How has Prop. 13 affected tax distribution in Santa Clara County?
sanjosespotlight.com
sanjosespotlight.com
It's historically unfair, and nothing to my knowledge has been done to undo the damage from discriminatory housing policies.
If you want to read more, here's a recent 2019 study review on the economic damage from unfair housing policies in Chicago: https://www.npr.org/local/309/2019/05/30/728122642/contract-...
It’s still worthy of debate if this should be the case, but it’s not as broad as giving it to your nieces or nephews.
Plus isn't there that whole LLC loophole?
I know a nephew who got it.
And of course, corporations. The horrors of an elderly Google being taxed out of their home in old age!
And don't forget the farmstead discount, which Apple executives love using for their mansions.
Prop 58 allowed exchanges between parents and children (in either direction), Prop 193 expanded it to include those between grandparents and grandchildren (in either direction). So you can't do it directly to nephews/nieces (or aunts/uncles), but if you have the right set of living, willing relatives to combine a prop 193 transfer and a prop 58 transfer you can do it.
> In permitting longer term owners to pay less in taxes than newer owners of comparable property, Article XIIIA's assessment scheme rationally furthers at least two legitimate state interests. First, because the State has a legitimate interest in local neighborhood preservation, continuity, and stability, it legitimately can decide to structure its tax system to discourage rapid turnover in ownership of homes and businesses. Second, the State legitimately can conclude that a new owner, at the point of purchasing his property, does not have the same reliance interest warranting protection against higher taxes as does an existing owner, who is already saddled with his purchase and does not have the option of deciding not to buy his home if taxes become prohibitively high.
The repercussions of striking the law down would have some serious side effects. Would rent control laws be constitutional?
Besides, to argue that a state-wide referendum is unconstitutional is already a tall order, as you can imagine.
On the other hand, I question that if prop 13 is "straightened out", will the increased revenue make other taxes go down?
The other negative side of Prop 13 is the property tax rate is too low to support government services which makes California more dependent on income and other taxes. That tends to discourage cities from allowing new units to be built. And to charge high fees for new housing units.
There is this other lesser known shitshow because historically cities and counties had widely different income sources. Some got all of their funds via property taxes. Others imposed special purpose taxes. The former got hosed by prop 13.
Other states have homestead protection on property taxes. This is what would have been passed if there was actually any concern for low- or fixed-income homeowners, instead of a system that reinforces wealth inequality.
The harm done by Prop 13 by restricting access to ownership to only those with more money, and by further weakening services in historically disinvested neighborhoods, has surely outweighed any possible benefit for those in gentrifying neighborhoods. Property taxes are such a small part of a mortgage payment that the gains in property value far offset any increase in taxes. The idea of “getting taxed out of your home” is not as bad of a red herring as talking about not wanting to get more income because of getting bumped into the next tax bracket (taxes don’t work that way), but it’s a similar misunderstanding of finances.
On my block are four almost identical houses. They are all about 1800sq ft.
My neighbor, who is the original owner from 1962, pays $X in tax. My neighbor on the other side, who bought in the 90s, pays $10X. I pay $20X (bought in 2008), and the one who just moved into the last house pays $40X.
We all get the same services from the city, but one person pays 40X the other. The new owners are basically subsidizing the neighbors, despite being the ones who have to spend more of their income to pay their mortgage.
It's completely ridiculous.
Worst case, the retiree can downsize their home and cash out their equity, freeing what is most likely an oversized property for a younger family, or they can take out a home equity line to pay the taxes.
And luckily because of the rising property values it would be really easy to get that equity line since the LTV would be really low!
cash out their equity
When you combine that tax hit with the cost of a replacement property, and it being taxed at the full current rate, it's not worth it.
Those voters who voted No on Prop 5[0], which would have made tax basis portable statewide, have nobody else to blame for the low property turnover among long held real property.
[0] https://ballotpedia.org/California_Proposition_5,_Property_T...
There was a ballot measure recently that would let such homeowners transfer their 1973 era tax bills to another property, but it had no stipulation that the next place be smaller. It lost.
I feel bad for the hypothetical grandma who couldn't stay in her house when the tax bill increased, but what if grandma is paying next to nothing and sitting on a $2m house that could hold a whole family?
Encouraging the desperation of capital through mass home ownership is a cruel joke. Even ignoring the fact that relatively few "homeowners" have paid off their morgage (https://fivethirtyeight.com/features/how-many-homeowners-hav...), the value extracted is basically by rent seeking against other maybe future member of the same "middle class".
People should own capital through a UBI (common ownership of a bit of everything) or actual productive enterprise (your immigrant small businesses), not price gouge each other.
Limiting tax increases reduces the power of the state to coerce individuals.
The two have nothing in common.
Those taxes should be orders of magnitude higher. If you didn't make the land, you're renting it.
Also, land in and of itself isn't desirable if the economy of the area isn't right (lots of rural places around the world are depopulating as cities attract their countrysides).
