To maintain our civil society, we must currently increase revenues. and one way we could do that is to extend the application of Mass sales tax to land transactions.
It is only fair to tax the sales of the rich as well as the poor.
This could be done simply by clarifying http://www.malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter64H/Section6 part (g) to specifically tax real estate sales, in addition to the deed excise tax. Indeed, it is not clear from the law that real estate sales are currently in fact exempt from Massachusetts sales taxation.
This might be expected to generate, at a median price of $293,500, and a count of 34,952 home sales on the MLS in 2011, taxed at 6.25%, yearly revenues of around $641,000,000.
In effect, taxing real estate sales collects some of the location value provided to the seller by the community.
Expand the scope of the sales tax to include real estate but also cut the sales tax to 2-3%?
[2011] “Receipts from the sales tax totaled $4.905 billion,” /0.0625= $78.48billion + ($293,500 * 34,952 = 10.26billion) = $88.74billion * 0.025 =$2.22 billion
So going from sales tax of 6.25% without real estate to 2.5% on everything loses (4.905 -2.219)billion = a loss in state revenues of $2.687 billion in 2011
You could make the rate 5.5% and it would be revenue neutral.
I won’t question that, but patrick, I’m trying to raise revenues so we can have an education system that gives all kids a fair chance to succeed, and so that we can afford police and fire protection.
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to give their children an equal chance. Giving all children an equal chance is in all our long-term interests, because talent arises rarely, but heedless of parents wealth, and talent integrated with society advances society, while talent unintegrated eats society for lunch.
If you sell your house for more than you paid for it you pay capital gains tax just as you would on the sale of a stock. There’s currently an exemption for up to $250,000 in gains on the sale of the home for MA and Federal taxes. The MA rule only applies if it is your primary residence – “the rich” buying or selling investment property and summer houses must pay the capital gains tax.
If the median sale is $293,500 that adds $18,343.75 to each sale. A quick look at a mortgage calculator tells me that adds $117/mo to a 30yr 5% note.
I’m fine if you take away the $250,000 exemption on gains, but to put a sales tax on real estate transactions is a bad idea. Property taxes in Massachusetts are bad enough – a sales tax on top of it puts home ownership even further out of reach.
We can either let our communities erode further, thus futher eroding the value of our real estate”s location, or we can act to have a civil society by creating a means to pay for it, and perhaps add more than $18K of value to a median property by having it be in a place you’d like to live.
If sales tax is bad for the rich, how is OK to charge to the poor who never buy homes?
5.25% on some household items or entertainment purchases isn’t the end of the world, but 5.25% on a regular family’s house or condo? That’s insane. On a 300,000 property, that’s close to $16,000 bucks. What on earth makes you think the average family could afford that? In the end, all it would do is get rolled into their mortgages, which means they’d probably end up paying something like $45k in costs for that tax, when all is said and done.
That would do tremendous damage to families, the real estate market and the entire housing industry.
Now, if you wanted to apply that to homes over a $1 million, I think I’d be okay with it… but that’s about it.
I’m all for raising revenue. Let’s just do it fairly. Start with the gas tax to pay for transportation expenses and/or a small increase on the income tax.
How is an increase in the gas tax and the income tax more fair?
The gas tax directly applies to the transportation system. While it’s not the most progressive tax, insofar as it’s a ‘flat’ tax, at least it serves a direct purpose and helps the middle and working class more than the SUV-pot-holes-don’t-matter crowd, or the helocopter-pad crowd.
Moreover, the gas tax has a clear and easy workaround for people: carpool and/or drive less, and serves a core policy goal of improving the environment and getting rid of our dependence on foreign oil.
Applying the sales tax on homes would have no such ‘workaround’ for families that can’t as easily afford the tax, and serves no such policy goal. In fact, as I laid out, it would the biggest core policy goal in government today: creating jobs, by creating a huge (!) tax on one of the most important drivers of the economy, development.
Sorry, but this is just ridiculous. Stop thinking of ways to get more money from the working poor and middle class and start thinking of ways to tax the top 2%. If our taxes get increased one more time by Democrats while the top 2% remain the beneficiaries of these regressive taxes increases, I swear I’ll never support another Democrat for the rest of my life.
I’m not sure this one would be easily enforced, though.
It’s a claim you make but do not back up.
The truth is that taxes are mostly pretty arbitrary. How is yours better?
By the way I could see a small real-estate-transfer tax with revenues available for green-space preservation, affordable housing, and other mitigation of the effects of development. I could make the case that it’s “fair” if I had to, but would rather explain why it would be good.
Sales taxes on retail items are regressive – they hit the poor hardest, as a percentage of wealth, or of income. Arbitrarily leaving real estate out of the sales tax worsens the effect. If we’re going to tax retail sales, it’s only fair to also sales-tax real estate.
and for the same reason, the 1%’s 25-million-dollar second home is a smaller share of wealth than the 99%’s 400k house.
The “if we’re going to tax blah lets tax bluh” argument is exactly the sort of pseudo fairness argument I find unconvincing. Houses are not the same as, say, toothpaste, or yachts. Why should we tax everything exactly the same? What’s “unfair” if they are not?
