3 Key Issues Rhode Island Faces In Its “Taylor Swift Tax” Era

SINGAPORE, SINGAPORE – MARCH 02: (EDITORIAL USE ONLY. NO STANDALONE PUBLICATION USE (NO SPECIAL INTEREST OR SINGLE ARTIST PUBLICATION USE; NO BOOK USE)) Taylor Swift performs during “Taylor Swift | The Eras Tour” at the National Stadium on March 02, 2024 in Singapore. (Photo by Ashok Kumar/TAS24/Getty Images for TAS Rights Management)

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Between her global Eras tour, her recent engagement to NFL Star Travis Kelce, and the announcement of her new album, “The Life of a Showgirl”, Taylor Swift is a mainstay in the headlines and spotlight. However, Swift has now found herself in the headlines in an unexpected way. Rhode Island has now implemented what is being called the “Taylor Swift Tax”, which is a surtax on individual property for the wealthy on their second homes. CNBC estimates that Swift will owe $337,442 this year to cover these taxes, up from $201,000 based on last year’s rates without the Taylor Swift Tax. This article discusses the Taylor Swift tax and sheds light on the benefits and unintended consequences Rhode Island might face when implementing it.

The Taylor Swift Tax Explained

In June, Rhode Island passed a two-tiered property tax legislation that assesses significantly higher property taxes on expensive homes in the state if that is not the homeowner’s primary residence, according to the National Law Review. Officially called the Non-Owner Property Tax Act, this piece of legislation will go into effect in 2026, and it is dubbed the Taylor Swift Tax since it was aimed at the music sensation for owning a property called High Watch, Rhode Island’s most expensive home.

Before the Taylor Swift Tax, Swift would have paid $201,000 in annual property taxes on this home. However, since the home is not her primary residence, and since it is valued at over $1 million, Rhode Island will now collect $337,442 in property taxes on the same piece of property, representing an increase of over 67%. If Swift were to spend more than half the year in the home, or if the home were to be valued under $1 million, she would not have to pay this additional six-figure layer of tax.

While such a dramatic increase in property taxes on most taxpayers would be debilitating, there is little doubt that Swift can stomach such a higher tax bill. After all, Forbes reported that Swift’s Eras tour became the highest-grossing music tour of all time, eclipsing $2 billion in ticket revenues. The billionaire pop star likely has plenty in her coffers to cover any such increase in property taxes.

However, opponents of this tax highlight that Swift and other wealthy homeowners are already contributing significantly to property taxes in Rhode Island, especially considering that property taxes typically go toward funding schools, roads, and emergency services, which they are unlikely to be using most of the year. Levying unwarranted taxes can have negative impacts on a jurisdiction. Thus, it is important to consider the efficacy of the Taylor Swift Tax.

The Taylor Swift Tax Will Help Address Housing Inequities

Coming out of the pandemic, states like Rhode Island continue to grapple with housing crises fueled by rising real estate prices and borrowing rates. This problem has become compounded among the lower and middle classes, leading to a need for more affordable and sustainable housing.

Rhode Island intends to use the proceeds from this tax to address just that. In particular, the funds generated from the Taylor Swift Tax are earmarked to be used to support housing initiatives such as the Low-Income Housing Tax Credit, according to News From The States. Relatedly, the bill intends to promote owners to live in the homes that they own, rather than leave them vacant for significant parts of the year. The logic is that if these homes that are rarely used can be rented, then the supply of rentals will increase, leading to a natural decline in the cost of rentals.

3 Key Unintended Consequences Of Rhode Island Implementing The Taylor Swift Tax

While raising additional revenues by taxing billionaires may seem like a harmless lever for Rhode Island to pull, there are three key consequences that the state might face as a result of this decision.

(1) The Taylor Swift Tax Might Lower Real Estate Values In Rhode Island

Just like the selling price of a home is part of the purchase price, so are the expected costs of owning the home. For instance, when borrowing rates go up, the monthly cost of owning the home also increases. Similar arguments can be made for monthly fees, like the cost of the homeowner’s association. Taxes are another key cost that needs to be considered, especially when they eclipse $300 thousand annually, as in the case of Swift’s home. The additional tax has the potential to lower the value of homes being affected by the tax, diminishing home values.

(2) The Wealthy May No Longer Consider Rhode Island For Their Second Home If They Must Pay The Taylor Swift Tax

While coastal Rhode Island is a dream destination for many, it is far from the only location wealthy taxpayers can turn to. Areas like The Hamptons, the Connecticut coastline, and islands like Martha’s Vineyard and Nantucket are every bit as reachable from New York City and Boston as is Rhode Island. However, if these other locations do not levy the same high Taylor Swift tax, wealthy taxpayers like Swift may alter future housing locations or potentially even move away from their current location.

Evidence suggests that taxes can be a reason for relocating. For example, anecdotal evidence from the UNC Tax Center discusses that when the State of Washington proposed a wealth tax on billionaires, the few wealthy people this tax would have applied to chose to flee the state rather than face the higher bills. As discussed in my Forbes article, widespread academic literature provides evidence that wealthy taxpayers change their location decisions in response to taxes. Thus, it seems reasonable that the Taylor Swift Tax may lead to locational changes.

(3) The Taylor Swift Tax Might Be A Net Negative On Rhode Island’s Finances

While Rhode Island has yet to put out revenue estimations, they expect to generate revenue from the Taylor Swift Tax, the inflows may not be significant. For instance, if this tax is levied on 5,000 homes with an average value of $2.5 million, the additional tax collections under the new formula will be $37.5 million annually. Relative to Rhode Island’s annual budget of nearly $14 billion, this increase in tax collections represents an immaterial impact. Meanwhile, if the wealthy are less likely to consider Rhode Island for their second home and this choice deflates real estate values, the budgetary effect may negatively impact Rhode Island by more than $37.5 million.

The Taylor Swift Tax is a unique property tax that can positively impact Rhode Island financially. In fact, other states like Montana and California are considering similar Taylor Swift Taxes for the same reasons, according to MoneyWise. However, states must be very careful when introducing these additional taxes as they could deflate real estate values and drive wealthy taxpayers out of their state, leading to tax benefits that do not exceed tax costs.