New York City's Pied-à-Terre Tax: Mamdani's Heavy Foot on High-End Second Homes

If you own a multimillion-dollar apartment in New York City but don't live there full-time, prepare to pay for the "privilege." New York City's (NYC) new pied-à-terre tax imposes an additional tax on certain expensive residential properties that aren't their owners' primary homes. A recent appeals ruling has allowed the city to proceed with implementing the tax while the legal battle ensues. The targets may be wealthy enough to make the policy politically appealing, especially in this political climate of "eat the rich." But none of this answer the more important question: Is taxing pied-à-terres actually a good idea? 

At first glance, the pied-à-terre looks like just another property tax, except on high-end real estate. In the case of pied-à-terre, it asks the question of what is the primary residency of the property. A $10 million apartment in NYC, therefore, receives very different tax treatment based on whether the owner lives in NYC or another state. 

That distinction matters because it creates an incentive that doesn't exist with a regular property tax: change the property's status and you may change the tax bill. And this isn't a trivial surcharge. The NYC Comptroller's analysis estimates that the tax could increase the property tax burden on a $10-15 million home by 89 percent, and on a $25 million home by 261 percent. 

The NYC Comptroller shows how consequential the behavioral changes can also be. Once accounting for a behavioral change due to this incentive, the estimated revenue drops from $500 million per annum to as much as $340 million, or 34 percent. 

That should be a warning sign for those who thinks the pied-à-terre tax is a gold mine. The more a property tax depends on how taxpayers use, classify, or structure their property, the more opportunities it creates for behavior to change in response. 

France is a fine case study showing what happens when you do that. Since 2015, French municipalities in areas with housing shortages have been permitted to impose a purchase on the housing tax for second homes. A recent study in the Journal of Urban Economics found something interesting. While the French tax did raise revenue, there was also a substantial decline in properties categorized as second homes. 

This matters because the government incurred the administrative burden of distinguishing between the primary and secondary residences without necessarily getting the behavior it wanted in return. If the property de facto remains a second home, the tax has produced compliance costs and distorted the owner's decisions without putting another home the market. 

Even better, NYC has been down a similar path before. NYC eliminated a property-tax abatement for non primary residence in 2013, especially those worth more than $5 million. As a Tax Foundation study shows, nonresident ownership fell by 0.6 percent for every 1 percent increase in tax liability. The effect was half as large for properties worth less than 1 million than it was for properties worth more than $5 million. 

The average New Yorker might ask why they should care about rich people getting their second homes taxes. The answer is that the city does not merely tax these people. It benefits from having them here. Second-home owners pay taxes but consumer fewer public services than full-time residents. Their income and spending in New York can generate additional tax revenue, while their presence effectively spreads the cost of government across a larger tax base. This is why the Tax Foundation warns that the tax could backfire if it causes enough wealthy nonresidents to give up their second property altogether. 

The pied-à-terre tax is not simply about the rich. France and New York have already shown that taxpayers respond when government changes the incentives surrounding property ownership. Those responses aren't costless. Money spent restructuring ownership, changing how a property is classified, or making different investment decisions is money and resources diverted from other uses. 

Economists have long recognized that these avoidance, compliance, and substitution costs as real costs of taxation, not merely transfers from taxpayers to government. The average New Yorker may never see those costs on a tax bill, but they are still costs borne by the economy in which New Yorkers live.  

Mamdani has decided that distorting the housing market is an acceptable price for taxing people who are politically convenient to tax. But "Eat the Rich" is not a substitute for sound economic policy. New Yorkers deserve better. 

Washington Propping Up the Yen Won't Fix Japan's Monetary Woes

In response to the weakening yen, the U.S. Treasury decided on July 31 to commit up to $10 billion to prop up the yen. The yen initially strengthened upon the news. But it begs the question as to why America came to the rescue. It's not like Japan is some weak, unstable country. Japan is a sovereign and developed nation with one of the world's largest economies. Plus, it's not like Washington doesn't have enormous deficits, a national debt that has exceeded $40 trillion, and the U.S. Treasury has its own problems. 

Neither is this an isolated incident. Last year, the U.S. Treasury allocated $20 billion for a currency swap with Argentina. I know a currency swap is different, but it makes me wonder if Washington should be the currency backstop of every country that shows the slightest hint of struggle.

