I'MMA LET YOU FINISH
I was in California at the time Prop 13 passed, and while I don't think it's a perfect solution, it's much better than most alternatives. At the time, people, especially older people, were sometimes forced out of their homes and neighborhoods because they couldn't pay what had become onerous property taxes on houses that had gone up in value a lot. Now it's nice that some little old lady could get a nice piece of change for her house, but she also had to move a long ways off, perhaps out of state, when she didn't want to. That's not right.
It also made it very hard on people who had a house from a cheaper time, and who didn't have a high-paying job. They couldn't just move, not without losing their job. The situation just didn't work after property values had gone up so much.
Now you have a situation where people who've been in a place for a long time pay much less than people who just bought. This is often said to be unfair, but really, if you can afford to buy an expensive house, you can afford to pay taxes on it. So is that really unfair?
The one bad downside I see after some time (like now) is that if there isn't much movement in house sales and buying, you end up with a base of low taxed properties instead of a mix of high and low. That can cause a problem.
It is interesting that Arnold's new man said it's time to raise property taxes in California. He is right, of course, for a variety of reasons, and not simply because it's a way to increase revenue.
I don't see why it's necessary - well in a normal economy that is, before the Bush trainwreck destroyed the economy. California did just fine with Prop 13. Like the Nation as a whole there was a surplus here. Services were expanding, the state credit rating was good, everyone was happy (well more or less). There was no need to raise property taxes.
If a Democrat retakes the WH things might just return to normal again.
Proposition 13 is one of the things that wrecked California.
One way to improve the economy is to tax the unimproved value of land, the increase of which is economic rent and should be returned to government.
Henry George, a radical American economist of the late 19th century, was the first to really push these ideas.
Of course, it sounds bad when someone old is forced out of their house, but with land value taxation, in the long run there's much more housing available to people of modest means.
Proposition 13 does the opposite---it allows landowners to capture even more value they had no part in creating. Not taxing land is both economically inefficient and inequitable.
I oppose property taxes in any form. Even if it means making the rich richer I despise the very notion and logic behind property taxes.
Property taxes are paid on homes and vehicles, boats-cars, etc.
In many states in the union a person refusing or unable to pay the taxes is subject to forfeiture of that property.
What does this mean?
1. You are being double taxed. If you pay sales tax on it then you shouldn't be forced to pay an annual tax on it's value which the state has every reason to see higher than what you say it is for the purposes of making more money.
2. It ammounts to you not owning your property, but are instead paying a rent of that property.
3. Homes that are forfeit are sometimes locked up under police control, preventing you from entering them for essential private belongings or effects like wedding rings, car keys, medicine, etc. Attempts to enter result in you getting sent to jail.
Though the courts can solve most problems, and they oftentimes do not go to extremes, there are times when they do.
Back in 1994 a man who owned his home after 4 generations of his family living there was devastated when a building developement two blocks over was said to have raised the value of the property around it, including his block.
The property tax bill went up 25x what it was. He and several others were unable to pay the tax. They appealed to the courts on the fact that such a raise was unrealistic and immoral and was turned back.
The court first agreed that the tax was indeed too high for someone like them to account to, but allowed them a deferral for two years only SO THAT THEY COULD SELL THEIR PROPERTY AND MOVE.
When he failed to pay the tax on time his own was locked up and when his wife tried entering the kitchen window to obtain her wedding ring which she had left near the sink after washing dishes was caught and arrested!
This kind of crap is no better than anything the British did to warrant a revolution.
Anyone who talks about raising property taxes is an idiot if they are only doing so for the purposes of screwing the rich.
There are better ways to raise funds.
Be well.
Fair & Balanced Buckeye MYOB'
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It's discriminatory in the same way that rent control, particularly rent control with vacancy decontrol, is. Existing homeowners get the benefits of it - their property values can skyrocket (in the case of the beach communities, I mean SKYROCKET), while their property taxes remain flat.
They only get the benefit if they sell their house. Lots of people live in the same house for many years and in the cas of seniors the rest of their lives. They then have to pay riseng taxes on a fixed income in a state where they didn't create the rising property values.
