Arnold's new property tax

Good morning. Disinclined as I am to wade into state politics, this one is teed up like a Titleist: The governor's proposed "surcharge" on property insurance premiums is more accurately described as a tax increase.  That doesn't make it a bad thing. That makes it a tax increase.

I know, I know, I hear a couple of you saying, "Wait a minute, there are important differences between taxes and fees and surcharges.  There are important legal differences..." And then your lips keep moving but the rest of what you say sounds like "Blah, blah, blah," because I am not listening.

It's a tax increase.

A while back I made a critical comment about Prop. 13, and nearly got my fingers chopped off in the comments. So today I'll let David Lazarus do the talking, and his fingers take the chopping.Today he writes, "Rethinking Proposition 13 wouldn't be easy. But it would be right."

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo credit: Gov. Schwarzenegger (left), with Tony Beard, Sergeant-at-Arms for the state Senate, from L.A. Times

Comments

[Ed]

This is the tip of the iceberg. Wait for it...........

We have two vehicles, two houses (including one out of state, with h.o. + flood insurance on the one here), as well as a boat in another state. All of our insurance business will be transferred to the other state this spring, including both houses, both vehicles and our legal residency as well.

Your move, Gov.

[sunsetbeachguy]

The bubble blogs, particularly The Housing Bubble Blog has beaten Prop 13 to death.

I will save all of you from having to wade through those tedious archives.

Prop 13 is great but has a few too many HUGE loopholes.

Many commercial properties were shunted into LLC's and rather than trading the deed and getting re-assessed at each sale, they trade the LLC's ownership. This has resulted in many commercial buildings having never been re-assessed despite having been bought and sold numerous times.

Plug that loophole, so that any change in beneficial ownership results in a re-assessment for all properties in the state per the law's intent.

Re-visit the % allocated of property tax revenue from 30 years ago. There are donor counties and freeloader counties re-align with the distribution of the population today.

If they really wanted to get punitive make Prop 13 only apply to owner occupied property (require proof), since not throwing Gramdma Millie out of her home was the ostensible pretense for Prop 13.

[mike]

i believe that article said $10.00 per $1000.00 of insurance and that would translate into $125m. i didn't understand. is that $125m per year and also i don't know how much property insurance is carried in the state but $125m sounds like an awful small amount. how much insurance is carried in the state. i bet this will apply to homeowners only and not commercial property owners. typically i don't like taxes but i think the state is in a situation in which we all need to ban together. i like living in cal. i would be homeless here as opposed to living elsewhere. i believe that some kind of tax will be unavoidable this time.

[mike]

this one isn't about prop 13

[amir]

Prop 13 is a statist tax scheme, encouraging people to stay put and never move, never sell. It's harmful to the economy and unfair. Infrastructure such as police, roads, schools and fire department should cost based on the current value of a house, not past value. It's an anti progressive tax, letting rich homeowners pay little, while working families carry the burden.

In a broader sense Prop 13 is part of the system of taxing the working young to pay for the older retired (social security, medicare). Within this decade there will be a revolution to change it.

If you think California is in trouble, you should read the US government controller report to see how medicare/caid and social security will eat up most of the entire federal budget in 20 years time.

[Victor the Predictor]

I hate debt. Especially the debt that stems from overspending. Many smart people think it's good though.

But, another ray of hope. i just heard Ajit Jain, Warren Buffet's insurance guy, on cnbc talking about how they are talking to companies like MBIA in regard to partnering or buying them out (In addition to addition to getting their own bond insurer approved today, at the request of the New York insurance commissioner. He actually approached Berk. Hath. to do this)

So what does that mean? Maybe we can keep our beloved prop. 13? Maybe we can pay less taxes? Why? Because muni bonds would be much less expensive for us. Sell them to Dubai to finance our infrastructure!

[CD]

That 's it. That's the nail on the coffin. Earthquake, flood, crimes,fires, no schools, bad roads,traffic and now more taxes to get more of nothing. Are we crazy to live here or what ? That's my exit signal I think. What Happened to all the money that was exchanged during the boom years, all LLC ....We are fools to live here. I am done.

