Wednesday, December 3rd, 2008 at 9:16 AM
Prop 13 Redo?
Dr. Detroit left this comment:
Do you think the state’s budget troubles will affect the market? The state needs a ton of money (I have gone on record as stating Prop 13 will eventually have to go–not soon enough though). This budget crisis seems to be an annual event. And it seems to be getting worse.
Normally we leave these topics to EN to handle, and Rob mentioned the $11.2 billion deficit that caused our governor to declare a fiscal emergency - for the full story, click here and scroll down to Monday’s review:
http://exurbannation.blogspot.com/
It would seem inevitable that the Prop 13 limits on property taxes will be under attack in the coming months and years. As older folks (the biggest benefactors) head for the big McMansion in the sky, could there be more groundswell that might allow for Prop 13 to be revised?
COULD YOU TOLERATE A REVISION TO PROP 13?
Specifically, what would you need to see, and how bad would the economy or your surroundings need to get, for you to either allow your legislators to revise Prop 13, or even vote for a revision yourself?
Prop 13 is fair game for a real estate blog, so this question isn’t intended to provoke political views, just interested in hearing how your views on property taxes could impact your decision to buy or sell - or not.
Just in case you’d like some inspiration - here’s some thread music:
Posted on Wednesday, December 3rd, 2008 at 9:16 AM in Forecasts | | 
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I can see a major revision to the transfer treatment of business owned real estate triggering reassessment. I can also see the 2%/yr cap bumped to 3-4%. I’ll hold off commenting on the actual merits of Prop 13 until everyone chimes in with all the wrong analyses first. That way I need only straighten everyone out in one post.
Rob Dawg | December 3rd, 2008 at 9:33 amThanks for the plug Jim.
I could tolerate it and would vote yes but I don’t think a revised Prop 13 will ever pass. I see an additional 0.40-0.60$/gallon gas tax in our near future.
JE | December 3rd, 2008 at 9:51 amDoing away with prop 13 would make Mello-Roos fees look like pocket change. It would make real estate a much more hated asset than it is already becoming. The idea of doing away with prop 13 would run counter to all other govt. policy that tries, however foolishly, to increase the value of real estate and home ownership.
If it ever were to happen, there is no way that they would reassess all property in one fell swoop. There would be blood in the streets. If anything, it would have to phased in over years, or even decades.
Kingside | December 3rd, 2008 at 10:14 amI only see a revision to eliminate the lack of step-up on business transfers.
It is one thing to protect the mom and pop corner bodega, but I think that voters will be in the mood to strike a blow against megacorp paying tax on a 1970 value for their office building, especially if that means more police and fire (or fewer layoffs thereof).
FreedomCM | December 3rd, 2008 at 10:29 amKingside: I doubt it. No offense, but fearmongering doesn’t help to fix the problems. The reality is that a fair number of people’s taxes (who bought recently) would actually go down and stay down. Rates would need to be significantly lower than 1% assuming that total taxes collected does not need to rise dramatically. I know of multi-million dollar mansions in Beverly hills paying less than $2000/year in taxes. Meanwhile, stinking crapshacks in the IE or Panorama City are paying $7000/yr.
I’d like to see the following:
1. Phased-in approach over 3-5 years.
2. Means test with on-death recapture for 55+. (for those at poverty level or 50% of median income) for life. (keep from throwing ol’granny out of her house, but liens prevent children from gains that should have been paid to state.
3. Homestead only exemption. (sorry investors, you’ll have to pay like everyone else, this is, after all, to promote home ownership, not investing)
4. Do away with familial transfer. When any title changes, reassess. Sorry, but this can be gamed to much and has been.
5. No homestead exemption for trusts, or corporate owned property. Too many properties are not being reassessed when corporations change hands or trusts go through conversion. No tax breaks for the rich.
That’s just the start of what’s wrong with Prop 13.
Chuck Ponzi
One final thing I’d add that will help promote homeownership:
Either get rid of SFH depreciation for investors or add it to personal homeowners. Either you believe that houses depreciate or you don’t. If housing only goes up, why do we allow investors to depreciate while homeowners have to pay more income taxes than them?
Chuck Ponzi | December 3rd, 2008 at 10:46 amAs a side note, kingside, the reason we have mello-roos is because of Prop 13. If property taxes of more established parts of the city could pay for themselves, we wouldn’t need all of these other bonds.
In the end, Mello-roos ARE taxes and should be counted as such. They should offset property taxes in that area.
Chuck Ponzi | December 3rd, 2008 at 10:50 amIf we do get rid of prop 13, the change to a new system should be revenue neutral. Reassess everyone at market levels, and then adjust the tax percent so that revenues are the same. That would mean the % goes down, maybe to 0.75%. No gain or loss in govt revenue, and we have a system that makes more sense.
Jakob | December 3rd, 2008 at 11:14 amChuck Ponzi,
JTR said we should not get political, so I will just make one quick comment and leave it at that. Advocating tax policy usually comes down to which interest groups you favor and what social policy outlook you want to see implemented. You obviously have a problem with long time investors who no doubt have benefited as a class from prop 13. I see investors eventually being a big part of the solution to the problems that currently affect California real estate. Policy that sticks it to investors to “promote homeownership” is not only counterproductive in the short run, the costs just get passed on.
Kingside | December 3rd, 2008 at 11:32 amIf Prop 13 had not existed, we would have seen longtime homeowners’ property taxes doubling (or more) in a 2-4 year period the way they did in the 70’s when Prop 13 passed in the first place. The overwhelming majority of CA voters who are homeowners will most likely gut the governor’s mansion and the legislature before they allow Prop 13’s limits on residential taxes to be changed. The limits on business taxes are probably not as safe.
GeneK | December 3rd, 2008 at 11:37 amOther states keep the rate the same and only adjust for a change in property values.
Prop 13 has literally killed neighborhoods. Very few people want to move into a neighborhood full of old people with a young family. The government then shuts down the schools in those neighborhoods and has to build new ones.
Government spending would be less if land reources were allocated properly. Should we mention the impact on the environment of having people that need to work drive 50 miles to the office.
LV Renter | December 3rd, 2008 at 11:59 amI would rather just give money to old people, then have them stay in a 3,000 sq ft house in a good neighborhood because they do not want to pay higher property taxes.
