During the 2020 U.S. presidential election campaign Hollywood’s A-Listers were vocal in their support for the Democratic candidate. An alphabet soup of celebrity supporters from Alan Alda to Zoe Kravitz endorsed the man who would turn out to be the most left wing President in American history.
That support is now hitting many of them right where it hurts – in the wallet. Biden has made no secret of his desire to squeeze more tax out of The Rich to fund his redistribution of wealth as he apparently prepares to run for President again in 2024. With better than expected mid-term results and the politically motivated legal action against Donald Trump, he perhaps feels he can get by with fewer votes from Tinsel Town next time around.
His acolytes in Los Angeles, including recently elected Mayor Karen Bass, have pushed through a Mansion Tax that has brought the high end real estate market to its knees ahead of the April 1st deadline when the tax takes effect. There are three components to it; a base tax of 0.45% on all property sales, plus a 4% ULA tax on properties between $5 million and $10 million and a 5.5% tax on properties sold for more than $10 million.
What does ULA stand for? It seems to be ‘United to House LA’ which itself is shorthand for the Homelessness and Housing Solutions Tax. I am sure Tony Blair came up with a name like that, presumably in return for a fat consulting fee that would go towards maintaining one of his own mansions. Inevitably, the locals in L.A. have called it a Mansion Tax while politicians are trying to position it as part of Sleepy Joe’s mission to tax Billionaires. Only in the world of make-believe Democrat mathematics could a tax that kicks in at $5m dollars be labelled a tax on billionaires.
One of Biden’s big name backers was the ever youthful Brad Pitt, though I suspect he may have grown a few grey hairs as he rushed to offload his own pad ahead of the deadline. The 6,700 square feet complex has been his home since back in 1994 and includes essentials like a tennis court and a skate park. He snuck in his sale at $39 million in late March and has acquired a much more modest $5.5 million property from the Getty family. Two million of that purchase price comes from tax saved on the sale of his former home. There goes his White House dinner invitation…
Pitt can consider himself lucky compared to Mark Wahlberg, whose massive 30,500 square feet pile was initially listed at $87.5 million. For him to accept an offer a third below the asking price, $55 million, suggests that he believes prices are coming down for the long haul because the money he left on the table would have paid the tax due several times over. The anonymous owner of a Bel Air mansion took an even bigger hit. Listed at $47.5 million, the eventual deal was struck at just $26 million. Some were not so lucky. Jim Carrey left it until February to put his long time home on the market at $29 million but failed to find a buyer. Same story for Jennifer Lopez and our own James Corden.
I can’t help allowing myself a wry smile at the thought of these woke liberal luvvies getting punched in the stomach by their poster boy president, but I fear what we are seeing is a portent of things to come on this side of the Atlantic. Imagine having the value of your main home cut in half overnight by a new tax you didn’t vote for.
The topic of a Mansion Tax has been in and out of British politics for decades now. The problem is, Kier Starmer is going to have to differentiate Labour by having some new taxes that he can claim as his own. Rishi Sunak and Jeremey Hunt have spearheaded the new brand of High Tax Toryism, no doubt causing Maggie Thatcher to turn in the grave she entered a decade ago this week. What would she make of this inept shower who have never served in a low tax, low regulation, pro business Conservate government?
With taxes already at eighty year highs, do you seriously expect a Labour government to be willing to risk lowering the tax burden on business or high earning individuals? They are bound to use the Biden language of people paying their ‘fair share’ even though they already pay massively more than most would consider equitable.
According to the latest Civitas report, 54% of the UK population now receive more in government handouts than they pay in taxes. That’s 36 million people who are taking out more than they are putting in. There are six million people of working age choosing to stay at home and watch daytime TV, while those who continue to work are paying an average of £41,000 a year more in taxes than they receive in benefits. The top 10% of earners pay more than 50% of all income tax and the top 20% pay two thirds of it. That is surely the very definition of a redistributive tax system.
Take into account the virtual removal of allowances for capital gains and dividend income and you can see the dilemma facing Kier Starmer and his shadow chancellor Rachel Reeves. How else can we soak the rich? First, they will reinstate the lifetime allowance for pensions so presumably anyone who tops up this year will face a retrospective 55% tax charge on anything over £1 million. You have to assume that higher rate tax relief on pension contributions will come back into the spotlight, presumably to be replaced by a one size fits all standard rate of relief. On top of that, my best guess would be a merging of income tax and capital gains rates with the effect of raising CGT for most people to 40%.
Which brings us back to property. That’s where most of the wealth is so you have t assume that’s going to be Target Number 1 for a new Labour government with plans to spend, spend, spend. The City of L.A. has already given them the perfect moniker that would be far more politically correct than a Mansion Tax – the Homelessness and Housing Solutions Tax. What reasonable person could object to contributing to the cause of homelessness? The only question will be the threshold at which the tax begins and the rate at which it is charged.
While the Californian tax is only payable when you sell your home, previous proposals in the UK have been for an annual tax equivalent to the Wealth Tax in France. Of course, this throws up all kinds of practical issues like how do you value the home, how do asset rich, cash poor widows find the money each year and how distorted will the market become to ensure that values stay just below the chosen threshold?
So, before you laugh out loud at the celebs who have been bitten by Biden, think about the consequences of a similar tax burden being imposed here. The odds must be shortening on a Labour victory next year as there is no sign of any breakthrough on the economy, illegal immigration, levelling up or using better than expected borrowing figures to give some tax sweeteners. It seems that Hunt is determined to do a Ken Clark and hoard lots of money for Rachel Reeves to spend in her first months in 11 Downing Street.
So, if you are remotely considering downsizing at this stage of your life, 2023 might be a better year to do it than 2024.