[jaded]

California does not deserve another penny of my money because:

in the first place, California exercises ZERO fiscal responsibility. The state spends recklessly, plans for endless boom times, and can turn a $10 windfall into a $30 debt--and then cry budget gap.

in the second place, if you give the state $5 in taxes for a specific, stated purpose (i.e. the gas tax), the legislature will quietly steal $4.50 of it for the general fund while Arnold looks the other way.

Arnold will pretend that this new tax is all about better equipping firefighting efforts, but really it's about adding new revenue that can slip and slide its way into whatever black hole needs filling.

No way to this one.

[mike]

peter: if you want a good comment reaction on this blog just write "prop 13 "and let the people comment. you don't need to write a blog at all.

[RadioManTodd]

Prop 13 is archane. And we're gonna see how prop 13 fails us here in a couple years, as property values decline, state and local governments decline, forcing a tightening of the belts, meaning police and fire suffer cuts, roads and highways suffer cuts, and because of all that... your property value goes down even further.

I don't have a solution... but I can recognize a problem.

[Jay]

The people of California have no clue. I am a born native and have watched the inner decay since the Reagan years. This was once the envy of the world. The liberal strangle hold on Sacramento has taken the state down to a 3rd rate hostel.

Arnold has sold out. Simple. I voted for him the first time and not the second. He abused his power. More bonds, more borrowing and some irrational belief he would take in even more tax revenue to make up the shortfalls. WRONG!

Listening to the take over California crowd run by Fabien Numbnutz has turn us into a rob Peter to pay Juan society. This is class warfare now at its worse. The employers, business and citizens are in flight mode and what will remain is basically another country. Thank You Lost Angeles and San Frickincisco you idiots.

[TakeFive]

The California legislature has shown they are pathalogically unable to control spending. This is at a lever worse than any drug addiction. Can you imagine if they were allowed to raise our property taxes every time they needed a fix?

How many billions in bonds did they float to clean up the last mess? And when the money started flowing again, did they save any? Did they pay off any debt and save some money one interest payments?

No. Instead we got the state floating billions more in bonds for research so it can meddle in the stem cell debate. We've got proposals to fund healthcare for everyone with no clear way to pay for it.

Nope, it's time for this state to begin to face reality.

[Jay]

Unfortunately "reality" in Californication is stick it to the taxpayer...... worse state tax system, worse business enviroment, highest debt owed to public workers state wide for decades ahead, worse use of money for failing school systems... I'm telling you, TOM McCLINTOCK had all the answers nailed to the fiscal "T"...... shame on you California.

[Joe]

Amir - Your thinking is so flawed, it's scary. All those phony arguments have been tried before. Read the rest of these blogs and get a clue. I could parse your statement, but I can see that it's pointless to try and teach you some logic.

[Tombstone Realty]

Avoiding the whole tax-no it isn't argument....

I'm wondering if the ......"surcharge".... might be enough to cause more homeowners already on the brink to throw in the Title (groan), and walk away? Are the banks who own foreclosed properties on the hook for this charge if they are owners at time of assessment?

Irregardless of whether or not raising taxes is a good or bad thing, surely tying the expectation of "X" amount of dollars on a declining asset is kinda dumb, no?

[MyLessThanPrimeBeef]

Why should we worry? The affluent foreigners are going to rescue us by buying up everything in this country, which, and I just checked, includes California. Let them worry about paying all the taxes.

[MyLessThanPrimeBeef]

Amir, Mr. Buffet will tell you himself that long term investors should be rewarded, just look it the untaxed compound rates of return on his very long term investments.

So, if you want to encourage long term investing, what's wrong with the long term investors paying less in property tax, in addition to having a lower long term capital gains tax as well?

[Jenna]

Not saying I support an increase, but the characterizations of the state legislature as spend crazy people is not entirely fair. One of the hugest parts of the state budget now is health care. As we all know healthcare costs have ballooned and don't show any sign of stopping. That is part of the reason why the state keeps spending and spending. Until they can reign in costs, they are stuck.

Aside from health care the state also spends an enormous amount on education and prisons. And while it is certainly an option to just stop spending, the consequence will be that some children will have a substandard education, we will have to stop locking up more people, poor people can't get wheelchairs, etc. We are definitely at a crossroads. What are we willing to pay for?

