Back in May, we looked at a proposal to use property taxes to pay off Illinois' and Chicago's pension deficit. In particular, its advocates noted:
The tax would be capitalized into real estate values which would prevent people leaving the state to avoid paying for the liability.
It looks like Chicago and its satellite communities may be about to implement that progressive wet-dream tax.
They figured out a way to tax wealthy folks trying to flee Illinois: A progressive real estate transfer tax, and the idea seems to be getting popular.
. . .
Chicago today has a real estate transfer tax of $5.25 per $500 of property value, but the city should stick pricey homes with a higher rate, say the authors.
They weren’t specific about what rates they favor, but the ballot measure passed in Evanston, as Crain’s reported, calls for a transfer tax increase of 40 percent to establish a new rate of $7 for every $1,000 of value for sales between $1.5 million and $5 million and an increase of 80 percent to establish a new rate of $9 for every $1,000 of value for sales over $5 million. Evanston’s current rate is $5 for every $1,000 of value.
If the concept flies, nobody knows where the rates will eventually end up.
You may remember a recent proposal by three Chicago Federal Reserve bank economists to establish a statewide property tax. Their express reasoning was that property can’t flee, so that’s what Illinois should tax. Proponents of progressive transfer taxes don’t say it, but their true rationale undoubtedly is similar. Think you’re going to sell your expensive home and move to Tennessee? Sorry, that will cost you.
. . .
This is scary stuff – seizure of property before it can escape.
There's more at the link.
You can bet your bottom dollar (if you have one left) that the Democratic Party will try to implement similar schemes in every other city and state controlled by their politicians. In this case, Chicago is the laboratory. It'll be tried there, then expanded to other jurisdictions.
The trouble is, this won't solve the problem. Chicago and its environs won't stop spending money they haven't got; they'll just use the additional tax income to spend more. This "cure" will only intensify the disease. There's only one thing that will work, and that is to reduce spending until the city is living within its means - but that would mean cutting back on entitlement programs for the voters that put the present administration into office. They daren't do that, because they know the people would replace them with others promising them the free stuff they want.
I'm very glad I don't live in or near Chicago or Illinois. If you do . . . it might be a good place to leave. Quickly.
Peter
Peter, this tax is annoying but really not significant. The rate is lower than my annual property tax. Now if it was $50.00 per $500.00 that would a major sign it is time to move.
ReplyDeleteFor Heaven's Sake QUIT TELLING THESE COMMIES TO LEAVE. They're the ones that have voted this nightmare upon themselves so let them fucking stew in it.
ReplyDeleteI lived the nightmare of CO going from a solid red state to the REgressive hellhole it's turned into. They just elected a homosexual REgressive who has promised free everything.
Right now 10s of 1,000s of people are moving into DFW and you can bet your ass that the transformation of Texas is well under way. Thank god I'll be dead before it's goes the way of CO but telling people to get out of shitholes like Chicago only speeds things up.
STOP IT!
An interesting way around this tax - mortgage your expensive Chicago house to the hilt, and use the cash to buy a red state home. Move your primary residence, then declare bankruptcy and protect the new property. Flight accomplished, no tax paid.
ReplyDeleteI don't see why this is any worse than the federal expatriation tax.
ReplyDeleteIt's a tax specifically aimed at wealthy people leaving the country and specifically says leaving for tax reasons.
https://www.irs.gov/individuals/international-taxpayers/expatriation-tax
"The expatriation tax provisions under Internal Revenue Code (IRC) sections 877 and 877A apply to U.S. citizens who have renounced their citizenship and long-term residents (as defined in IRC 877(e)) who have ended their U.S. resident status for federal tax purposes."
It only applies if your net worth is over $2 Million and your annual income over a specified amount.
They're not taxing the property - in "big picture view" that raises the price of the house and the buyers pass that on to the next buyers. They're taxing YOU and your ability to deserve a big income.
Illinois's new governor who claimed during his campaign to want to increase taxes on "rich people like me" (he inherited most of his wealth from billionaire parents) bought a mansion in his neighborhood, removed the toilets so it could be deemed "uninhabitable" to save $300,000 a year on property tax. Another crook in office. When it's value goes up, he'll reinstall them and sell.
ReplyDeleteTaxing the Rich is one of the great lies of the self styled progressives. Why? Most rich people are business owners and senior executives who can adjust the price of their goods and services to pay the progressive taxes. Who pays these taxes? We do. It's actually a flat tax where the rich have been recruited as defacto tax collectors.
ReplyDeleteNot to be cynical, but if this nonsense passes, I predict a spate of electrical failures causing house fires in the richer neighborhoods. Money will always find a way around confiscatory taxation.
ReplyDeleteThis is eerily similar to a law passed in the story If Atlas Shrugged, where businesses and wealthy individuals were prevented from moving to states with less restrictions. They had to stay where they were to "help the less wealthy states" to paraphrase. Interesting. I'm glad I moved out into the the rural prairie and Tetons when I had the chance.
ReplyDeleteWho is John Galt?
It's my guess that Illinois is following in California's footsteps; for California has extended its' Proposition 55 exit tax thru 2030 - the "temporary" 13.3% tax rate on California's "high earners".
ReplyDeleteThe idea is that you might be able to leave, but we'll fleece you as you go.
California has an additional tax surcharge on those whose income exceeds $1M/yr. I've seen two versions pass the legislature (might have missed one) that were 10% and 3%. It would appear that selling a million dollar + home would trigger that 13% tax rate.
ReplyDeleteWhat the idiots didn't consider is that each time they passed these tax surcharges, approx 1/3 of those that would be hit bailed out of the state. They are chasing away those who have money to invest.
I wasn't aware they had an exit tax.
Once again, it's the King's land and not yours. Was medevil feudalism really that bad? Quiet a scam this property 'ownership'. You get to pay exorbitant interest to 'own' it but you never really own given you are paying rent to the government eternally.
ReplyDeleteThe measure ought to work wonders for property values in the Chicago area. I expect this kind of tax to be implemented in the three western states as well.
ReplyDeleteIf this passes, I forsee a collapse in house values. People with foresight and the ability to do so will bail as soon as possible after this passes, before people realize what this means. This tax will of course depress home values for the most expensive properties - those with both forsight and ability to leave - and the lowered value of the property will cascade, drastically depressing the most valuable properties as people resist paying full price due to the perception of lowered value for the house. If you have to build in an 'exit tax' to the cost when you buy a property, you're going to want a discount of that from the cost. And, of course, as the values go down, the size of this tax will go up. The value supression will cascade and lower the percieved value of most of the households in the area, increasing unrest and unhappiness, while trapping people who cannot afford to leave that value on the table and still buy houses in other cities. Eventually, inescapably, residents of Chicago will view Detroit with envy.
ReplyDeleteWould changing the trustee on a property trust count as a 'sell'? Just wondering...sure would be an easy workaround that already helps is many ways!
ReplyDelete