Cliff Walk, Newport, Rhode Island by Giorgio Galeotti is licensed under CC.
The “Taylor Swift Tax,” passed in Rhode Island’s budget last year, took effect last week. And already, Rhode Island homeowners are beginning to feel the bad blood (or…find themselves paying the price of a cruel summer).
The tax, which was implemented as part of last year’s budget, is levied at a rate of $2.50 per $500 of assessed value on the portion of a residential property’s value exceeding $1 million. This is in addition to any existing property taxes paid by the owner to their city or town in Rhode Island. The tax applies specifically to residential properties that are not occupied by the owner or a tenant for more than 183 days each year, targeting many second homes and seasonal residences.
Democrats in Rhode Island have found yet another way to siphon money from a significant portion of their existing tax base. They justify the tax by only targeting properties that are not used as a primary residence. In doing, however, they are gambling with a highly mobile tax base that is well positioned, and highly motivated, to take their money elsewhere, despite already paying substantial property taxes.
The assumption that owners of multimillion-dollar second homes will simply absorb yet another tax increase, rather than purchase a similar property in a lower-tax state, is misguided. Rhode Island competes with Massachusetts, Connecticut, and other New England states for affluent buyers seeking second homes along the coast. By making Rhode Island a more expensive place to own a vacation property, Democrats risk pushing exactly the taxpayers they are counting on to neighboring states.
Many individuals with multiple residences are highly mobile in both their professional and personal lives. Under the “Taylor Swift Tax,” property owners must submit various proofs of residency, such as a state-issued driver’s license or income tax returns. Under unusual circumstances, which will be prevalent given the obscurity of the bill’s language, additional documentation will be required.
Rather than improving and simplifying tax policy, this makes taxes more burdensome for homeowners while increasing the administrative burden for the state Department of Revenue. State officials will now need to review thousands of residency claims and supporting documents from owners with properties valued above $1 million. This additional bureaucracy comes with real costs, increasing government spending to administer a tax that had no real purpose and fueling the perceived necessity of the Democrats’ favorite pastime: coming up with new taxes.
At the same time, Rhode Island Democrats just approved their new “Millionaire Tax,” hiking their top income tax rate from 5.99% to 8.99%. Despite a surplus, Democrats chose not to provide tax relief or pursue reforms that would make Rhode Island a more competitive place to live and invest. Instead, they doubled down on taxing the very taxpayers who already shoulder a disproportionate share of the state’s tax burden.
The “Taylor Swift Tax” is more than just another tax increase. It reflects a broader philosophy amongst Rhode Island Democrats that sees successful taxpayers as an easy source of additional revenue rather than as people whose investment, spending, and tax contributions help support the state’s economy. Coupled with the new millionaire tax, lawmakers are sending a clear message that success will be met with higher tax bills instead of a more competitive tax climate.
That is a dangerous strategy for a small state competing with its neighbors for residents, investment, and economic growth. Wealthy taxpayers and second-home owners have more flexibility than ever to decide where they live, invest, and pay taxes. Rhode Island can either compete for those taxpayers by fostering a stable, competitive tax environment, or it can continue down the path of punitive taxation and watch its tax base erode over time. Keep in mind, there are always other beaches.