LV Renter | December 3rd, 2008 at 12:00 pmProp 13 needs to reflect longterm inflation, and capped at 3%-4% rather than 2%. Right now it’s a blatant tax on new homeowners, when a $1-$2 million dollar house in upscale neighborhoods can pay less taxes than someone buying their first house.
This is the same exact problem rent control did to New York, where you have a millionaire Congressmen renting out 4 connected apartments at ridiculously low rates. Hard working and young employees are being reamed by double and triple the rent that millionaires are paying, all because of the ponzi scheme of seniority.
A lot of people are more than happy to buy the houses you don’t want, and if this deflates house prices back to reality that makes houses more appealing not less. Right now renting is still better than owning.
BDiego | December 3rd, 2008 at 12:05 pmI rarely comment, but this topic is right in my wheel house. 1st, any change to prop 13 will never pass. It’s the 3rd rail of CA politics.
2nd, raising taxes is not the solution to the budget problems. The CA budget for 2000/01 was 78.1B, for 08/09 it is expected to be 111.8B. That’s a roughly 35% increase in 8 years. Has the population increased by 35% in 8 years?
If I were to solve the problem, I would cut the state budget back to 2001 levels. For a more PC approach, check out Mish’s proposal
http://globaleconomicanalysis.blogspot.com/2008/12/avalanche-of-fiscal-irresponsibility.html
Westparker | December 3rd, 2008 at 12:14 pmProp 13 is designed to make new homeowners pay more taxes, so that longtime homeowners can pay far less. I’ve seen the same kind of examples Chuck Ponzi pointed out about Beverly Hills houses paying pennies on the dollar compared to what anyone here would pay buying an average house or condo.
Removing Prop 13 will lower the taxes new homeowners have to pay and make longtime homeowners actually pay these taxes. Of course, that’s labeled as penalizing these tax deadbeats. Sure, I guess so.
This is a scam any way you put it, designed to transfer the tax burden from one group to another. And like welfare it’s probably here to stay but the least we can do is reform it so it’s not so blatant.
BDiego | December 3rd, 2008 at 12:18 pm“Right now it’s a blatant tax on new homeowners”
I believe that this was intentional. Prop 13 and M-R are both essentially anti-growth measures designed to force those who create demand for more infrastructure and governmentt services by growing communities to pay the bulk of the cost.
GeneK | December 3rd, 2008 at 12:21 pmFirst “trollish” but really a thought comment:
Prop 13 makes everyone pay the same. If housing prices are declining then newer homeowners are paying LESS. Is that fair?
Rob Dawg | December 3rd, 2008 at 12:41 pmProp 13 is a blantant transfer of wealth from the young to the old.
The problem is that the geezers vote, and the young don’t vote.
Prop 13 is really unfair but it’s unlikely to be overturned.
greenlander | December 3rd, 2008 at 12:48 pmBefore dismissing the impact on businesses, have you considered the impact to you by increasing business taxes in what is the most business unfriendly state of the US? Or are you willing to move to Alabama when the businesses pack up and move to a more friendly environment?
And then again, what about your parents or grandparents who live on a fixed income and would have to abandon their homes when the tax burden exceeds their fixed income? Who’s going to take them in? You? Or do we create new government programs to assist their living expenses?
With that said, I think that some reform is required, but the sensitivity of “many” issues such as the examples I point out will have to be addressed. I think it’s time to create another government panel to study the issues, ha!
LC Jim | December 3rd, 2008 at 12:54 pmProp 13 is a blantant transfer of wealth from the young to the old.
Can you point us to the subsection that references the age of the buyer?
Rob Dawg | December 3rd, 2008 at 12:54 pmThe main idea supporting Prop 13 is the fundamental fairness idea that “market value” is really just on paper, not not real $$$ until you actually sell. If your property “market value” doubles, you don’t automatically have double the real $$$ to pay twice as much property tax. One of the main benefits of home ownership is the stability of fixed (or at least predictable) costs, and market-based reassessments destroys that stability.
Ross | December 3rd, 2008 at 1:06 pmI agree that prop 13 needs to be revised to ensure that a proportionate amount of taxes are being paid by all homeowners. But if the state is going to take a look at revising the way we tax people, they also need to look at revising prop 8 which allows for taxes to be reduced when property values decline.
My home was assessed in the high 400k in 2007 and within 2k of that for 2008. I sent in an assessment reduction form due to property values plummeting and got the assessment reduced ~5k. This new assessment is still higher (by over 50k) that any sale price in my subdivision (280 homes) this entire year. Based on sales data from Sept 2007-Nov 2008, the average price per square foot in my hood is $95 which would put the value of my home ~ $277k. If the govt is going to make a move to revamp prop 13, it should also do the same for prop 8.
Partyboy | December 3rd, 2008 at 1:13 pmOn a slightly different note, what is the purpose of property taxes? Isn’t it to pay for roads, street lights, parks, etc? If so, why is the value of the home a factor in determining prop taxes? Just because someone has a bigger home or is on a bigger lot doesn’t mean they use the streets more often, does it? Shouldn’t the formula just be:
Property taxes per homeowner = Total property tax revenue needed / number of properties?
Allow this number to increase by 2% each year in accordance with prop 13 and be done with it.
Partyboy | December 3rd, 2008 at 1:19 pmHey Jim,
Dr. Detroit | December 3rd, 2008 at 1:35 pmthanks for throwing the question out there. It’s almost a “nuclear button” issue. RE prices don’t exist in a vacuum, and I for one would like to know if the state that I am living in is going to go under. That’s a stretch (I mean, if the feds can bail out Citi then they can sure as hell bail out Cali). It’s just that in all my travels, I have never lived in a state like Cali where the newbies were crushed with such insane property taxes (not to mention state and sales taxes). And it’s still not enough money. I have friends living in Eastlake paying nearly 10k a year in prop taxes while folks that bought in LJ and such long ago are paying a fraction of that. I guess this was fine while everyone was “making money” with their RE purchase(s). Now that the fat lady is singing for RE, something’s gotta give. I’m not 100% sure if repealing Prop 13 is the answer. Maybe there isn’t one. And no, the state is not going to cut spending that much. It can’t. Arnold tried it a few years ago, and he got blasted, remember? State workers/unions are another “3rd rail” in Cali politics.