New and wannabe homeowners are at a great disadvantage, as a new assessment kicks in once a home changes hands. It has the same distortionary effects as rent control does, substantially reducing the mobility of individuals. Mobility is harmed because individuals who move will have to pay higher taxes on new homes versus their existing ones.
Well if you overturned Prop 13 they'd have to pay higher taxes anyway! They'd just have to pay the results of the gradually increasing property taxes that the seller had to pay. Same difference.
Who should pay the higher rates are the real estate agents who conspire to drive up property values so that they can both make a killing with every house they sell and so that only the rich (i.e. few or no brown skins) can afford to live there.
They only get the benefit if they sell their house. Lots of people live in the same house for many years and in the cas of seniors the rest of their lives. They then have to pay riseng taxes on a fixed income in a state where they didn't create the rising property values.
The proof of this: Drive to one of the richest communities in California, Santa Barbara. There you will see lots and lots of run down houses but whose resale value is high just because of where they're at. These places are run down because the owners are to poor to repair them. Should they be penalized because real estate agents have sent property values through the roof? Should they be forced to move to pay their bills if they've lived there much of their lives?
Note: I am not anti-tax at all, just anti-unfair taxes.
Second thought on my last post. I guess they could mortgage their houses to repair them...
In New Jersey, education is supported by property taxes. Many elderly people point out the fact that since they no longer have children in school, their taxes should be lowered. Their arguments are countered by claiming, quite rightly, that our children represent the future of our country, and that the elderly should be willing to sacrifice on their behalf.
This concern, though, is not always extended to the elderly. The notorious Frank Luntz once conducted one of his "surveys" that purported to show that "more young people believe in the existence of UFOs than believe Social Security will exist when they retire." This was obviously rigged, as part of the GOP plan to privatize Social Security.
The problem seems intractable. As long as the public demands services for which it is unwilling to pay, there can be no sensible solution. That the GOP sees this anomaly as a political tool is, of course, reprehensible.
Of course, it sounds bad when someone old is forced out of their house, but with land value taxation, in the long run there's much more housing available to people of modest means.
Where?!? Find me the modest priced housing for someone with a low paying job in Marin County. California is full of pricey places like Marin County; where's the modest priced housing around these places. Of course they can get modest priced housing elsewhere -- great. So they're going to commute from Bakersfield to Santa Barbara?
Is that form of taxation really going to change that? If you implement land value taxation, are you going to claim that in the long run, there will be modest priced housing in Marin? That'll be worth seeing.
As an owner of houses in both Texas and Cali, I can tell you you're gonna pay the piper either way. Texas has ridiculous urban property taxes (I pay $12,000 annually for a $500,000 house in Austin) but no state income tax. I'll take that option any day. My 1% Cali property tax is offset by a whopping 8% state income tax.
OK, Stephen: can you explain what you're saying to an economic idiot (& one that's never owned "real" property) like meself?
It sounds like you're advocating something distinct from the property taxes most folks pay these days. When you say "unimproved" do you mean the value of the land with no buildings, no utility hookups, no landscaping or clearing? Offhand, it sounds like a much "flatter" (i.e. non-progressive) tax and one that draws alot less revenue--an odd solution in the current situation of massive economic inequality and governments starved for $$. What am I missing?
Many elderly people point out the fact that since they no longer have children in school, their taxes should be lowered.
Good thing that position wasn't taken by seniors when their own children were in school. 
"I oppose property taxes in any form. Even if it means making the rich richer I despise the very notion and logic behind property taxes."
Couldn't agree more. Why pay a shitload for something you only rent, and then are forced ( due to various laws and ordinances) to maintain.
I also tought there was supposed to be a debate between the CA candidates?
Will Arnold just be memorizing lines? What about cross questioning?
The recall is completely separate from propositon 13. The recall must be defeated for the future of democracy.
Berkshire Hathaway owns gas pipelines and I am guessing stands to benefit from California's outrageous energy bills. As long as these bills compete with state funds to localities there will be tremendous pressure to repudiate the energy payments. Buffet wants Proposition 13 withdrawn so localities will be able to raise more money and state funds will be freed up to pay the energy bills.