From a look at the data, it looks like currency intervention does something, at least in the short-term. A study from the International Monetary Fund (IMF) examining 26 countries shows that intervention can affect exchange rates positively in the short-run. Plus, the IMF points out that Japan intervened twice to prop up the yen in the 1990s. Guess what happened? Those gains were reversed within two weeks. 

Granted, that doesn't tell us what will happen this time. But if past economic history is any indication, the effects are likely to be temporary and should not substitute for macroeconomic adjustment. So if intervention simply buys time without fixing the underlying problem, what happens when it wears off? 

Japan can either allow the yen to return where market forces push it, or it can intervene again. If it chooses the latter, we could end up with a cycle of "yen falls, governments intervene, yen rises, intervention wears off, yen falls again." Sounds like a blast, doesn't it? 

This isn't theoretical. The yen is already showing signs of weakening. As of August 12, it was trading at around ¥159 per dollar, after briefly being at ¥155 per dollar at the beginning of the intervention. That doesn't automatically mean Japan will run out of money or that the intervention was necessarily unjustifiable, but it makes me wonder how many times governments will intervene in response. 

What began as a one-time rescue can turn into dependency, and that is where moral hazard enters the scene. The basic problem is one I discussed when Washington was deciding whether to bail out Silicon Valley Bank in 2023. The problem with rescuing people from the consequences from their decisions is the incentive created for the next decision.  

If Japan can count on the U.S. to help support the yen whenever it comes under serious pressure, some of the consequences of Japan's economic policies are de facto being insured by Washington. That could reduce the pressure on Japanese policymakers to make difficult choices. The IMF is similarly concerned about moral hazard because investors may become less inclined to protect themselves against currency losses. The IMF also recommends against using currency intervention as a way to avoid monetary or fiscal adjustments. 

Speaking of which, Japan is avoiding its own adjustments. As for what those are, they are not mysterious. The American Enterprise Institute points to Japan's massive debt and low interest rates as major culprits. The Brookings Institution takes it one step further by arguing that Japan has capped long-term government bond yields, which transfers those bad fiscal dynamics into the yen further. 

So what happens after the U.S. spends its $10 billion? Japan will still have a ton of debt. It will still face its interest-rate dilemma. And investors will still be staring at the same fundamentals as they were before the intervention. 

In short, the U.S. government will have spent billions trying to fight market forces, but it cannot fight the economic reality that Japan's underlying fiscal and monetary problems won't disappear simply because Washington decides to buy yen. At best, it will buy Japan some time. But that will only do a smidgen of good if Tokyo addresses its fiscal and monetary woes. Otherwise, the yen will come under pressure again, and Washington will be doing the same song and dance. 

At some point, the U.S. has to recognize that Japan's currency is Japan's problem and that the U.S. shouldn't become the world's currency backstop, especially when Washington is incapable of managing its own finances. 

Mamdani's "Free" Universal Childcare and What Happens Socialism Meets Economic Reality

Socialists have a peculiar relationship with mathematics. Much like protectionists think that arithmetic is for globalists, socialists think that adding up the costs of a program is a form of capitalistic oppression. Costs are somehow lower than expected, savings are larger than advertised, and somehow someone is expected to pick up the tab. 

And this is where New York City Mayor Zohran Mamdani comes into play. On his campaign trail, he made a campaign promise for universal childcare at a price tag of $6 billion per annum. It turns out that his math was off and that it will cost about 50 percent more. According to a recent study from The New School's Center for New York City Affairs, it will cost anywhere from $8.7 billion to $9.3 billion. This is not about a single headline. It is the idea that making things "free" comes at a high price tag. 

Calling something "free" is one of the oldest tricks in politics. The word focuses attention on the person receiving the benefit while hiding the costs somewhere else. Universal childcare requires caregivers, facilities, equipment, and administration. Guess what? All of that costs money. 

Plus, when government sets the price of the service at zero, demand rises because consumers no longer face the normal costs of their choices. That means the government must fund a larger system than anticipated. Economics has a habit of ruining politically attractive slogans by introducing something called arithmetic. 

If this were just about a single overly optimistic estimate, that would be one thing. But Mamdani's childcare proposal fits the broader pattern of government programs that sound affordable until someone has to calculate the costs and pay the bills. 