“The main idea supporting Prop 13 is the fundamental fairness idea that “market value” is really just on paper, not not real $$$ until you actually sell. If your property “market value” doubles, you don’t automatically have double the real $$$ to pay twice as much property tax.”
The whole idea of taxing people based on the value of non-liquid assets makes no sense. Real estate ownership taxes should be phased out entirely, and replaced with a more consumption-based tax. Maybe a “housing tax” that would apply the same percentage tax to someone’s monthly housing outlay, whether it’s principle+interest or rent.
GeneK | December 3rd, 2008 at 1:57 pmDuring Prop 13 = Some knucklehead just bought the house across the street at that outrageous price. Let’s get a bigger HELOC.
After Prop 13 = Some knucklehead just bought the house across the street at that outrageous price. Let’s break his legs.
Repealing prop 13 would cause me to divest California real estate. Should you be forced to pay more sales tax and a higher VLF every year if someone pays a higher amount for the car you just bought ?
One simple solution is to mark to market all commercial properties every year (not rentals, just property zoned as commercial). Who wouldn’t vote for that ?
FuturesWatcher | December 3rd, 2008 at 1:58 pm“Should you be forced to pay more sales tax and a higher VLF every year if someone pays a higher amount for the car you just bought?”
This never made sense to me either.
When I was living back east they based the annual registration on the weight and the number of axles on your vehicle. This was long before gas prices and fuel economy were issues, and the reasoning was that bigger, heavier vehicles put more wear and tear on the roads (vehicle registration fees were mandated by law to be used only for road and bridge maintenance).
GeneK | December 3rd, 2008 at 2:12 pmCan you point us to the subsection that references the age of the buyer?
Rob, I know you’re smarter than to ask such a dumb question, so I can only conclude that you’re being a smartass. Do you really think that the average “age” of a proposition 13 assessment has no correlation with the age of the homeowner?
What do you think the average “age” of a proposition 13 assessment is for a 70-year-homeowner? What do you think it is for a 25-year-old homeowner? I confess that I don’t personally have any statistics, but I don’t need a precision thermometer to tell you when it’s cold outside.
greenlander | December 3rd, 2008 at 2:25 pm“As older folks … head for the big McMansion in the sky”
Good one!
Rob - I understand that if property values drop, everyone is supposed to be reassessed to a lower market value (I realize this is not what in fact always/ever happeneds). The cap only applies to increases. Am I wrong?
Smithers | December 3rd, 2008 at 2:28 pmFutures: “One simple solution is to mark to market all commercial properties every year (not rentals, just property zoned as commercial). Who wouldn’t vote for that ?”
We’ve already discouraged companies from moving business in this state due to the high cost of RE for the business (in additon to other anti-business legislation) and transferring/new employees. Now that the faucet has been turned off, you think it’s a good idea to pull the plug and let the rest of the businesses leave the state because it’s not cost effective to continue here?
It amuses me that some think there’s a “simple” solution.
LC Jim | December 3rd, 2008 at 2:34 pmThe age of a homeowner’s Prop 13 assessment is largely dependent on how often and how recently they’ve moved. Older homeowners will tend to have lower assessments because they don’t live the same “pick up and move every few years” lifestyle that younger generation homeowners do.
The fact that most of them also don’t have the same burning need for 5000 square foot McMansions with four-car garages, granite countertops and restaurant kitchens also helps keep their assessments down even when they do move more often.
GeneK | December 3rd, 2008 at 2:35 pm“Repealing prop 13 would cause me to divest California real estate.”
Wonderful. We’d be more than happy to buy it from you. The same way when grocery unions went on strike, many people were delighted to take over their jobs and did a better job at it.
“Should you be forced to pay more sales tax and a higher VLF every year if someone pays a higher amount for the car you just bought ?”
I propose raising the 2% cap to 3%-4% to account for inflation, which does address the issue you brought up. But the real question is “Should you be forced to pay more sales tax simply because someone else doesn’t want to?”
In any case, you WILL pay more to buy a house simply because other people are paying more for them. They’re called comps. Here we’re talking $500K purchases being influenced by someone else paying more, not some $5K in house taxes. Neither is fair, but what is far more unfair is to not pay your share of taxes by making someone else pay them. It’s called welfare, it’s called Prop 13.
BDiego | December 3rd, 2008 at 3:09 pmThe real hope of those who passed Prop 13 was not to make newcomers pay higher taxes, but to persuade them to not be newcomers. Prop 13’s original proponents would have been overjoyed if everyone who came after its enactment had decided to move to Nevada or Alabama along with all the businesses that have been continuously promising to expand outside the state and then not keeping those promises since Prop 13 passed.
GeneK | December 3rd, 2008 at 4:04 pmMy grandmother was forced out of her retirement house just before prop 13 because of rising property taxes. My wife and I have owned our house now for 18 years and have factored prop13 into our retirement planning.
Love the short sighted dingbats on this board who want to have the government confiscate more money from old people who owned their homes longer in order to save themselves some bucks. My wife and I don’t have children, so how about this? You don’t tax me to pay for someone else’s kids education and then you can raise my property tax 3-4 percent year.
Better yet, you want to save money? Vote for a candidate who’s going to cut spending.
K | December 3rd, 2008 at 4:16 pm#
I agree that prop 13 needs to be revised to ensure that a proportionate amount of taxes are being paid by all homeowners.
F U
K | December 3rd, 2008 at 4:21 pmExactly.
BDiego | December 3rd, 2008 at 4:37 pmSpeaking as an investor, I will say that if Prop 13 is revised to increase the taxes on commercial properties and investors, there will be fewer investors and companies providing rental housing. I anticipate that this will result in much higher rental prices.
Perhaps others may disagree with me, but it is only natural that if you increase the operating costs, many businesses will shut down and not provide that service. The remaining businesses will be able to charge higher rental rates.
And of course, any time the operating cost of a business rises, it will usually pass the cost down to the consumer.
surveyor | December 3rd, 2008 at 5:33 pmIf Prop 13 is revised to increase the taxes on commercial properties, another unintended consequence would be a large increase in business operations (at least with small businesses) moving to residential dwellings.