FRIN PETROLEUM NEWS:
Buffet is investing in gas lines
http://www.petroleumnews.com/pna.../030330-
03.html
In his presentations, Thompson pointed out that Wall Street titan Warren Buffet invested $2.8 billion in gas pipelines and companies in the last three years.
Gasline investments “fit Buffet’s investment strategy,” Thompson said, which is to:
• Find a business that makes something everyone uses;
• Make sure it is profitable and dominant;
• For existing assets, purchase when undervalued.
Other investors, “particularly some master limited partnerships,” Thompson said, invest in gaslines because of their “stable cash flow with tariffs not volatile with gas price cycles, long life and low-maintenance capital expenditures.”
My 81-year-old mom lives in the house we grew up in in Westchester County, NY. When they bought it in 1951, it was at the outer edge of NY suburbia. Now, it's in the heart of a ridiculously rich suburban area. The house is worth so much money it isn't funny--and my mom, living on Social Security and a teensy union pension, has property taxes as far and away her biggest expense.
But the town has a program that reduces and then freezes her taxes at a certain level based on her age and tenure in the house. She won't have to leave the house she (and we all) love for as long as she lives.
The point? If you have a social problem, enact legislation aimed at fixing the problem--not something that meataxes a hundred other things.
The worst thing about the many bad things of Prop. 13 was the 2/3rds supermajority needed in the legislature to create new taxes or raise taxes. That, coupled with the 2/3rds needed to pass the budget (except for public education), guarantees that a minority, this case the Republicans, will have veto power over any kind of spending or revenue needed to keep the state solvent. It's a recipe for gridlock, and gridlock has largely characterized the state legislature for the past 25 years.
The supermajority is tyranny of the minority, and it should NEVER have been allowed. But the right-wingers who pushed Prop. 13 knew the score. It was a "heads I win, tales you lose" scam.
try and inform people that an income tax is fairer.
You missed the most important part of Prop. 13 - the "freeze" on property taxes doesn't apply just to residential property, but to commercial property as well... and since "creative accounting" will allow a 40-story building in downtown San Francisco to never change hands, it will always be assessed at a next-to-nothing rate, no matter how many millions in actual value it gains over the years.
End the commercial exemption on property taxes and the California state budger would be in much better shape - but the commercial exemption on property taxes was the only reason Prop. 13 ever made it on the ballot. The homeowner's "tax revolt" was just window dressing, and still is.
QrazyQat said: The one bad downside I see after some time (like now) is that if there isn't much movement in house sales and buying, you end up with a base of low taxed properties instead of a mix of high and low. That can cause a problem.
Not in the Bay Area. Even with the down economy, housing is moving almost as soon as it hits the market.
F&B B MYOB said: Back in 1994 a man who owned his home after 4 generations of his family living there was devastated when a building developement two blocks over was said to have raised the value of the property around it, including his block.
The property tax bill went up 25x what it was.
My understanding is that in California, there is a limit to how high your home property taxes can go up each assessment; 25% is way beyond that limit.
This isn't anything like rent control or rent stabilization. Rent control exists in New York because landlords, as a rule, are horrible businessmen. They will lose a sure profit over the profit they think they should make every time.
When Massachusetts ended rent controls, rents exploded. 200-300 percent increases. Homelessness followed.
Now, Boston rents are among the highest on the East Coast.
Prop. 13 was a popular, and understandable, revolt against local property taxes. I'm actually sympathetic to it in the same way that I'm sympathetic towards rent control -
I lived in the city of Los Angeles for many years until recently, and now live just outside the city limits (Burbank), so I can only comment on the rent control ordinance (or Rent Stabilization, as it's called here) in place in LA.
You can look it up in the original legislation: the purpose of the ordinance was to decrease movement in an already full-to-capacity rental market.
Unfortunately, it did create a sort of adversarial relationship between landlord and tenant-- well, that's another story.
But it's a difference between the reasoning behind prop 13 (passed by initiative pf CA voters, affects entire state) and rent control (in this case, as with most, passed by a city, affects a local housing shortage).
I know everyone says how Prop. 13 is good for places where property values skyrocket. But in many ways, property values are in the hands of the residents. A perverse incentive of Proposition 13 is that the residents have no incentive to allow developments that would cause the moderation of property values in the area.
