“Governor Baker seeks big real estate sales tax hike to fund climate programs“
reads the headline in the Boston Globe. This is a totally bogus claim by Baker. What he is really saying is he wants more money to spend on infrastructure but he doesn’t want to come across as raising taxes on us because his recent re-election campaign opposed tax and fee increases. This latest tax hike is camouflaged as a “climate-change” necessity in order to make the tax hike more palatable to our climate-change sensitive citizenry. There is already so much waste in our state budget and now there’s going to be more; and this latest round of tax hikes is going to affect you more than others. If you have sold a property in Massachusetts, you know that sellers pay a sales tax from the proceeds of the sale.
Under current law, a home seller in most parts of the state pays $4.56 in transfer taxes per $1,000 of a purchase price. That means for a $500,000 home sale, a seller pays a $2,280 tax bill. If Baker’s proposal passes, the transfer tax rate would jump to $6.84 per $1,000, meaning for the same $500,000 sale, the tax bill balloons to $3,420. On Cape Cod, where the excise tax is lower than the rest of the state, the increase is actually more dramatic under Baker’s proposal. The $3.42 per $1,000 of a purchase price home sellers currently pay would jump by 67 percent to $5.70, or $5,700 on a $1,000,000 sale. Regardless of where you live, this is a problem that Charlie has not thought through.
Greedy Charlie has seen property values reach their highest levels and so now he thinks that this is a cash cow ripe for milking. Here’s why this is an unfair tax:
- No one else is contributing to the cost of improving the things Baker says is needed "because of climate change" - not renters, not tourists, not anyone else besides property sellers.
- If you bought your house 30 years ago for $150,000 and finally paid off your 30-year mortgage with a 5% interest rate, you will have paid $140,000 in interest on top of the $150,000 purchase price. Therefore, you won't really see a nickel of profit unless you are paid more than $320,000 for your property. It would appear that you can afford to pay $2,736 sales tax on a $400,000 sale price. However, what if you need every penny of the proceeds for medical care?
- However, assume you buy this same house for $600,000 today. Assume the house appreciates 4% per year = $75,000. Assume you need to sell in 3 years. With a 5% interest rate, you will have paid $88,000 in interest after 3 years which means you will have invested $688,000 in your home. If you sell it for $675,000 less $37,000 cost of sale expenses, you only end up with $638,000 vs the $688,000 you would have already invested in home ownership - virtually a $50,000 loss. Thankfully, your mortgage balance would only be $572,000 so you wouldn't have to pay to sell your property. With Baker's new tax hike, that would increase your loss to $51,600.
- BUT, short-sighted Charlie doesn't realize that market values are about to drop, or perhaps doesn't care if they do. There won't be a 4% appreciation rate to factor in over the next 3 years. In 3 years, values will be less than they are now and possibly dropping by 4% annually!! Your $600,000 property might only be worth $550,000 when you go to sell it. Assume the same mortgage figures and a sale price of $550,000. You will be UNDER WATER! You won't be able to afford to sell because you will have less than $520,000 to pay off your $572,000 mortgage... unless you can afford to write a check for $52,000 to sell. Oh, and don't forget Charlie's additional $1,600 climate change tax. You now have to write a check for $53,600. Your only reasonable option in this scenario is to rent your property out... hopefully for more than your mortgage payment.
- Then you have ignoramuses who think that sellers will have to ask for more in order to cover the cost of the additional tax. WRONG!! Property values are not determined by what the seller wants or needs. Sellers can only get what buyers are willing to pay.
I could go on and on but this post is already too long. Suffice to say, this is a bad tax and should not be passed even if it's dressed up as a desirable climate-change necessity.