NEW YORK CITY — Mayor Bill de Blasio proposed a "mansion tax" on the sale of properties valued at $2 million or more to fund affordable housing for 25,000 senior citizens during budget testimony in Albany on Monday.
De Blasio, linking the state of affairs in New York City to the decisions of the administration of Donald Trump, said the tax is necessary given the political environment.
"The wealthiest among us have every reason to expect a major new tax break at the federal level given the proposal already put forward by President Trump and the Congress," de Blasio said. "We think in light of the fact that the wealthiest will be receiving a substantial federal tax break that it's time they pay their fair share in state and local taxes."
Under the mayor's proposal, a 2.5 percent property transfer tax would be placed on residential sales above $2 million. The Office of Management and Budget projects that such a tax would raise $336 million in fiscal year 2018.
The tax would be used to fund a Section 8 voucher-like program for 25,000 senior citizens that would keep their rent locked at affordable rates, or no more than 30 percent of their income.
The apartments affected would be existing units that would be subsidized. The 25,000 seniors affected would be in addition to the 200,000 units of affordable housing that the mayor has projected to create or preserve by 2024.
"The people who would be affected certainly can afford this additional tax and the revenue would be used to keep 25,000 seniors in their home at an affordable level," de Blasio said during his testimony.
A similar proposal by de Blasio to tax homes sold at above $1.75 million failed to gain approval.
►READ MORE: Homebuyers Will Find Ways Around Proposed 'Mansion Tax,' Experts Say
Doug Turetsky, of the Independent Budget Office, said many purchasers of luxury apartments avoid the city's mortgage recording tax by paying in cash, buying overseas or purchasing a co-op that isn't subject to the tax.
"So this proposal enables the city to level the playing field, making the purchase of luxury apartments subject to a similar tax burden as exists on the sales of more modestly priced apartments," Turetsky said.
James Parrott, deputy director and chief economist of the Fiscal Policy Institute, said de Blasio's logic makes sense.
"Given the likelihood of some reduction in federal housing funding, it makes sense to seek replacement revenue sources and the modest increase in the mansion tax the city proposes is a sensible alternative," Parrott said.
De Blasio's proposal comes as Albany legislators are considering extending, but not raising, the millionaire's tax, which hikes the top tax rate for individuals who earn more than $2 million to just under 9 percent. Cuomo has included an extension of the tax in his budget proposal.
State Sen. Liz Krueger, questioning de Blasio about the tax, said the extension of the millionaire's tax and the addition of the mansion tax won't hurt the wealthiest New Yorkers.
Expected federal tax cuts for the wealthy "will translate, when we do the math I assume, to be a significant reduction in people's federal taxes," she said, which will "translate into less money available from the federal government for the programs we depend on."
De Blasio agreed, saying that the mansion tax would be a good idea even if the wealthy do not get a federal tax break from Washington.
"I would argue, senator, even if nothing changed on taxation, this would be fair to ask those who own homes of $2 million or more to do a little more to help seniors who built our city, built our state and are now struggling to have housing," the mayor said.
The one complication of the mansion tax, said Jonathan Miller, a real estate expert with Miller Samuel Appraisers, is that it could impact sales activity and pricing trends.
“What I find when you have an arbitrary threshold, you see a clustering just below the price and then a big gap before another cluster of activity. So, you’ll see a lot of deals at $1.99 million, not a lot at $2.05 million and then it resumes at $2.1 million," Miller said.
In a soft market, he said, the impact might be greater, but the market at $2 million, is still moving “fairly quickly” at that price point in Manhattan, with sales generally strong below $3 million.
“I don’t know if $2 million buys you a mansion in Manhattan," Miller added.