If Proposition 13 were not in force, then homeowners would have more of an incentive to lobby their zoning board to allow more development to relieve the spike in demand and thus the spike in property values.
Ohio had a similar reform — at least in terms of addressing the concerns of seniors over skyrocketing property taxes and fixed incomes —around the same time, still known colloquially as House Bill 920 even though it passed.
It’s devilishly simple: A property tax levy remains based on the assessments in place in the year it originally passed (all property taxation outside the first 10 mills (1 percent of assessed value) must be passed by a popular vote, and most municipalities or townships in Ohio usually thus reserve that millage for police and fire operations.
As you can imagine this plays merry hell with school budgets, and is a large part of the reason the Ohio Supreme Court ruled that state's school-funding system unconstitutional (many districts in the poorer southeastern areas of the state haven't passed new levies in decades). But it does, one guesses, allow homeowners to plan better (and often a replacement levy can be passed, updating the applicable year of assessment).
We'll give OH some credit, though: they have limited the ability of referenda to dictate financial policy to the state, unlike CA.
Nor, we should add, does HB 920 apply to personal property, which means mainly business inventory.
Didn't MA pass a similar limit on property taxes: Prop 2 1/2, whereby your property taxes can only go up that much each year?
Yes, property tax does indeed make ownership into a sort of rent (although it can take a long time to go through with a successful tax foreclosure, so long in our experience that most municipalities prefer to work something out ... which maybe is the idea). But libertarians are always saying that the minimum function of government is to secure property rights. And how much fairer is it to tax the property owners for these services than anyone else?
(BTW, not every state taxes vehicles as property, either).
It isn't just like rent control, but many of the distortionary effects are similar.
And, yes, people could take out additional equity in their homes to pay their property taxes.
Slightly OT, but not quite irrelevant:
Prior to Prop 13, schools in California were largely financed by property taxes, so that affluent districts had far better schools than poorer districts. This was deemed unconstitutional by the State Supreme Court (Serrano v. Priest, IIRC), but no general solution was reached by the legislature.
After Prop 13 gutted the property tax, the state assumed the burden of financing the schools, which are no longer among the best financed or best performing in the nation. I don't know, offhand, whether they are now more equally financed.
The moral of this story isn't evident to me.
I don’t see anyone benefiting by doing away with Prop. 13. Rents in my part of California (San Diego) are about $800 a month for a studio apartment and $1,000 to $1,600 for a one or two bedroom apartment. Doing away with Prop. 13, which could quickly lead to a quadrupling of property taxes, would cause property owners to raise rents even more to cover the larger tax bills. So, no benefits for renters. Those renters trying to save money for home buying would be able to save even less, and those just trying to keep a roof over their heads would just be that much poorer.
Raising taxes wouldn’t help new home buyers either. New home prices have risen in part because municipalities have finally figured out that all those new subdivisions being built strain the available infrastructure. They are demanding that builders help pay for the impact their developments have on that infrastructure, and that has helped drive up home prices by tens of thousands of dollars. This hidden tax on new housing wouldn’t go away with the repeal of Prop. 13. Homeowners would just pay more taxes on the hidden tax-inflated value of their homes. In other words, a tax on a tax.
Existing homeowners protected by Prop. 13 would of course be the losers. Those with jobs and low mortgages might be able to absorb the sting of increased taxation. Those on fixed incomes, like those old people cluttering up the beach towns, would of course have the option of selling their homes and leaving their families behind for cheaper lodgings somewhere other than on the beaches, perhaps in the deserts of Nevada or Arizona, where no one has to look at them.
And lastly, the property-rich business interests, who are currently getting a free ride on taxation, would leave California even faster than they’re leaving now. The net result would be (a) fewer jobs; (b) lower wages in reaction to a surplus workforce; (c) less payroll and sales tax revenues (d) yet more increases in property taxes to make up for the lost wage and business taxes.
No matter how you slice it, reapportion it, try to make it fairer, or eliminate discrimination, it always ends with the poor working slobs paying the bills.
I just discovered Henry George's theories last week via Usenet...
http://www.geolib.pair.com/
In a nutshell, the central precepts are that the fundamental right to "life & liberty" implies a right of access to the commons -- and title to "real property" is simply the state granting a privilege it has no right to grant.