Kingside | December 3rd, 2008 at 5:51 pmPlug the re-assessment loopholes.
Large apartment complexes put into an LLC and rather than trade the deed, they trade the LLC shares to avoid re-assessment.
Same thing with trusts, put California property into a trust and it should get re-assessed every 7 years.
If there is a change in beneficial ownership, regardless of deed status then the property needs to be re-assessed.
Homeowner only protection since Prop 13 was sold to the voters to prevent Grandma from being thrown out of her house due to property tax increases.
That promise must be kept.
sunsetbeachguy | December 3rd, 2008 at 6:07 pm-Westparker-Those budget numbers you quote are nominal dollars, not real dollars. Adjust for inflation when you do the comparison and that accounts for the vast majority of that “increase” in the state budget.
-LC Jim- The main cost of running most businesses is labor. My small business has significant difficulties recruiting workers from out of state because the cost-of-living is so high in California. The biggest chunk of that cost-of-living is housing. The professionals we try to hire often balk at moving out here because they effectively have to take a disposable income hit to work here. I would assert that Proposition 13 is a large part of the housing price issue.
I personally think prop 13 is the sort of misguided crap that constantly comes out of the state proposition’s system. I want to put a proposition on the ballot to ban propositions because the people of California are incapable of making adult decisions about the state budget. Unfortunately, it sounds like many of the commenters here think that the government is the problem without actually looking at where the state budget goes and what we’re getting for our tax dollars.
uber_snotling | December 3rd, 2008 at 6:11 pmIt’s all relative folks. In Texas, we pay around 2.25%-2.75% of appraised value, with a small deduction for homestead. My tax bill on my house which is valued at $250k comes to around $5,000 this year. They can also raise the appraisal value up to 10% per year. We also have the equivalent of M-R’s, except we call them municipal utility districts (MUD).
What’s the end result of this? We don’t pay state income tax, and it does wonders for keeping property values under control. The rich neighborhoods go up in value because the residents don’t really care about the tax bill, while the middle class neighborhoods generally show a slow steady appreciation in value. Also, there is an over 65 exemption which keeps taxes much lower for seniors. This exemption is tied to age, not location.
Texas Homeowner | December 3rd, 2008 at 7:12 pmuber, I wasn’t clear in my comments. I was pointing to the high cost of RE as a factor keeping businesses from establishing or remaining. This is the cost of the RE for the business as well as the housing costs for employees.
I’m disturbed by comments from those above that propose status quo for individual taxes, but increases to the business taxes. Force the businesses out of state and who pays the burden? Individuals.
Back on topic. With the state hurting for revenue, they’ll take a look at prop 13. However, I think they’ll quickly find that it’s not the short term solution their political lives require. Look for increased sales tax coming your way soon.
LC Jim | December 3rd, 2008 at 7:20 pmWe need a prop 13 for government spending!
Huh? What? We already do?
Yes - they already have a budget cap - they aren’t supposed to spend any more than they take in.
Then why do we have a problem?
Remember when Arnold rolled into town as the new sheriff, promising to fix this mess? We need someone stronger than Arnold who will hold their feet to the fire. The problem with all the current government officials, fed and state, is that they can’t stop spending money. STOP!!!
Jim the Realtor | December 3rd, 2008 at 7:28 pm’nuff said. Next subject please!
LC Jim | December 3rd, 2008 at 8:45 pmRemoving Prop 13 will lower the taxes new homeowners have to pay and make longtime homeowners actually pay these taxes.
——————
If you think increasing taxes on the long-time residents is going to lower taxes for the new ones, you are mistaken. The government will simply increase taxes on the old-timers, and NOT lower taxes for the newbies.
The PROBLEM is government spending. Though it’s not “PC” to say this, the PROBLEM is illegal immigration.
Most property tax revenue goes to schools, and a disproportionate number of California’s students are illegal immigrants or their “naturalized” offspring.
I’m not making any judgements, but taxpayers are subsidizing business who employ (exploit) illegal immigrants. We pay for the education of their children, we pay for their hospital care, we pay the legal and law enforcement costs when the I.I. gangbangers cause problems. Until the problem of financing these costs is addressed, we cannot solve our budget problem.
CA renter | December 3rd, 2008 at 8:47 pmBTW, the wonderful thing about Prop 13 is that everyone has a say in how much they pay in taxes.
If people **choose** to overpay for housing, then they are choosing to pay higher property taxes. If you don’t want to pay more than the neighbors, then don’t overpay.
It’s a bit like people buying houses under a flight path, and then complaining that the airplanes make noise when they fly by. No kidding…
Also, if people don’t want to pay Mello-Roos, then they should demand that the builder pay the fees off before agreeing to buy the house. As it stands, buyers are paying the developer’s share of the infrastructure costs. The costs should be built into the final cost of the home. It allows the builders/developers to overpay for land, while shifting that burden onto the new buyers.
Guys, buyers are — and have always been — in the catbird seat. The decisions you make when buying a property will have consequences that last for a very long time. **Think** before you buy, and none of these issues will be a problem for you!!!
CA renter | December 3rd, 2008 at 8:54 pmGreat topic.
Prop 13 is terrible for growing businesses. We have a hell of a time bringing people to San Diego. The house prices are so inflated they get sticker shock, then the Mello Roos and underfunded schools kill the deal. I think a cap or exemption for retirees is reasonable, but the current system is obscene. My parents are retiring this year, are paying 1/3 of the property tax I pay, and get to transfer it for free when they move.
As for the comments about illegal immigration, you’re free to move somewhere where they don’t have any. Try Detroit. Or Wichita Kansas. Or any of the other shrinking 1950’s communities with strong unions and no jobs. If you go to any growing area, immigrants are there, both legal and illegal. People go where the jobs are, and the influx of people keep wages down, attracting more business. I’ll happily take the immigration costs to get the immigration benefits. It’s a good problem to have.
Chris | December 3rd, 2008 at 9:57 pmTwo things.
LOL | December 3rd, 2008 at 9:58 pmOne, prop 13 is one of the few things holding UP RE values in CA. Doing away with it would crush prices.