Incidentally opponents of the proposed real-estate-transfer tax in the legislature had equally high-faulutin’ (and to my mind specious) arguments that such a tax would be UNfair. It’s an easy game to play but leads nowhere.
I’d like to offer two short adjustments to address the issue of “fairness”, while ducking the more important question of whether I support this or not: (1) You’ve used “median” (instead of “mean”) to arrive at your $641M estimate — understating the actual revenue raised — and (2) you could impose a “floor” by exempting the first $250K/500K (single/married) following the capital gains example.
The effect of the exemption is to focus the new tax on the upper end of the distribution. One sale at $3M provides the same tax revenue as 10 sales at $300K, so an exemption at or above the median price has the desired effect of making this increase progressive (instead of regressive). The real estate market in Massachusetts is heavily skewed towards the top (the mean is significantly greater than the median), and so the actual tax revenue opportunity is greater than the $641M offered.
I think that the concept of including real estate (above certain thresholds) in the sales tax is at least novel and interesting and worth further discussion.
Since one point of the sales tax is already dedicated to public transportation, this approach offers a direct way to address the MBTA budget deficit. Since real estate prices are higher in the Boston metro area, this also focuses the revenue gain in the areas directly served by public transportation.
While I hear and understand the double-taxation question (capital gains and sales), I’m not that bothers me so much. Similarly, I’m not sure I’m very bothered by the condition of the real estate market — this is a brutal economy, and people who are buying and selling multi-million dollar homes can better afford to pay more in taxes than the rest of us.
Massachusetts is a wealthy state, and much of that wealth is concentrated in Massachusetts real estate (and I mean multi-million dollar estates in Brookline, not condos in Lowell or single-families in Athol). I like the idea of taxing that wealth, whether through this or some other means.
[I wrote this on the MBTA thread]
The sales tax applies [in general] to consumables. We don’t resell very many of the things for which we pay sales tax. Meals, clothes, and so forth. Sure, there are a few heirlooms and some durable goods like furniture, but not much.
Real estate is different. We all intend on reselling our real estate, either directly or indirectly. Even if one of our children move in when we die, it’s still a transfer of ownership. We don’t charge sales tax on stocks or bonds or …
Exempt the first $1M and let’s talk about it… and don’t forget commercial property…
When you trade in a car at the dealer, you pay sales tax on the net between the new car price and the trade-in value (note that if you do private sale of your car you end up paying additional tax on the value of your sale). Applying this to real estate, seems to me that your proposed sales tax would only apply to the difference in cost of new v. cost of old house. This is far more complicated from a tax standpoint than what you are proposing.
Note also that sales tax is paid by the buyer, not the seller. And given that the full hit would only apply when you start the real estate purchase train, what you are proposing would essentially only apply to first time home buyers. Try selling that one to Beacon Hill or to anyone else.
Try rethinking this with a significant ($250K? $500K? $1M?) exemption.
First-time home buyers aren’t in this market. I’m not sure that buyers in this price range necessarily sell another property first, and I don’t see a particular need to net the sale for tax purposes anyway — that sounds like a sop to auto dealers to me.
Finally, as stomv writes, don’t forget commercial property.
with a $500K residential exemption, and some other appropriate commercial exemption, which I’d leave to people who know more about commercial real estate for small and smallish businesses.
False premise. Our historical tax collections are returning to their historical normal (~15% of GDP). The problem is consistent deficit spending, not a lack of revenue.
We need to educate our children more than we were educated, because science has progressed since we we young. This is one of the reasons we need a larger government share of GDP than was historically present.
Education needs to embrace efficient models of pedagogy and technology, just like everyone else. There’s no rational for public education to capture any increased share of GDP without a demonstrable justification and return to society (and no, a vague “we need to educate our children more” doesn’t cut it). Frankly, due to demographics (trailing off of the the “baby boomlet”) and use of technology we should be looking toward reducing the share of GDP allocated to education, not increasing.
The idea of raising real estate sales taxes in Massachusetts raises ire as well. Many seem to feel threatened by rising home costs, yet do they feel threatened by degrading education, fire and police protection? Perhaps we feel safe in our homes, until costs rise, yet unsafe in our neighborhoods, as if we’re unattached to the events beyond our door. Are our homes certain protection from fire, from increasing crime (due to both worsening unemployment and worsening education)? Of course not. Much of the protection we enjoy in our homes is due to the efforts of the community within which our homes lie, including town, state and national communities.
Why is a median Massachusetts home worth about $350K while in Maine the median price is about $175K? It’s mostly location. What about location provides so much value? It is that location is location in regards to community: in other words the difference in value between the median house in MA and ME, or between MA and Bosnia or Korea is to a great extent due to the work of communities of people, often through their governments. And that community-provided-value, while it can taken advantage of by an individual’s real estate sale, can not be created by an individual acting alone, or a family acting alone. That value is due to the communities’ work, and as the representative of the community, the government has a moral claim to some of that community-provided value.