As for schools being paid from "land value" taxes, this makes a lot of sense, as even if you don't have school-age children the value of your land increases with the quality of school selection available. Same with road access and other improvements. I find the argument that *all* local government should be funded from "land value" (which does *not* include one's own capital improvements such as construction etc.) is a very self-consistent "liberal" philosophy.
If the landlords are able to raise the rent, they will. It's called maximizing profit. The occasional landlord might tolerate the occasional cost-plus-markup rental, but that's not the general case. Think about supply and demand.
The property tax is a tax on wealth, and not, as such, inherently unfair. There are problems when people own valuable assets without a matching income stream, and these problems were commonplace in California in the late 1970's when property values jumped. (There were mitigating programs - like tax liens targeted toward the elderly - which fell short of general relief).
California needs more revenue. The wealthy have most of it. Does anyone think they'll abandon their beach homes?
25x is 250%, not 25%.
Look, what California (being more progressive than most states) should do is to determine all those absolute necessities that we all rely on, things like health care and schools, then make those state financed operations. Distribute the costs for these things equally among the populace in the form of a flat percentage income tax. And make sure that businesses can't weasle their way out through loopholes and shelters. Also include a strong accountibility to insure that profitizing is nil. I suspect that when all was said and done that everyone would save and everyone but the profiteers would be happy.
Oh wait, that would be socialism right?
Great post, Atrios, and great thread, Eschaton.
In Vermont, where property taxes have skyrocketed due to the new centralized education funding scheme, they implemented "income sensitivity", whereby your property taxes are limited if your annual household income is less than (I think) $80,000. I guess that allows the housing market to behave more like a market, without the distortions Atrios points out in rent control and Prop 13.
25x is 25000%.
DonBoy wrote: 25x is 25000%.
My error (these olde eyes...). Still that kind of increase in property taxes for one year would not happen.
one more time:
1x = 100%
ergo:
25x = 2500%
perhaps the New York Times could check my math.
Although - if the new number is 25X the old number, then of course the increase would be 2400%.
arrgh.
Property values include property tax. If someone can afford $1,000 a month for a house, that $1,000 will include mortgage, tax and insurance. The lower the tax the higher the affordable mortgage, and except in increasing interest rate environments, higher mortgages mean higher property values. Prop 13 was advanced by the real estate industry who make more when property values go up.
Also the schools in CA were decimated by Prop 13. A generation of inferior education would make any populace "think" Arnold was qualified.
As a CA homeowner, I'm not crazy about the idea of not knowing how much I'll pay in property taxes each year. OTOH, residents are moving at least every 7 years on average (maybe it was 4, can't remember now), which would make taxes increase 15% over the lifetime of the mortgage if you raised them 2% per year. I guess that's not too bad. Still, my initial reaction is that this would be detrimental to me.
The solution is simple. Property taxes should be based on the actual worth of a property with a cap at a certain percent of the owners income. This would prevent seniors from being taxed out of their homes.
Of course an even fairer alternative would be for the state to give the seniors sort of a reverse mortgage on their taxes, to be paid from their estate when they croak. But this would never pass, too many heirs who think they're entitled to their parents wealth with no strings attached.
Michael (in DC) wrote, "OK, Stephen: can you explain what you're saying to an economic idiot (& one that's never owned "real" property) like meself?
"It sounds like you're advocating something distinct from the property taxes most folks pay these days. When you say "unimproved" do you mean the value of the land with no buildings, no utility hookups, no landscaping or clearing? Offhand, it sounds like a much "flatter" (i.e. non-progressive) tax and one that draws alot less revenue--an odd solution in the current situation of massive economic inequality and governments starved for $$. What am I missing?"
One can, logically, separate the value of a piece of property into 2 components: the value of the land itself, and the value of improvements to the land (buildings on it, etc). Whether it's easy to do this is another matter.
One can also split the property tax into these components.
Tax on the unimproved value of the land itself is both equitable and efficient.
In a post above, "Troy" provides a link to a site on land value taxation. I can't vouch for it, but if you do a google search you can find out more.
