Brad Ideas - Fixing Proposition 13 - Comments

One problem cities have is

Yakko — Wed, 13 Jun 2007 16:36:32 -0700

One problem cities have is that a significant part of the population doesn't actually own property in the city. They just come there to work, but they expect the police to show up if their car is stolen. I don't think the property where they happen to be working should have to foot that entire bill. An income tax based on where the income was earned fixes that.

I currently pay 3 income taxes (and one property tax) -- city, state and federal. The city one has no deductions and since I work in the city my employer auto-deducts it. If I worked out of the city, but lived in the city I would have to fill out a 1/2 page form and send it in.

I'm not in disagreement with that

brad — Fri, 08 Jun 2007 15:08:41 -0700

Though there are some factors to balance. People buying million dollar homes do expect more from the local government -- and might even be willing and able to pay more -- but I agree it's not truly in ratio to the appreciation. Prop 13 was driven by the people who found they had $400,000 homes they had paid $40,000 for who quite reasonably did not want to be saddled with 10 times the tax bill. Saddling it all on people who move or inherit was the wrong answer, though. And yes, there should be an independent cap on the local government revenues, perhaps to follow some COLA-plus/portion of real estate values rule by default, with adjustment by voters when needed, and that revenue should be divided evenly based on the value of property serviced and protected.

There are arguments for and against the existence of property tax. On the one hand, to the extent that it pays for protection of property against fire, crime and the like it makes sense to pay according to how much property one has. Paying for education, we've decided, will not be based on how many children one has, so it could be based on anything -- property, income, you name it.

That it stopped spending

Glen Raphael — Fri, 08 Jun 2007 13:17:02 -0700

That it stopped spending from rising as fast as the counties like was the whole *point* of Prop 13. There's no reason why local government spending should need to increase at anything like the rate of property appreciation. If you capped the rate of local spending growth the way Prop 13 caps the rate of tax growth, that would solve the disparity issue more simply.

or change to an income tax

Yakko — Thu, 07 Jun 2007 10:14:54 -0700

could also do away with the property tax and go with a straight income tax. Several states do this already.

As long as the deductions are kept to a minimum tax forms are easy to fill out (contrary to flat taxers claims, it isn't the progressive levels of an income tax that makes taxes hard to do -- it's the 10 million deductions that make them hard.)

Fixing Proposition 13

brad — Wed, 06 Jun 2007 20:19:45 -0700

Even people outside of California have heard about proposition 13, the tax-revolt referendum which, exactly 29 years ago, changed the property tax law so that one’s property taxes only go up marginally while you own a property. Your tax base remains fixed at the price you paid for your house, with minor increments. If you sell and buy a house of similar value (or inherit in many cases) your tax basis and tax bill can jump alarmingly.

The goal of Prop 13 was that people would not find themselves with a tax bill they couldn’t handle just because soaring real estate values doubled or tripled the price of their home, as has often taken place in California. (Yes, I can hear your tears of sympathy.) In particular older people living off savings were sometimes forced to leave, always unpopular.

However, there have been negative consequences. One, it has stopped tax revenues from rising as fast as the counties like, resulting in underfunding of schools and other public programs. (This could be fixed by jacking up the rates even more on more recent buyers of homes but that has its own problems.)

Two, it generates a highly inequitable situation. Two identical families living in two identical houses — but one has a tax bill of $4,000 per year and the other has a tax bill of $15,000 per year, based entirely on when they bought or inherited their house. I would think this is unconstitutional but the courts said it is not.

Three it’s an impediment to moving (as if the realtor monopoly’s 6% scam were not enough.) There are exemptions in most counties for moves within California by seniors.

Here’s my fix: Each house would, as in most jurisdictions, be fairly appraised, and receive a tax bill based on that. Two identical houses — same tax bill. However, those who had a low basis value in their home could elect to defer some of that bill (ie. the difference between the real bill and their base bill derived from the price they paid for their home) until they sold the home. There would be interest on this unpaid amount, in effect they would be borrowing against the future equity of the home in order to have a lower tax bill.