Yankees star Alex Rodriguez will pay virtually no property tax for a $6 million apartment he is buying on the upper West Side. Rodriguez will be billed around $1,200 this year in real estate tax for his 3,000-square-foot, five-bedroom penthouse with spectacular views of the Hudson River.Over the next 10 years Rodriguez and his fellow residents will continue to receive huge discounts on their tax, a city housing official said. A little-known tax abatement program, known as the “421A” program, has existed for decades, which grants as much as a 98% percent tax abatement for up to 25 years to condo owners in newly built housing. Although the program ended in December for any new construction, the city’s powerful real estate industry is determined to get it renewed and even get it expanded.

Questions:

1.  What percentage of A-Rod’s income would he pay if assessed the full tax bill of $60,000?

2. What percentage of A-Rod’s income is the $1,200 he currently pays under the tax abatement program?

3. If $900 million are lost to this program per year and the average salary of a firefighter or teacher is $50,000, how many jobs could be saved by the reform of this abatement?  If you assume that A-Rod’s full tax bill ($60,000) is the average for those who have taken this advantage, approximately how many people benefit from the discount?  Compare these two calculations and discuss.  

4.  Are there any issues that you could use to argue that the abatement program should be reinstated? 

Source: Gonzalez, Juan. (2011). Tax Breaks on Real Estate Deals for People Like A-Rod Cost City $900M a Year, New York Daily News, February 25 (Retrievable online at http://www.nydailynews.com/ny_local/2011/02/25/2011-02-25_tax_breaks_on_real_estate_deals_for_people_like_arod_cost_city_900m_a_year.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+nydnrss/home+%28Home%29)