Department of bad ideas: L.A. mulls big-house "luxury tax"

I try to greet each day with gratitude, and it is particularly easy to be grateful this morning because I'm reminded how lucky I am: I don't have to cover local politics in Los Angeles.

If I did, I'd have to take seriously the latest cockamamie idea from Councilman Richard Alarcon for a "luxury tax" on residents who own houses that are larger than 5,000 square feet. From City News Service, via the L.A. Times' L.A. Now blog:

Under the proposal, owners of houses that are between 5,000 and 5,999 square feet would be taxed $1,000. Every additional 1,000 square feet would result in another $1,000 in the tax up to 10,000 square feet, which would result in a $6,000 fee. ... In the city of Los Angeles, there are 6,336 single-family residences that exceed 5,000 square feet and 534 houses larger than 10,000 square feet. Taxing those residences would generate $15 million a year. The tax would most affect homeowners in Bel Air, Beverly Crest, Brentwood, Pacific Palisades, Encino, Tarzana, Hollywood, Sherman Oaks, Studio City, Toluca Lake and the Wilshire area. A report by the Chief Legislative Analyst found the “luxury tax” would violate the state constitution if it is based on increments of 1,000 square feet.

Two cents: This is a ridiculous idea. Property should be taxed based on its value, not its size, or its carbon footprint, or how big a shadow it casts.

If you want to read a more serious analysis of the Alarcon proposal, the L.A. Times' Robert Greene has it, here.

-- Peter Viles

Photo credit: Los Angeles Times

Comments

[syscom3]

Just another reason why LA is in decline. Eventually the whole city council will be controlled by socialists who will want to grab the welath of the west side.

[Jeff S]

Pete -

Sorry to be critical of you (as I usually enjoy your comments) but I can see why you are not on the political beat. That is quite a naive view of taxes you have.

The tax code in the U.S. is just a mixed bag of special interest political agendas. Why should the L.A. politicians view it any differently.

If they want to discourage big houses then the tax law is just another way to do it. If they want people to lower their carbon footprint then the tax law is just another way to do it.

We are way beyond arguing whether taxes are the appropriate venue for enacting policies. Really the only question here is whether the policies make sense or not.

The nation's mood is pretty much against the rich right now so hard to believe this would be unpopular. I don't think even the Joe the plumber was hoping for a 10k sq ft home.

[Leigh]

Why not? 5000 sq feet is over the top and clearly represents excess cash. Think of the extra city infrastructure to support for electricity (for the 5 televisions) and water (for the 7 bathrooms) in these places. Maybe they could off set these taxes with solar panels and gray water systems. The faux Tuscan Villas generally do not exemplify any forward thinking or modern sensibilities. Los Angeles needs to move forward to avoid decline... you can call it socialism, but the objective is to keep the city great!

[mark g]

let's just cut to the chase and tax
- luxury autos more per every increment of 10 hp
- boats for every 10 ft in length
- driveways for every 20 ft
- garages with more than 2 spaces
- anyone with an ADT sign in their front lawn
etc. etc. etc....

[sanity clause]

Pete, not to get on your case, but you're MIA on the ultimate bad idea currently gaining steam: the Treasury proposal to buy underwater mortgages and restructure them to cut principal, essentially moving the liability from the buyer to the taxpayer.

This is the ultimate bad idea this blog has been so opposed to since day 1. Please give voice to some opposition.

Here's the story:

Treasury, FDIC Crafting Plan to Rework Millions of Mortgages

Under the program being discussed, the lender would agree to reduce borrowers’ monthly payments, for example by lowering the interest rate or principal of a mortgage loan, based on the homeowner’s ability to pay. These reconfigured loans could help homeowners avert foreclosure.

To attract financial institutions to the program, the government would then guarantee to repay the lender for a portion of its loss if the borrower defaulted on the reconfigured loan.

http://voices.washingtonpost.com/economy-watch/
2008/10/treasury_fdic_crafting_plan_to.html

[MyLessThanPrimeBeef]

I think it should depend on how many people you have living in the house.

For example, if you are a very social guy and have 20 young, hip and successful fellow cult members, sorry, friends, living with you, partying all the time, recommending each other to strangers on the web, I think you should be allowed 3,000 or 4,000 sq. ft.

[The Original RZ]

The reason I like this idea is it could stem the tide of McMansions that have been cropping up all over L.A.

[blueskies]

While property should be taxed on its value, unfortunately in California it's taxed on how long you've owned your home, thanks to the rocket scientists who passed Proposition 13.

[anonymous]

I've got to defend Peter. This is going to happen all across the country. The local tax revenue from bubble priced appraisals is a bunch more money than appraisals that reflect current value.

Local government needs to quit spending money they don't have, too. Like that's going to happen. Be prepared to get screwed some more.

[TK Bruin]

Yet another example of wealth redistribution.

