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

[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.