Changes in tax law may prompt homeowners to move to other states
“We’re relatively high earners,” Wie said in an email, “so the flat 3.07 percent Pennsylvania [income] tax would benefit us more than the higher property taxes or [the federal] tax change would hurt us.”
Gentrification of the countryside
Of course, we already know what happens when high earners take their money to rural areas where property is cheaper. They outbid the locals, with lower earning. They push up house prices in those areas. Locals can't afford a house and it generates resentment between the groups. It can be seen in Oakland, and in farming communities in the UK.
House price stagnation/decline
As the article also goes on to say, this will also suppress house prices in places like the SF Bay Area. The property taxes on my house are $12k (public record). Capping property tax deductions to $10000 means $2k of my property tax will now come from after-tax money. The significance is that the $2k costs me $3k of earned income rather than $2k. So someone looking to buy a house is going to be less interested in property where the taxes exceed $10k. Any house over about $800k will be affected by that ruling.
Anyone who recently bought a house over $800k is likely to feel a downward pressure on the price of their home. Considering median house price in the SF Bay Area is about $700k (google it!), then this suggests to me: house price stagnation in Silicon Valley.
I've lived in this house for 10 years, so the amount assessed from property tax is somewhat less than a house bought today. Anyone buying a house in my area last week would pay over $1.1M. I'd estimate their property taxes exceed $15k. That's a large increase in real terms for them next year, $18k in after tax money.
Crash in consumer spending
As I already suggested, $1000 of my income just disappeared, OK - $600 in after tax money. So that's money I don't get to spend on a new TV, or a trip to Disney Land, or new cloths. And of course, those newer home owners are impacted significantly more, as a larger percentage of their property tax will be from after-tax money.
Worst case scenario
The article doesn't address other aspects of repealing SALT. California state income is about 10% too. If becomes too expensive to live in silicon valley, then one of two things happens:
- Google/Apple/Facebook have to pay us more
- Exodus from silicon valley
If tech sector employers pay tech sector employees more money, then those costs will be passed onto customers. The price of your iPhone is going to go up. The cost of Google ads is going to go up. etc.
If there's an exodus from silicon valley and, say, 100000 people leave. The demand for housing will fall through the floor. More pressure on already stagnant house prices? Underwater property prices? Housing defaults? Banking crisis? 2008 all over again?