Penalize those who are successful.

[Laker]

I know is is the LA city, but it can get out to LA county...
think about properties in high desert like Acton. You can easily have a 5000 sq ft house on 5 acres for $400,000-500,000. That does not mean you are rich.

When small people make a huge shade, it means the sunset is coming....or Sheila Bair from the soviet united states of america.

[charlie]

I think the argument against this is larger homes tend to be worth more and as a result, the owners are already paying a higher tax because of the excessive size of the house.

Plus, they're generally paying higher heating and AC costs since larger homes have larger surface areas in which to interact with outdoor temperatures. Why should they pay a carbon tax when they're already being penalized for that too?

You can say, they can just sell the house and move to a smaller house. True, but with the new tax, the value of their home will go down, so there will be less incentive to do so.

It might make more sense to levy a builders tax on the builders who build these large homes. This way, builders will have less of an incentive to build larger homes. Anyone who buys a new home will know ahead of time what the tax implications are. Better than changing the rules on someone who already owns a large home.

[tonylogan]

What is the ultimate plan of all these "ideas". I think it goes beyond just an attempt to gain tax revenue.

Los Angeles (and much of SoCal) is modeling itself after third world economic structures.

I wonder how long it is going to be before these "rich" people in their 5000+ square foot homes are going to be more worried about paying kidnap ransoms than property taxes?

[Hangemhigh]

I saw Alarcon speak once at a labor rally. He's definitely a guy who knows how to fire up the working man.
That said, this is a stupid tax that panders to the hatred of all of the golden parachute rhetoric we have had crammed down our throats for the last six weeks.
I'd like to see a picture of Alarcon's house.

[Steve]

"Yet another example of wealth redistribution.

Penalize those who are successful."

redistribution has been happening from the bottom up also.Think minimum wage,no healthcare,cut benefits,bank fees,raided pension funds.People on the low scale have seen their buying power and earnings decrease while just the opposite has happened to the upper 1%.
15 years ago there were only 20 or so billionaires in the Forbes 400 richest people list.Today there are no millionaires in the Forbes 400-yes that means if you are not a billionaire you dont make the list!Cant say that the lower classes have prospered that much.

[mike]

i think it sounds like a pretty good idea...i just hope they don't decide to tax on .....well you know what i'm going to say!!!!!!

[Michael]

Here's an idea -- why don't we just actually tax all property based on its value, its current value? Now, more than ever, we need to repeal Prop 13, providing a narrow carve-out for retired people who can demonstrate their inability to pay the property tax if the house is adjusted to reflect the current fair market value. As is, Prop 13 burdens California more than almost any other aspect of California law, in that it unfairly increases the burden on new businesses (or businesses looking to expand in California) both directly (through their own property taxes) and indirectly (through the increased salaries they have to pay to permit employees to afford California's Prop 13-induced overvalued properties). Let's end the subsidy for the old and the established, and allow the young and upcoming a chance to prosper.

[SouthBayGuy]

This proposal is just anti-American. Part of the American dream is predicated on the notion that you can, with hard work, education, and persistence, one day own a "luxurious mansion" in a nice part of town. I agree with earlier posters that this is penalizing the successful, enterprising individuals who drive innovation and growth in this country. The more we step towards socialism (real socialism, not just the kind the Palin-ites paint Obama with), the worse off we will be as an economic power. What sets America apart from her Euro and Asian cousins is that hope, that chance, that everyone has to become obscenely wealthy, to have 20 Italian sports cars, a 20,000sf house, a jet, etc. This is why many of us work as hard as we do - aspiring for more, wanting more. Don't penalize success - embrace it. Encourage it. Nurture it.

(Oh, and as a quick aside, many of the McMansions people abhor, at 4,000, 5,000, 10,000 square feet, actually consumer much less power/water/etc than the 1,800 square foot 1950s ranch home that many in suburban LA live in. If what we're really after is conservation, then a utility usage tax seems much more fair than some aribitrary size tax)

[Laker Justice]

I'm glad you've established that % of value is the only way to tax property. Maybe you should read Prop 13 to understand that is not how property taxes are set right now.

Knee jerk stupid reactions to throwing out new ideas before considering them (especially those that might actually help us to pay for things like Police and Schools and at the same time influence the character of the city) are a good way to get nothing done to improve government.

I'm think these comments are out of place on a real estate blog. This is a public policy discussion, and there is no intrinsic right reason to gauge property taxes on the value you bought your property 30 years ago. Its up to the voters and those who they elect to set these rates based upon the people's best interest and what the people of ordained in the state constitution. That's why we vote. Can we get back to real estate values?

[j]

Actually taxing property in an entirely different way might solve many problems. A combination of appraised value square feet or house and property might be another approach which could in effect cause more tax on those that should be paying more and less on those that should be paying less. People need to pay their fair share of taxes its a question of what si fair and for whom.