You can check out the following for a budget breakdown http://www.ebudget.ca.gov/agencies.html

[Westside Bubble]

A simple solution: Assess all properties at 1% of CURRENT market value. But allow homeowners to defer the difference between taxes based on purchase price and current value until the property is sold.

[sheila]

it seems to me that "gains on paper" should not be taxed, since they are erratic and fleeting (see recent boom and pending bust).

an actual, modest "capital gains" type tax once appreciation is REALIZED (via sale or transfer) makes the most sense, with a minimum threshold of some sort (i think the federal one is $500,000).

and i agree with the commercial properties/LLC scam. start there. then cut out all the pork these guys are giving their corporate donors. the money and perqs these guys scoop up (arnie and fabian are equally guilty) is disgusting.

[Mad as hell and not going to take it any more]

What kind of private property is it that you have to pay tribute every year to the government to keep? California is doomed. The insane tyrants in Sacramento will take and take until there is no more and then borrow on your future. Oh sorry, they've already done that. I was right, we are doomed.

Maybe it's time for a revolution?

[Jay]

Why are the citizens in the dark about almost everything....... This state spends more on nonsense than any other state. Your argument Jenna is weak and you are full of misinformation. Healthcare costs ballooned because of ILLEGAL care. SImple, fact. Prisons are ballooned with illegal criminals. Spending more money on a failed school system is ludicrous, my father reminds me every time this bull argument is thrown out there that they were educated in temporary tents during WW!! costing about.... NOTHING! Its the system not the money. If you want to keep crying about more moeny go ahead but when the earners, business and employers all leave I hope you have enough cash to bail out who is left.....

[Enlightenment]

How about adding a special fire property tax on houses located in higher-risk fire areas?

Same goes for houses close to the ocean and lower flood-prone areas, should have a tsunami / flood tax on those houses.

I don't have a problem with you living in any location, but don't increase my taxes / fees to support people living in risky areas. They take on more risk, thus should pay more.

[Doug]

Prop 13 is an excellent example of tax inequality based on seniority. There is no reason new property owners should be ask to bear the brunt of the tax burden since their neighbor of 25 years gets a pass. Its time we had a balanced budget amendment to rectify the entire tax code and state budget since our lawmakers do not have the courage to do it themselves.

http://www.up2daterealestate.com/2008/01/02/
is-proposition-13-unfair/

[amir]

"Amir, Mr. Buffet will tell you himself that long term investors should be rewarded, just look it the untaxed compound rates of return on his very long term investments.

So, if you want to encourage long term investing, what's wrong with the long term investors paying less in property tax, in addition to having a lower long term capital gains tax as well?"

Posted by: MyLessThanPrimeBeef

Long term investors make money because of the rise in the value of the asset, especially if they choose the right asset and don't overpay. They also make money because they don't lose to transactional costs. These factors are not about the state making it cheaper to hold on to assets that require maintenance and supporting infrastructure. Without a police force, roads, schools and firemen, real estate is worthless, yet the costs aren't distributed fairly.

Actually, from a basic economic stand point, one of the reasons America surpassed Europe in economic development is that the American work force is ready to move to where the jobs are. This has lead to a much greater efficiency, innovation and growth. Prop 13 stymies that advantage, that is why I called it statist.

If you really want to prevent people from losing their homes because of high property taxes, prop 13 should only exist for homeowners that live in the asset, and limited to a lower tax bracket.

Obviously, how to tax fairly has nothing to do with the state overspending our tax dollars.

[disenfranchised]

How again is Prop 13 good for society? It penalizes the current generation more ways than just economically. In an increasingly mobile society, CA is only making it more detrimental for the future generations to stay in this state. I'm in the top 5% income strata in CA but even I'm not sure if anything here is compelling enough to stay in light of the high cost of living.

Hmmm, must be all the old guys here who bought when I was in diapers. Well, maybe you do need the tax break, since maybe now it's you guys who are buying and wearing diapers.

[Monkey Under The GPs Microscope]

Selling Catalina Island would solve California's tax crunch. At $1 million per acre a sale would net over $40 billion. The Lakota tribe could borrow the money from the Saudis.

