Rhode Island lawmakers created a new surcharge on second homes worth more than $1 million as part of the budget enacted this spring. These lawmakers recognize the important reality about beautiful coastal properties: a vacation town is nothing without the town.
Critics quickly dubbed the surcharge the “Taylor Swift tax” because of her ownership of a historic home there. We’ve seen no comment from Swift herself, as paying a fraction more in real estate taxes would not in any way change her quality of life. But even less affluent 1-percenters who are wealthy enough to buy a million dollar second home can obviously afford to pay their share.
Take Taylor Swift’s Rhode Island property, Harkness House. The house is in Westerly, Rhode Island, a community first incorporated over 350 years ago. The 23,000-person town is held together by – and supported by the tax revenues of – the thousands of full-time residents who live and work there year-round, in addition to the summertime tourists who flock to the Atlantic shore. The town would not cease to exist if wealthy people stopped buying homes, nor would the wealthy stop vacationing in these idyllic locations.
Ski towns across the Mountain West are also grappling with extreme wealth conflicting with community needs. Rising costs of housing have led to more long-term rentals shifting to vacation homes, forcing workers in the service industry to live in distant locales or precarious housing situations. The severe lack of workforce housing is leading Republicans in Congress to consider auctioning off public lands for sprawling housing development – which experts note lack basic services like running water, sewer systems, or roads. The idea of building new housing in remote locations is much more complex than building workforce housing in city limits to house ski resort employees.
While critics – particularly real estate brokers – have argued that taxes on expensive second homes “punish the most important local spenders” by “driv[ing] away affluent homeowners,” they tend to speak in theoreticals. The reality is that these places are appealing to high-income people explicitly because of the things that make those towns unique. These are vacation spots where the local vacation economy would collapse without the service industry supported by retail workers, restaurant workers, hotel workers, housecleaners, and gardeners who live in these communities year-round.
Wealthy people who want these vacation locales to continue to exist should be paying their fair share through surtaxes like the Rhode Island tax, or through marginal rate mansion taxes. Our 2024 mansion tax report examines 17 cities and counties with existing mansion taxes, highlighting best practices for designing effective and progressive taxes. States should also join multistate compacts to mitigate tax avoidance or gaming the system by wealthy property owners. These types of taxes aid local tax progressivity and can be targeted to ensure the long-term viability of the communities that the wealthy claim would never exist without them.
