair reviews Thomas v. Commissioner, saying the way details are delivered to the court is important in innocent spouse cases.
Recruiting experts Brian Carrozza, Courtney Cook Hudson, and Megan Senese explain the state of lateral partner recruiting, saying hiring teams must build trust and manage expectations.
Global Insights
EisnerAmper’s Josh Pittleman discusses the appeal of Christensen v. United States, saying US expats could get more refunds if the court decision is upheld on appeal.
Arnold Bloch Leibler’s Shaun Cartoon analyzes PepsiCo’s royalties tax appeal in Australia, saying that the diverted profits tax issue has major implications for multinational companies operating in the country.
Greenberg Glusker’s Thomas Giordano-Lascari examines the United Nations’ wealth tax framework, raising concerns about such a tax’s extra-territorial reach into clients’ assets.
Osler’s Pooja Mihailovich and Leandra Gupta analyze Canada’s capital gains rate inclusion plan, saying that vacation properties and estates of the deceased would be among the most affected.
Columnist Corner
Linking property taxes with income “would be the most equitable solution” to offset regressive effects of rising property taxes, Andrew Leahey says in his latest Technically Speaking column.
Integrating tax systems with state income policy can “scale the tax burden to one’s financial ability to pay” and increase transparency, Andrew writes.
Career Moves
Andrea Isola has joined Norton Rose Fulbright as tax counsel in the Milan office.
Kendall A. Schnurpel has joined Krieg DeVault’s business practice in the Indianapolis office.
Chris Young has joined Bean, Kinney & Korman as a shareholder.
If you’re changing jobs or being promoted, email your submission to TaxMoves@bloombergindustry.com for consideration.
News Roundup
It’s been another busy week in tax news from state capitals to Washington. Here are some stories you might have missed from our Bloomberg Tax news team.
- US multinational companies may lose the ability to deduct up to hundreds of millions of dollars’ worth of losses incurred from their income starting this year under the new global minimum tax.
- Taxpayers will pay more penalties and face a greater risk of having to fight the IRS over fines they consider unfounded as a result of a recent D.C. Circuit ruling on foreign holdings.
- New Jersey companies must bring their employees back to the office at least three days a week to keep getting billions of dollars in tax breaks if lawmakers don’t take action to loosen the requirements before breaking in July.
- Opponents of the IRS proposal on donor-advised funds want the agency to withdraw and propose the rules again because they say the guidance oversteps the intentions of the law.
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