More importantly, before we start raising taxes in an already high tax state, lets look at cutting spending, especially entitlements to state employees. We can start with pension assumptions. I don’t know what CALPERS assumes their return will be but it’s probably north of 8% YOY forever.
Good luck with that.
Doing away with it would crush prices.
—————-
How?
CA renter | December 3rd, 2008 at 10:05 pmProp 13 pre-dates my being in California, but I always thought it was mostly for the reason someone pointed out above, that old folks were getting priced out of their houses. It seems like Prop 13 was an imperfect fix to this problem, and ended up distorting all sorts of things. (By distortions, I’m referring to the cases noted above with the multi-million dollar houseowners paying less than the very inexpensive home owners, in some cases, or the effect on schools and the vitality of neighborhoods) Would it be sensible to keep the spirit of Prop 13 while reforming it to get rid of those distortions? Sure. Is it gonna happen? Doubt it.
Dwip | December 3rd, 2008 at 10:06 pmWhile the State’s problem is spending, not taxing…
I like Prop 13. But of course, I still believe you buy a house to live in and raise kids without a landlord’s interference.
Of course, I’m naive enough to think estate taxes make sense by taxing the dead so the living have less tax burden.
If some are so hell-bent about making “geezers” pay taxes, quit buying in to dribble from spoiled , rich politicians that profess estate taxes to be unfair or unAmerican. The dead certainly don’t care, the middle class benefit, and anyone who receives estate proceeds are financially better off by definition. Perhaps that’s why estate taxes have existed since the US Tax Code’s inception.
BTW, most of us may dream of it, but few will ever die at an aggregate wealth level that subjects them to estate tax–even in SoCal.
Mike S | December 3rd, 2008 at 10:25 pmHow about each person gets to own — either personally or in a trust, LLC, etc. — one primary residence and one commercial property?
So…
1. Eliminate Prop 13 protection for second homes and “investments”. No, it wouldn’t drive up rents because of the theory of substitution. As homes are put on the market (by LLs who don’t want to pay higher taxes), a family moves out of a rental into a purchased home. Theoretically, you’d be eliminating one rental, but also eliminating one renter, for a net effect of zero.
I do not think anyone is entitled to kick someone out of their own home; however, as an example, there are many rentals on my street (good area) that are owned by long-time LLs (including mine). We ARE subsidizing their profits by giving them Prop 13 protection.
My argument in favor of NOT taxing granny is that she doesn’t use the most expensive services that are funded by Prop 13 (schools), but renters DO use these services. The portion of their rent that should go to pay for these services, goes to the LL’s pocket instead…and that is wrong.
2. Step up the basis whenever a property is transferred. This includes inherited properties. While I don’t want to price out granny, her kids — who are presumably in the same position as other current buyers — should not have Prop 13 protection when she passes away. They should have to pay taxes on the assessed value when she passed away.
CA renter | December 3rd, 2008 at 10:26 pm“Prop 13 pre-dates my being in California, but I always thought it was mostly for the reason someone pointed out above, that old folks were getting priced out of their houses.”
Retired folks on fixed incomes were the most visible cases, but you didn’t have to be old to be at risk of being unable to keep your home if its value - and your tax assessment - rose 200%-500% in a two or three year period. Remember, it wasn’t just that taxes were rising because of real estate booms, it was also that there was nothing to prevent legislators from increasing property taxes by any old amount they pleased even if values weren’t going up. Prop 13 assures anyone buying a home that your taxes will be *predictable* as well as limited.
GeneK | December 3rd, 2008 at 10:36 pmI think we should cut taxes, by repealing prop 13. Really put some teeth into the spending cap. We should be regulating government, not business.
I like the comment by the guy that says repealing 13 would crush prices. Isn’t that the problem we’re dealing with? Prices higher than incomes? We need some crushing.
Also liked the comment from the guy that says he’s an employer and likes the benefits of illegal labor, even with the costs to everyone else. Real generous.
I don’t buy the idea that prop 13 helps grandma from being kicked out of her house because she can’t pay her property tax. She’s a single old lady living in a house big enough for a young family. Why does she get to live there subsidized while a young family has to live in an planned community. Isn’t that backwards? Young families starting out deserve as much special treatment as old people with a lifetime to accumulate resources. Children are our future! Okay that’s too far, ha ha.
Jay Jay | December 3rd, 2008 at 11:15 pmAlso, if your problem is that your property tax has jumped up because you house has gained so much value as of late what is the problem? You now own an asset that is at least temporarily worth much more than you paid for it. You’ve benfited without toil, cash it in and be rich. Jeez!
When the bubble bursts, your taxes will also drop a whole bunch, it comes out in the wash. if you can’t budget well enough to handle those ups and downs in your property tax you shouldn’t be wearing big boy underwear yet.
Jat Jay | December 4th, 2008 at 8:17 ama lot of those grannies are living in two bedroom one bath houses that have never been updated Jay Jay…
mentalpause | December 4th, 2008 at 8:28 amK,
Thank you for your constructive feedback. I agree with your point about how people with no children shouldn’t pay for schools. That really doesn’t make sense to me either. It makes even less sense when you factor in the tax breaks people get who have children. Doesn’t having children who go to public school cost the govt more money? So why should parents pay less (by the way I have two kids in school) income tax than someone who does not have kids? There are several things which do not make sense when it comes to property taxes and my point about having people a proportionate amount of taxes is reasonable. Individual taxes should pay for services used. If you do not have kids, you should not pay for schools. But since when is it completely unreasonable to have an equally shared cost for equally used services (ie. fire dept, police dept, roads, etc.)? I am truly puzzled by your disdain for this concept.
Partyboy | December 4th, 2008 at 8:34 amJay Jay,
“When the bubble bursts, your taxes will also drop a whole bunch”
Have you actually seen an accurate reassessment of property taxes when home values go down? The assessors office is more than happy to raise taxes based on inflated values but are strongly opposed to lowering values based on foreclosure sales. It is shocking to see how fast they act to raise assessed value when prices are rising and how slowly they act when prices are dropping. Well, it’s not really shocking, just extremely unethical.
Partyboy | December 4th, 2008 at 8:39 amThey should raise property taxes but then keep that money in the districts. This way, better neighborhoods could make their school systems better, like back in the East Coast.