Consider his other proposals. His rent freeze assumes that the government can make housing more affordable by restricting prices, while ignoring the incentives those prices create for landlords, maintenance, and future housing supply. His government grocery store proposal assumes that City Hall can enter a competitive market and somehow deliver better outcomes at a 30 percent discount. His free bus proposal fell through because he forgot that buses still require drivers, maintenance, and fuel, all of which cost money. 

Each proposal involves a different policy mechanism, but none of it can avoid the reality that resources are limited. Building still need maintenance, workers still need wages, and services still require resources. Costs do not vanish simply because a politician invokes the word "free."

The appeal of socialism has been its promise to remove difficult choices. If only government were ambitious enough, everyone could have what they want while nobody would have to sacrifice. Unfortunately, the world doesn't work that way. Every society faces tradeoffs. Pretending otherwise only ensures that those tradeoffs appear later and do so in much more painful forms. 

The best ideas survive scrutiny because they account for costs and benefits, not because they assume those pesky costs disappear. Campaign promises don't need to balance the books, but someone eventually has to pay a price for those who decide to implement them.

August 13, 2026 Addendum: Speaking of high price tags, the Cato Institute published a solid analysis of what it would cost if the Democratic Socialists of America got everything on their wish list, which includes universal health care, reparations, a federal jobs guarantee, housing for all, paid family leave, and free college. On the high end, it would cost $211.6 trillion over the next decade. Even in the low-bound estimate (which given what I previously wrote, is most likely a woeful understatement), it is still $71.2 trillion. 

The Show-Me State Should Show That Zero Income Tax Can Work in Missouri

"Eliminate the state income tax" is one of those proposals that sounds like it fits libertarianism like a glove. Personally, I don't need much convincing that there are problems with taxing income. I wasn't exactly thrilled in 2013 when the federal income tax reached its 100th birthday. This brings us to current events. 

Tomorrow, the citizens of Missouri are voting on a ballot about whether to eliminate the state income tax. In concept, I like it. All things considered equal, I prefer a consumption tax over an income tax because it generally does lest discourage work, saving, investment, and entrepreneurship. The proposed amendment has stages to phase out the income tax while giving lawmakers a way to find ways to replace the lost revenue. However, my enthusiasm wanes when it collides with economic reality. 

The concern is not simply whether I think consumption taxes are better than income taxes. It is about what happens afterwards. State governments still have expenses, and the state income tax makes up about 69 percent of the state's discretionary revenue fund. Unless the state decides it is going to spend a whole lot less, it needs to make up that lost revenue somehow. The question is whether Missouri can generate enough consumption tax revenue without causing more problems. 

I asked a similar question last year when analyzing Mississippi's income tax elimination proposal, and noted that not every state is built the same. Florida can lean on tourism. Alaska has oil. Nevada has Las Vegas. Texas excels in energy production, has rapid population growth, and property taxes to help make up. 

Missouri certainly has a diverse economy, but what is its equivalent to Texas' energy sector or Florida's tourism sector? This doesn't mean that it is doomed to fail. But it also means that Missouri cannot copy other states and except the same results. I don't see an obvious revenue source replacing over $6 billion in revenue. Every dollar not collected through the income tax has to be replaced somehow, or not spent in the first place. That is the part where I think Missouri will have quite the uphill battle, and that is the part where I would like for them to show me how they would succeed. 

If that weren't enough, there is another challenge. Replacing income taxes with consumption taxes is not as simple as increasing the sales tax rate. Even organizations that generally favor shifting away from income taxes have warned about the difficult. 

The Tax Foundation recently examined this topic and found that replacing state income taxes is much more difficult than estimates suggest. The reason is that a realistic consumption tax base is narrower than advocates often assume. Taxing business inputs creates its own problems, which excluding them means that the tax rate may need to be substantially higher. 

The lesson is not that states should keep income taxes forever. The lesson is that tax reform requires careful design. A poorly structured consumption tax can create problems of its own. I hope Missouri succeeds in create a more economically efficient tax system because that is a goal worth pursuing. 

However, lowering or eliminating a tax is only one part of reform, much like I brought up with the Kansas tax cut experiment last decade. The state must ensure that the replacement system is sustainable, transparent, and does not create unintended consequences. So far, it has not done a good job to show me that.