[Jay]

"Prop 13 is an excellent example of tax inequality based on seniority. There is no reason new property owners should be ask to bear the brunt of the tax burden since their neighbor of 25 years gets a pass. Its time we had a balanced budget amendment to rectify the entire tax code and state budget since our lawmakers do not have the courage to do it themselves."

Nobody was giving those who bought 25 years ago a break. When my parents bought their last home they were paying top tax dollar as the newest kids on the block. And after paying some 25 years in to the system now the "gimme" generation is complaining..... I want a break. Please. So goes life my friend. Your day will come if you can find a way to pull your head out.

[Robert in Palm Springs]

Florida has a similar limit on tax increases for owner occupied homes. Once the house is sold after a sale, the annual increase is limited. This is great for those houses in question. However, since there is no limit to the tax increases on other residential and commercial property, taxes (as well as insurance) have crushed an already deteriorating market that, like here, is extremely overbuilt.

Closing the loopholes on Prop 13 is a good thing, but any major changes should be carefully managed or it could further damage the real estate market that has a lot of correcting still ahead of it. There are a number of ways for the state to raise revenue. Whatever you call it, it is either taxes or new debt and we have enough new debt already. After all, isn't that what this whole crisis all about?

[mbagrad]

Prop 13 is the greatest mechanism of wealth transfer from the young and asset-less to the old and asset-holding.

A huge scam.

I have no sympathy for people who cannot pay their property tax. The same people who say, "poor people shouldn't live by the beach" on other threads are people who defend prop 13 as their god-given right.

Talk about an entitlement mentality! If you can't afford 1% of your property's value in tax, you move.

It would also be quite easy to write-in exemptions for older residents so long as they live in the property in question. I have no problem with that. I do have a problem with Prop 13 for greedy baby-boomers who are still working and could easily afford the additional tax burden.

[MyLessThanPrimeBeef]

Amir, you got a point about people should pay the same share of the cost of police, etc, but if a guy has been keeping the fire dept in business for 30 years, rather than just the last 2 months, say, the old guy should get some kind of discout for loyalty, don't you think? He might have been there when there was only one house on the block and without him, there might not have been a block. He might have been the pioneer who helped pay the police and kept them in business.

As for mobility, perhaps you want to advocate renting rather than buying a home if you are looking to be able to move any time you want.

[Jay]

Prop 13 was a line drawn in the sand to keep abuse by those in Sacramento at bay..... it worked and still works. Don't ever let them cross that line. Ever.

[Scott]

Elephant in the room = illegal immigration. There's plenty of money in the coffers if we stop funding health care, schooling, etc. for a vast number of non-citizens.

Let the knee-jerking begin!

[Gary]

I'm rather surprised at the spirited defenses of Prop 13. How can anyone say that we tax too little and spend too much. Our schools, 30 years ago, were the envy of the nation. Now they rival Mississippi's. The reason: money starvation. The cause of that starvation: Prop. 13. Let's ignore the residential aspects of Prop 13 for a moment and focus on the commercial. Why should owners of commercial properties -- market actors all -- not have to pay tax based on the market value of their properties? This is just another way that corporations get an unfairly good deal in our society, while ordinary people, trying to send kids to public school, suffer in terms of the services to which they are entitled.

[RichW]

It has been proven time and time again that pouring more and more money into a fundamentally flawed system doesn't make things better.

For those who disagree, please answer the following question:

Over the years, why are kids coming out of public schools less educated (i.e. stupider) than prior years despite dumping money into the school system at rates higher than inflation ?

Once you accurately answer that question, you will have seen the light and will understand why its not a good idea to support politicians who are interested in raising taxes or increasing spending as a "solution" to a problem.

[Monkey Under The GPs Microscope]

I wonder how much could be raised is ALL commercial & rental properties(non-owner occupied) were assesed and taxed @ 1% of current value.

[shireen]

Lordy, as a non-California (yet strangely addicted to this blog) I don't have much to say on this topic except that if your property taxes were higher and re-assessed annually, the bubble might have inflated more slowly. I think that our crazy-high property taxes in Texas helped us avoid the bubble because you can get exotic NINJA financing for a mortgage but not property tax, and you pay on the increase of your property every year.