The benefit to the state is that they would not have to send money back to the local districts. This would relieve them of this burden plus give the local community more control.
Daveg | December 4th, 2008 at 9:16 amThe only way CA voters will ever approve any substantive change to Prop 13 is if they first see sustained success in reining in state expenditures. It’s not, as some people claim, that the voters don’t want spending curtailed. Time and time again the voters have elected people who promised to go to Sac and balance the budget, but once they got there joined the tax and spend parade. Want to see Prop 13 changed? First get the budget balanced and spending increases under control, then we can talk about it.
People like us who have no children pay to educate other peoples’ for the same reason that people who don’t drive pay sales tax that goes to build and maintain roads: they benefit indirectly when the taxes are spent correctly. The census shows that fewer than half of CA households have school age children, yet most school districts that have managed to not totally tick off their local voters are able to get 66% to approve parcel taxes at least some of the time. If you think the last person who served you at McDonald’s was an idiot, imagine how much worse it would be if there was no public education at all.
If people think they’re getting their money’s worth they are mostly willing to pay a fair share of taxes; if not, they’ll fight every penny tooth and nail.
GeneK | December 4th, 2008 at 9:22 am“Also, if your problem is that your property tax has jumped up because you house has gained so much value as of late what is the problem?”
The biggest problem, as we have seen time and time again, is that if a sudden jump in taxes collected produces a 30% increase in government revenue one year, government will commit every penny to new, ongoing expenses that will require that 30% increase EVERY year, FOREVER.
GeneK | December 4th, 2008 at 9:27 amProp 13 is two things. It is a stabilizing influence on long term homeownership, a desirable societal goal. Second Prop 13 serves as a mild restriction on politicians freely taxing what is effectively a captive audience.
Prop 13 is entirely voluntary. How many taxes can you say that about? Homeownership is not a necessity like say, eating and clothing. And gee, what are our masters in Sacramento planning? Yep, without similar constraints on their excesses another 1.5% increase in sales taxes.
Don’t like Prop 13? Vote with your feet. Don’t like Mello-Roos? Vote with your feet. Don’t like HOAs? Vote with your feet. Ahhh, freedom.
Rob Dawg | December 4th, 2008 at 10:15 amHonest question here…Do landlords pay property taxes? Does it matter whether they own a home or an apartment complex? If they do, then prop 13 is not voluntary because the cost just gets passed onto the renter. I understand that renters do not pay it directly, but they still pay it. If prop 13 was revised to increase prop taxes, rent would go up to help the unit owner to cover the cost.
I do agree that prop 13 encourages people to stay in their homes long term, but only if property values are increasing. When actual values go down but assessments, and therefore property taxes, remain the same, it encourages moving. If you are taxed at 1% for a home whose market value is $200k but is assessed at $400k, you are really paying 2% property tax ($4000 for a $200k home). And as the market value continues to fall faster than the appraised value is lowered, your property tax rate gets even higher. That cannot be a stablizing influence on long term homeownership.
Partyboy | December 4th, 2008 at 10:40 amGene,
Not having kids in the school is not the same as not driving because the roads are being used by buses, other people who give you rides, the mailman who delivers your mail, the pizza delivery guy, etc. All of these are ways you benefit by having roads, even if you do not drive personally. And it is difficult to imagine that a McDonald’s worker could be much less intelligent if there were no public schools…but I do see your point there.
Partyboy | December 4th, 2008 at 10:43 amHonest question here…Do landlords pay property taxes?
Trick question. Good landlords do not pay property taxes. Bad ones do. I recall a story from the mid 90s when a tenant complained about an unexpected $38 rent increase. I asked; “Did you vote for the property tax increment?” She said yes and I replied; “There ya go. Did you think your rent was based on expense ex-taxes?” I made an anti-tax convert that day.
Rob Dawg | December 4th, 2008 at 10:45 amRob Dawg, I like that.
The one I really liked in San Diego County a year or two ago was the big push by the county to increase property taxes per parcel for a “mosquito abatement” program. because of the big crisis as layed out to us by the county (and the consultants it hired), it passed. I increased rents because of it.
So what is happening to all that money? think it really went towards mosquito abatement?
Kingside | December 4th, 2008 at 11:03 am“If they do, then prop 13 is not voluntary because the cost just gets passed onto the renter.”
This is a popular misconception.
Landlords WANT to pass their property taxes on to renters, and TRY to set their rents to do so, but ultimately, there is an upper limit on rent that is set by the market, not by what it costs landlords to own and maintain property. Raise rents too much, and tenants will move out.
GeneK | December 4th, 2008 at 11:23 am“Not having kids in the school is not the same as not driving because the roads are being used by buses, other people who give you rides, the mailman who delivers your mail, the pizza delivery guy, etc.”
The public education system is the primary trainer of most of the people you encounter every day, many of whom have the potential to make your day very unpleasant or your last one on Earth if they don’t receive an adequate education.
GeneK | December 4th, 2008 at 11:26 amIf Prop 13 applies to property that corporations own, could you start a corporation whose sole purpose is to own a house and then offer an inflated purchase price twenty years later to anyone willing to take control of the corporation’s shares?
Tom in LCV | December 4th, 2008 at 11:38 amTom, I like that idea. Transfer ownership to a corp, then sell the corp to the next buyer. Boom, no reset in prop tax.
Jakob | December 4th, 2008 at 12:16 pmI seem to recall reading something about proposed reassessing of business properties when a business changes owners. No idea where it went or what the current law says.
GeneK | December 4th, 2008 at 12:56 pmI think there are special rules that apply to organizations whose apparent main purpose is to dodge taxes. This is the difference between tax evasion and tax avoidance.
Roads should be paid for completely by fuel taxes. If the mailman uses the roads and the grocery store has trucks to deliver lettuce, charge me more for stamps and lettuce. Don’t charge me general taxes and tell me its worth it, trust me.
If you can’t tell, I’m a big fan user fees (as opposed to general taxes). There is an economic principle that states that the closer you connect the use of a resource with its cost, the more efficiently that resource will be used.
There should be a tax to support public school, each parent should pay a per kid, per year fee to attend. I don’t accept the argument that the kids will kill me if I don’t pay for their education.
