Taxing Tuesday: Gaming, Chicago Mansions go Downscale, and Dumbass Tax Research
Let's bring the gang back together
Time for (tax) Timer!
A hunk of government cheese, that is!
Gaming and Public Finance (but mostly gaming)
I am a regular listener to the Public Money Pod with Liz Farmer and Justin Marlowe, and I’m kind of sad when there aren’t new episodes. But I understand most people will find episodes on accounting or water use planning boring so I’m generally not sharing them with y’all.
(looks around at where we are)
ANYWAY, I think you might find this episode interesting:
We cover the state of play in interactive entertainment (i.e. video games) with Professor Joost van Dreunen from NYU's Stern School of Business. He tells us how video gaming is different from entertainment and music; what video gaming means for state/local fiscal policy and economic development; how we might regulate the industry; and why we need more video gamers in government. In Ripped from the Headlines, we discuss how the Wayfair ruling has allowed state and local governments to adapt state/local tax policy to the digital world generally, and video gaming in particular.
Of course, I’ve been gaming since my dad bought an Atari in the early 1980s, and I have a child majoring in video game design right now.
I didn’t object when she told me she wanted to major in the topic — I knew it was a huge industry, and if you listen to the episode (only 40 minutes!) you’ll find out just how big it is in annual revenue.
You can understand why state and local governments are salivating at the prospect of getting a piece of that action.
Checking in on Chicago: Taxing Commercial Property Sales?!
I’m partly doing this because I gave a talk to one of Bill Bergman’s classes at Loyola yesterday, which reminded me how I like dunking on my Chicago friends and the crappy state of their finances.
Eric Allie always depicts it well:
Hmmm, how is that mansion tax idea doing?
Wait… it applies to commercial properties, too? Does he understand why this is a bad idea?
Despite its characterization as a “mansion tax,” Chicago’s new real estate transfer tax applies to both residential and commercial properties. Commercial real estate experts fear that the tax could have a chilling effect at a time when that market is already struggling. According to Crain’s Chicago Business, in the first half of 2023, commercial property transactions totaled just under $5.3 billion – a 51% decrease from the same period last year. This could be particularly detrimental to the development of multi-family properties. The tax hike could make buyers less interested in purchasing property in Chicago, and developers less interested in building. If commercial real estate developers are discouraged from building in Chicago, achieving a proper supply of affordable housing could be challenging.
So as not to step on my day job, I’m not going to explain the difference between residential and commercial real estate, and why it is really stupid to tax commercial real estate transactions in this manner:
Currently, all buyers in Chicago pay the same transfer tax at closing equal to 0.75% of the purchase price. The new transfer tax has a graduated approach, which also differs from Brandon Johnson’s original plan during his campaign which would have increased the transfer tax to 2.65% for all transactions over $1 million. The final law applies three tiers for the transfer tax:
Property sales less than $1 million: transfer tax would be lowered to 0.60%.
Property sales between $1-1.5 million: the tax would be increased to 2.0%.
Property sales over $1.5 million: the tax would be increased to 3.0% (which is quadruple the current rate).
Chicago would have one of the highest “mansion taxes” in the country. In comparison, Los Angeles recently enacted a 4% transfer tax on properties that sell for over $5 million and 5.5% on properties that sell for over $10 million (note: Los Angeles County’s “mansion tax” similarly applies to commercial properties). Connecticut imposes a tax of 2.25% on properties that sell for over $2.5 million. And in New Jersey, the transfer tax is 1% on properties sold for over $1 million.
Commercial real estate transactions can be extremely complicated, and Trump notwithstanding, there are people involved who are very sophisticated and will optimize the hell out of aspects of transactions to avoid a step up in costs. There are all sorts of interesting sales structures.
Finally, $1 million in Chicago — what will that buy you? Let’s see!
2,500 square feet! HYUUUUUGE!
It took me some effort to find a free-standing, detached building like that. Most of the $1M listings in Chicago look like the one below:
Just some condo. And that’s in a relatively low-rise building. 2,400 sq ft.
Now, these are graduated amounts, so it’s just adding marginally at various breakpoints, but with interest rates increasing, perhaps it would have been better to keep the rates level.
Of course, we all know why they are desperate for this revenue.
Why Won’t Those Evil Rich People Let Us Redistribute Their Wealth?! WHYYYYY?!
And in today’s dumbass tax research based on envy: Billionaire tax needed to tackle inequalities, says EU research group
A global minimum tax on billionaires equal to 2% of their wealth could raise close to $250 billion (around €235.6 billion), the EU Tax Observatory estimated in a report released on Monday.
The measure would affect fewer than 3,000 individuals, but the group says the revenue could help governments to invest in key areas such as health care, education, and climate policies.
According to the Observatory’s calculations, billionaires' personal tax in the United States amounts to about 0.5% of their wealth.
In France, a country with relatively high taxes overall, this figure is as low as 0%.
I’m sitting here … appalled.
Let us forget about all the legal/constitutional issues with this.
Let us forget about the deadly sin of envy.
I can start going down so many issues, but let me start with the easiest:
What is the nature of these 3,000 people’s supposed wealth?
Is it based on real assets? Like gold ingots? Real estate? Commodities?
Or is it based on a percentage ownership of a company? Especially a company that’s privately held?
Something with huge unrealized capital gains that can easily become unrealized capital losses… were you thinking of giving them huge refunds in those cases?
I want you to go away and think about that for a while.