A ‘Dangerous Political Experiment’

Arguments are impending before an appellate court at New York City over Governor Kathy Hochul and Mayor Zohran Mamdani’s pied-à-terre tax amid rising scrutiny of the levy. President Trump is vowing federal action against the surcharge on second homes. It’s not clear what steps the federales could take to halt the new tax. Yet the economic case against the surcharge is becoming increasingly apparent.A “dangerous political ‘experiment,’” Mr. Trump calls the new tax. He reckons that it would “destroy what was once a great City and State.” New York’s courts are now weighing arguments that the rollout of the levy was flawed. The outcome of this round of litigation could potentially delay the implementation of the levy, but the dispute does not — yet — challenge the validity of the tax law itself. Yet legal challenges on that head could be emerging soon. As these columns have pointed out, the Supreme Court in Maryland v. Wynne ruled against a state tax regime that treated differently the income of nonresidents and residents. The Wynne precedent, from 2015, was reportedly of sufficient concern to deter Mayor Bill de Blasio from pursuing a pied-à-terre tax. There are legal questions, too, about the discriminatory implications of the surcharge on second homes.Attorney Stuart Saft’s analysis of the tax law contends that the levy is not properly termed a “surcharge.” It is, he argues, “not applicable to all the owners as real property taxes are,” but to a “subset of owners who are considered by New York City to be primary residents” and who consider themselves to be “primary residents of another state or country.” So, he asks, does New York “have the right under the U.S. Constitution to tax residents of other states”?Whether or not the pied-à-terre tax survives the gantlet through the courts, Mr. Trump’s concerns about the levy’s damage to the city ring right. “Financial, and then Social, RUIN, is a 100 percent certainty,” is how the president sums up the likely effects of the tax. A more measured, if no less troubling, appraisal, emerges from New York’s nonpartisan fiscal watchdog, the Citizens Budget Commission.“The pied-à-terre tax is appealing politically because it is levied on wealthy people with means to pay and nonresidents who do not vote,” the commission reported in an earlier analysis. “Nevertheless, it is problematic for several reasons,” the watchdog group asserted. Feature, say, how a surcharge on second homes “makes New York City less attractive to nonresident property owners who make important economic contributions that should not be overlooked.”The commission reminds that such owners “pay property, sales, and other taxes; and, they use fewer city services than people who live here.” The commission lamented, too, that a pied-à-terre will damage the city’s “luxury housing market.” That in turn would, the watchdog group says, “depress property values for residents and nonresidents alike, making the expected revenue from the tax overly optimistic.”That concern has been borne out by the facts even before the tax has begun to be collected. Mr. Mamdani and Mrs. Hochul had announced that the tax would rake in some $500 million. That estimate was off by about a third, the city’s comptroller, Mark Levine, has reported. “Revenues could be reduced to between roughly $340 million and $380 million,” he said, pointing in part to “behavioral changes” that would follow “the imposition of the tax.”The disappointing revenue from the tax can be traced to the law being rushed through the legislature. Mr. Saft has marked “the speed in which” the tax “was enacted and absence of public scrutiny prior to its enactment or a public hearing.” Mr. Saft decried the absence of transparency in drafting the tax, noting with apparent prescience that this made it more likely that the law would be “the subject of state and federal court litigation.”

A ‘Dangerous Political Experiment’

A ‘Dangerous Political Experiment’

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