Jay Jay | December 4th, 2008 at 1:14 pmI won’t argue with the idea of people paying for their own kids. But I also think there should be an income tax surcharge for children rather than a deduction. I’d rather start reforming the way society relates taxes and children in time to head them off at the pass.
GeneK | December 4th, 2008 at 1:18 pmGene,
“The public education system is the primary trainer of most of the people you encounter every day”
The sad thing about this statement is that is may be true. However, I believe the primary trainers of most people I know are their parents.
Partyboy | December 4th, 2008 at 1:37 pmThat’s probably the scariest thing I’ve heard this week.
GeneK | December 4th, 2008 at 2:09 pmWhy are property taxes such a big deal in this country? Why don’t we just implement a national (or even state level) goods and service tax and reduce property and income taxes? It works in just about every other first world country.
Australia did it and paid government debt down to zero in a decade.
The good thing about a GST is that it’s on everything, up to an including rent, commissions, professional services …. and your plumbing bill. It has to happen now that the services side of things is becoming a relatively larger and larger as a proportion of all goods and services. It also encourages savings because you pay less tax on earning and more on spending.
Property taxes shound’t go beyong paying for trash, sewers and everything that connects directly to your property. It should be about $1500 a year regardless of value.
RD | December 4th, 2008 at 5:17 pmhey, hey, easy now on taxing commissions….
Although some new version of taxation would be well worth considering; flat tax, GST, whatever it is, it would be better than what we have.
Jim the Realtor | December 4th, 2008 at 5:20 pmTaxes need to be tied either to peoples’ ability to pay them or to things people have control over. Income taxes are tied to ability to pay because they rise with income; consumption taxes are tied to things people control because they can choose not to consume things they decide are too heavily taxed. Property taxes that go up and down with the value of things people own do neither, unless they are tied to things that only go down in value, like your car, or are limited in their ability to rise by rules like Prop 13.
GeneK | December 4th, 2008 at 5:36 pmAgree, GeneK.
IMHO, you, Rob and a couple of others understand Prop 13 better because you know what transpired before it passed.
I’m thinking most of the people who are opposed to Prop 13 are younger and/or new to the state. Their perspective is limited because they have no experience or understanding of the events that made Prop 13 pass by such a large margin (and, no, it’s not “greed”).
CA renter | December 4th, 2008 at 5:44 pmTo clarify, the long-time residents do not benefit from higher housing prices unless the sell, making the “anti-13″ arguments moot (theoretically, they want the long-timers to move so the newbies can displace them).
Either we believe in private property rights, or we don’t.
My point about granny not having kids — and highlighting the fact that shools are the biggest beneficiaries of property taxes — is a rebuttal to the argument that newbies are subsidizing the older folks. It’s simply not true. Nor should the older set have to pay for the infrastructure development required by all the new people moving to the state. New growth should pay for itself, as the older folks already paid for the existing infrastructure.
CA renter | December 4th, 2008 at 5:51 pmMy parents purchased there home in 1970 in Fresno, CA for $30K and still live in the same house day after 37 years. The house today is worth around $400K and the property taxes are $1,200 a year because recently I reviewed the bill.
My parents would have to sell if Prop 13 was abolished. They are now in their mid 70’s and do not have the funds to pay property taxes based on the current market value. Are they staying in the house because of the Prop 13?
The answer would be no they have no interesting in moving until they die unless something happens with Prop 13 then yes they would sale.
The majority of my parents neighbors are also between 60-85 years of age and have no intention of moving. The fact is very few young people live near my parents because houses hardly go up for sale.
Now is that solely because of Prop 13 well I’m not entirely sure; however it’s one of the factors in my opinion.
Nathan in Fresno | December 4th, 2008 at 6:10 pmMy parents bought their first house in 1955. They sold it in 1983 to buy a smaller home for their retirement, and lived in that one until my father passed away in 2003. In both cases, selling the home was strongly resisted until circumstances made it absolutely necessary. They didn’t live in CA, and had nothing like Prop 13 that could be seen as providing a financial incentive to not sell. They simply didn’t want to give up their home because it was their *home* and not just some “investment.”
GeneK | December 4th, 2008 at 6:28 pmGene, You’re rolling today man, thanks for participating! JTR
Jim the Realtor | December 4th, 2008 at 6:30 pmThe parents that are in their 70’s and own a $400k house free and clear, if nothing else could get a reverse mortgage to pay their prop taxes. They have plenty of money. If they want to spend down some of that inheritance then that’s up to them.
The question I have is what kind of house is this in Fresno worth $400k? You could buy a place in San Diego for that kind of coin.
Jay Jay | December 4th, 2008 at 7:54 pmIt’s also up to them to decide they want to go to the polls to vote to prevent the state from raising their taxes. When they move on to “that big McMansion in the sky,” feel free to go to the polls and vote to raise your own.
GeneK | December 4th, 2008 at 8:35 pmOK, this is the first time I have posted to this website. Sorry for the pointed post. But Robert Cote, (Rob Dawg), you are truly a brainwashed moron. You exurban, anti-tax stance ignores reality. You are an ostrich with a head in his sand. I can only hope that all the homeless folks move out to ventura and camp in your yard. Maybe piss on your grass.
Robert Cote is an idiot | December 4th, 2008 at 10:20 pmWow, a fan club. Rent_to_own?
Rob Dawg | December 5th, 2008 at 8:47 amWell reasoned and cogently argued. Bravo!
Ada Hominem | December 5th, 2008 at 8:51 amHit and run, like that’s gonna impress anyone. I am not anti-tax, I am pro tax stability.
Rob Dawg | December 5th, 2008 at 9:03 amOffhand, I’d say we’ve reached the end of rational discourse on this subject.
GeneK | December 5th, 2008 at 9:55 amUnfortunately GeneK that’s what usually happens because one side gets frustrated at being unable press their position.
Rob Dawg | December 5th, 2008 at 10:03 amNo, I got annoyed at your idiotic first post. Made you sound like a real smug a’hole. Truth be known, I used to enjoy your posts when you posted on the housing bubble blog.
“I’ll hold off commenting on the actual merits of Prop 13 until everyone chimes in with all the wrong analyses first. That way I need only straighten everyone out in one post. ”
Pretty obnoxious, heh?