Qrazycat wrote, "
Where?!? Find me the modest priced housing for someone with a low paying job in Marin County. California is full of pricey places like Marin County; where's the modest priced housing around these places. Of course they can get modest priced housing elsewhere -- great. So they're going to commute from Bakersfield to Santa Barbara?
"Is that form of taxation really going to change that? If you implement land value taxation, are you going to claim that in the long run, there will be modest priced housing in Marin? That'll be worth seeing."
I'm not an expert on the subject, but people who advocate for land value taxation claim that there's much less homelessness (for example) in places that have it.
It doesn't *logically* follow that with land value taxation, people will be forced to commute long distances. For example, it's possible that without land value taxation, someone owns a few acres very close to commercial districts where many people work (and must commute to). The current owner lives alone in a small house. With LVT, it's possible that the owner wouldn't want to pay the taxes, and would sell, after which a large apartment building would be built which would accomodate many workers...
F&B B MYOB wrote, "I oppose property taxes in any form. Even if it means making the rich richer I despise the very notion and logic behind property taxes."
But that's because you don't understand what "property" means.
In the case of land--surely one of the better known examples of property--the government grants monopoly access to a piece of land to some people, at the cost of denying others access to the land. No one created the land; it's just there. And the land increases in value without the landowner doing anything productive (this is *after* accounting for the value of improvements to the land).
A good discussion of these issues is from a "geo-libertarian" perspective:
http://members.aol.com/_ht_a/tma...a68/geo-
faq.htm
I'm not a libertarian myself, but this page is pretty good.
Prop. 13 was and is an unmitigated disaster. It was a rotten solution to a real problem. The very first thing that happened with its passage was the cancellation of summer school classes all over the state. Ever since, summer school is a very expensive pay-as-you-go proposition here. The tax activists never gave a crap about education or any other social services in this state, and they still don't. Prop. 13 is pernicious.
There is an enormous amount of wealth locked up in bank accounts doing absolutely nothing to contribute to the economy. It seems to me a simple revision of Prop. 13 -- increasing the cap to 4% a year from 2% and elimination of the many dodges property owners can use to get around revaluation would free up a lot of money and go a long way to smoothing out the feast-or-famine budgeting every governor and legislator faces in this state. Maybe Mr. Fromm could comment on that.
Stephan Fromm wrote:
Of course, it sounds bad when someone old is forced out of their house, but with land value taxation, in the long run there's much more housing available to people of modest means.
Yeah who cares about a few old people thrown out of their houses. BTW have you even seen what passes for low cost housing in our state? There is very little unless you move to the Mojave Desert or Nevada.
In reality there is no more affordable housing in this state for many working class people. The only exceptions are for welfare cases who get houses under HUD.
No free ride here Mr.Fromm.
You are probably way too young to know or care what went on in this state prior to Prop 13. The state was going crazy ratcheting up property taxes to pay for pet democratic projects. IT WAS throwing old homeowners and poor people out of their houses. Not a peep came from the liberals and progressives about this.
People got pissed and got behind Jarvis and put an end to this taxation without representation.
It just boggles the mind that so called progressives don't give a shit when low/fixed income homeowners were getting thrown out of their houses.
Marie:
Prop 13 did not devastate the public schools at all. This was pure BS, peddled by corrupt school officals. I was in school at the time and nothing happened. The LACSD is a monetary black hole with no accountability. No one gets fired for being incompetent of a being a crook.
Just a few years ago when a LA county school Dist floated a $1 billion bond fund that WAS promised to go the fixing up our schools. It was misappropriated by the school officials for other purpises and most of it was siphoned off for god knows what.
Our schools can afford brand new Ford SUV's and Lincolns at +$35k apiece for school administrators something is wrong but yet have no money for new school text books. Or have unfirable counselors and teachers pulling down $70k a year for a couple of hours work a day.Or piss away a couple hundred million on Belmont that was built on a toxic waste site. Give me a break.
LACSD makes the DOD look like a model of effeciency.
Rodger,
I was in school as well (3rd Grade) Anaheim school district. It gutted our school system. Up until 3rd grade we had musical enrichment, field trips, hands on learning. After prop 13, it was all cut. No more field trips, no more music, no more innovative learning.
I can't speak for LA, but it sure jacked up the Anaheim district.
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