Immigration is a non-issue, it is a driver of economic growth (if CA's GDP depended only on the native born -- heaven help us) and you have to consider the many illegals who pay in to the system via payroll taxes who do not collect the benefits.

[Jacinto]

Follow up to Robert in Palm Springs. Most "prop 13 equivalents" in other states are limited to the personal residence.

They don't include vacation homes, rental houses, and particularly not commercial real estate. It doesn't make sense that a high rise office building in Century City is protected by prop 13.

There is little harm in taxing these kinds of properties at their current market value as long as corresponding tax reductions occur elsewhere.

Sales taxes and income taxes are more volatile than property taxes (properties can't move out of state) so maybe we'd avoid the annual Sacramento budget circus if taxes would shift that way.

[amir]

hey MyLessThanPrimeBeef,

Loyalty? Pioneering? What are you talking about?

Most of the houses in LA weren't bought by farmers who worked the land during the day and fought wild animals at night. They were bought by suburbanites. There was no pioneering.

And you don't get extra points for loyalty in paying your taxes. Try that excuse with the IRS: "hey, I loyally paid my taxes until now, don't I get some kind of break?"

The bottom line is people should pay according to the services the city/county/state gives them - regardless of seniority - without which their homes would be worthless. To the person who said here: what kind of property is it that I need to pay taxes for holding it? It's called real estate, and people pay property taxes all over the world. Try living on your property with no police, fire department, electricity, water or roads.

Years of inflation have left the new homeowners to foot the bill. It's unfair.

[joe shmoe]

Amir

right on, bro!

Yes, california's insttitutions have been in decline since the reagan years . . .mostly because of Prop 13 and the unwillingness of the wealthy to chip in a fair share to maintain schools, libraries, police, etc.

Cal spends less per pupil than most states, but more for prisons. it gets what it pays for.

Joe

[MyLessThanPrimeBeef]

Amir, I see your point. My point is still that we should favor long term holders. And for Buffet to do otherwise when it comes to real estate, which often is the one major investment for the common people whereas stocks are more likely the source of fortune for the wealth, and especially when he made his fortune benefitting from favorable tax treatment for long term investors, it is hard to take.

Now, for your point about unfair tax treatment, let me try another tack. Suppose this: my new neighbor and I have similar houses, but he pays 25% more (for example) than me in property tax because I bought mine some time ago and we get the same services back from the government.

The thing is I paid my property tax last year and received certain amount of government services back. I am likely to recieve the same amount this year. Why should I pay 25% more now just because my new neighbor paid too much for his house?

What if he bought his house with a subprime loan and overpaid 100%? Should I pay 100% more in property tax?

Who dictated the increase in property tax, and by implication, asked for more government services, assuming of course that we will get the additional alloted tax dollar back and the politicains don't steal it? Just one guy - the new buyer.

Everytime there is a transaction, the new buyer sets the new market value of the neighborhood. Most of the time, it works reasonably well because it represents true market value, but not during bubbles.

During a bubble, if I think my house is only worth $500,000 and some guy wants to buy a similar one for double that amount, for $1 million and if he insists that everyone else should double their property tax basis as well as a result of his purchasing a new house, I have to say he's the only who wants to double government services by paying the goverment twice what we paid last year, again assuming it will not be diverted elsewhere, and since he is the only one asking, he is the only one saying this particular house is worth $1 million, he alone should pay for it, because human nature being what it is, people will be happy their houses have doubled, but no one will, in his right mind, say we need to have twice as many policemen, firefighters and traffic lights because some guy bought a house.

[Willie]

As always, the racists in this blog are always blaming illegal immigration. However, inasmuch as I am against illegal immigration. The problem that we are now facing was not as a result of illegal immigration, but spending more than we take in.

I also have not simpathy for the school system since many parroquial schools provide better education to a larger number of students per classroom and are able to better educate our children for a hell of a lot less. Maybe, the state should privatize the entire school system and end the generous salaries that some of these teachers get for providing a mediocre education, specially those children in the inner cities.

Proposition 13 is here to stay and any "politico" that messes around with it should be voted out of office. I do agree that the system needs revamping to address the LLC loopholes in the law.