Here the truth on Prop 13. It is an unfair tax since it really does favor the status quo. We’ve got enough thing against the gen y’ers and gen x’ers, like social security, medicare and deficit.
I used to live in TO. Pretty nice. They build plenty of places for kids there. Mostly funded by Mello Roos, I believe.
I moved (with my kids) to LA due to job reasons. Here the old folks refuse to move out of their houses because of prop 13. The parks suck. In the last neighborhood I lived in, they spent money on the old folks recreation center, but the park was so disgusting that I would drive my kids to a different neighborhood.
One more thing that is true……TOTAL average tax rate for the average californian has not diminished since prop 13 was enacted. Which means an increasingly larger share of the revenues come from state income tax. Which means that younger folks are doubly screwed. Higher income tax, and high property taxes when you buy in.
Look, sooner or later the younger folks are going to revolt.
Robert Cote is an idiot | December 5th, 2008 at 5:44 pmSo why did you choose to “buy in?” Did some old codgers put guns to your head and force you to pay 4X what they paid for their houses? Or did you just not do your due diligence about what you were getting into before you chose to live in CA?
The reason why new homebuyers (and I include myself in this, since I’ve sold and bought several houses since my first one 25 years ago knowing that my tax burden would increase, most recently just last year) pay higher taxes is because we *chose* to buy houses at higher prices than other people before us paid (and in my case, at much higher prices than *I* originally paid when I was one of the “younger folks”).
Some younger folks may sooner or later revolt, but I predict that most will just stop whining and grow up.
GeneK | December 5th, 2008 at 8:48 pmBingo, Gene!!!!
CA renter | December 5th, 2008 at 9:26 pmAnd another point you addressed correctly, Gene: older people are staying in their homes because they are **their homes**!!!
Talk about smug. Nobody forced anyone to move here, and quite frankly, the long-timers and natives would be more than happy if you didn’t. It’s too crowded already, and the newbies have a sense of entitlement that makes Wall Street parasites look like angels. Why in the world do you think anyone owes you a house with low property taxes? Why do you think someone should move out of THEIR house so you can move in?
I’ve lived here all my life, and known many older folks who bought in the 40s-70s. NONE of them have ever said they were staying in their homes because of Prop 13. I’ve just NEVER heard that as a reason. ALL of them have stayed in their homes because it is where they raised their kids and they are familiar with all the neighbors and local amenities…it’s their home!!!
CA renter | December 5th, 2008 at 9:32 pmUsually what you hear older folks say is that Prop 13 is the reason they CAN stay in their homes.
GeneK | December 5th, 2008 at 9:43 pmI’m going to be a traitor to my generation (Gen Y). I AM FOR PROP 13
1) When I do buy my 1st house, I know I’ll be consistently paying $xx each year till the end of time. You can counter that the 1-2% yearly increase doesn’t keep up with inflation, but inflation doesn’t factor in the cost of housing anyway.
2) For all those who prefer consumption tax or VAT vice income taxes (like myself) - PROP 13 IS A VOLUNTARY CONSUMPTION TAX!!!! If you don’t want to pay an arm and leg then buy a cheaper home, or simply rent.
3) It sux that gen X’ers and Y’ers have to pay ~10x more tax than their 60 year old neighbors. But in 30 years it’ll be our turn to pay only a measely $500/month while our younger neighbors pay $2k/month. So suck it up.
3) As with any law, prop 13 is flawed. I think inherited properties or change of deed should constitute an immediate tax reassessment.
garbler | December 5th, 2008 at 9:50 pmCA Renter,
My parents and some of their long time neighbors stay in their houses because of prop 13. They live in modest 60s trackhomes, and the illegals have taken over the neighborhood which in turn is going downhill (e.g. mariachi music blasting & shopping carts on the sidewalk). They want to move but cannot afford to be taxed at 5 times the current rate.
garbler | December 5th, 2008 at 9:57 pmOops! Just realized that my second paragraph may have looked like it was addressed to you, Gene. It wasn’t (which I think you figured out). Sorry if that came across the wrong way. I was just commenting about your post in my first paragraph.
I get tired of hearing people slam native and long-time owners when the newbies seem to think they have the right to move to our state and make demands on the existing residents. None of the residents in other states like it when “Californicators” come to their state and demand that the existing/native residents make sacrifices that would benefit the Californian transplants. Why do they think Californians should be any more receptive?
Anyway, we are Gen X and renting…waiting for years to buy a house where we can raise our kids. I’m all for Prop 13 because I want to know what my expenses will be.
Allowing moronic speculators to determine your property taxes is suicide, and that’s exactly what happens in California in every boom/bust cycle. By not capping property taxes, you are no better off than an FB with a no-doc, neg-am loan with a teaser rate.
The people who oppose Prop 13 have no historical perspective, IMHO. While this bubble was very bad, we’ve had pretty bad ones before. Taxes need to be predictable and unaffected by all the gambling that goes on in our housing market.
CA renter | December 5th, 2008 at 10:09 pmgarbler, are your parents and their neighbors aware that over-55 homeowners get a one-time chance to transfer their lower Prop 13 assessments to another home?
GeneK | December 5th, 2008 at 10:27 pmGive special tax treatment to old people is like giving special loans to the auto industry because they claim to be more important than another equal sized economic activity to the economy. It just doesn’t make any sense. Why do we want to enable old people by way of subsidy the ability to occupy a house large enough for a whole family. If they can truly afford it, great, enjoy the space, by why do we subsidize?!?!?
Jay Jay | December 6th, 2008 at 7:37 am“We” are not “subsidizing old people.” What we are doing is not requiring those who came before to subsidize the added expenses required to accomodate those who come later. And everybody who buys a house gets the same treatment: your taxes are set at the time of purchase so you know what they will be from the day you buy to the day you sell before you freely choose to buy a house. You exercise total control over whether to pay the tax and how much tax you’ll pay, by deciding whether or not to buy and what amount you spend to do it. Want to see the same real estate taxes for new buyers as longtime owners? DON’T BUY A HOME. If enough people do this for long enough, prices and taxes will come down to longtimer levels.
GeneK | December 6th, 2008 at 10:42 am