[1]https://qph.fs.quoracdn.net/main-qimg-d7f66b45593b76f812792e...
What is the primary effect of rent control? Everyone renting before the enactment pays proportionally less in rent than those after enactment.
What is the primary effect of Prop 13? Owners who purchased before 1978 pay proportionally less in property taxes than those who purchased after 1978.
These are huge, (in my view) obvious parallels between the two. Both policies encourage the market to become sticky: renters won't leave, for fear of giving up their cheap rent as time goes own; for landowners, they are discouraged to sell, knowing an identical property would raise their annual property tax expenses. As property values go up, it further encourages landowners to hold, becoming a negative feedback loop on the housing supply.
It's even worse than that, since prop 13 isn't a one time thing. Just like rent control, you lock in whenever you purchase.
My neighbor pays double what I do for effectively the same house. It's totally unfair to them.
In short prop 13 causes a triple whammy of sprawl, poor social services, and unfair taxes, whereas rent control merely causes unfair rents.
LVT and prevalent and intermingled[1] public housing is far better, but sadly we're very far from being able to do those.
[1]: To avoid low-effort prejudice and anesthetization, along with actual class-based neighbor isolation. Making the "zip code -> P(isPublic)" function as incompressible as possible is key.
Sure it does, rental income is taxed like any other income (less allowed expenses).
People move, and sell, or pass away and their families then acquire the property and must decide what to do. There’s a reasonable question to discuss about prop 13 passing from parents to children, but in general property turnover on single family homes in the US are 5-7 years. Focusing on this part of prop 13 is almost intended to cause people to fight each other rather than the real problem.
Corporations don’t pass away. Even when they are acquired by other corporations, they try to block reassessment of property. I can’t at the moment find what happened with the taxes after all of the bank acquisitions in 2008, but I do remember them fighting any increases based on the fact that the property did not change hands.
There are other corporate properties in CA that also have never increased their tax bill, such as Disneyland. So as we consider removing prop 13 protections from corporations in 2020, let’s remember that corporations don’t die, but people (sadly) on the other hand do. Any correction in the market of taxes on your home is setup almost exactly the way we want. People on a fixed income don’t need to worry about paying more, while people benefiting from the current economy can.
Even worse, I can find you homes in California that are valued over $4MM that are paying less than $1000/yr in property tax (buying that property new would be about $50,000/yr).
How is this fair?
Otherwise be thankful that Prop 13 will protect you as you get older. I don’t care that some of my neighbors are paying 1/20 what I am paying in taxes. They have lived in the same home for 25 years, they deserve it. I would not want to get kicked out of my house because I couldn’t afford the property taxes, that would be unfair.
And one other thing that you don’t mention is that property taxes get reset if you make upgrades to your house. If someone lives in the same home and makes no upgrades then good for them, it means they can’t afford to move so leave them alone.
Prop13 + stepped up basis in capital gains means that we’ve legislated inequality and in many cases racial inequality since only white families could buy property in the wealthier enclaves of California.
That's a nice platitude, but doesn't apply here. I'm paying for my neighbors services. They have as much ability to pay as I do. I want that to be fair. I have no problem helping those in need, but someone who owns a $2MM property isn't in need.
> Otherwise be thankful that Prop 13 will protect you as you get older.
This is red herring being spread by the anti-tax zealots. In all the other states, somehow old people aren't being priced out of their homes despite the lack of prop 13. The reason? Because property prices don't climb as quickly. They also have subsidies for the elderly.
There are lots of solutions to this problem besides freezing taxes.
I'm not worried about being priced out when I'm old, because I plan for taxes to go up. Also, when I get old, I won't need four bedrooms anymore, because my kids will be gone. I will downgrade to a smaller home and let a younger family take my place, as is what happens in most functioning housing markets.
> I would not want to get kicked out of my house because I couldn’t afford the property taxes, that would be unfair.
Worst case, you can take out an equity line to pay the taxes.
> And one other thing that you don’t mention is that property taxes get reset if you make upgrades to your house.
This is only partially true. You only pay extra tax on the cost of the upgrade itself. You don't reset on all the equity you've earned.
The original idea of prop 13 is to protect home ownership. It sounds good but it is being applied to people that have “house” ownership not home ownership. Prop 13 should really be changed such that only if a homeowner living in the same house could pay the tax derived from the purchase price. If you rent out the property, you should pay the tax derived market price. If the property is a vacation house and not the primary home, the owner should pay the tax derived from the market price.
Commercial properties should always be paying the market price.
No, the original idea of Prop 13 was a Norquistian “starve the beast” approach to government.
The big original sales pitch for Prop 13 was to stop old people on fixed incomes from having to sell their homes because of taxes, but if that was the motivation rather than the sales pitch, it would never have applied to anything other than owner-occupied primary residences; instead, it applies to all real property regardless of use or ownership.q
They never have. Ask yourself: why not?
This is a red herring by the anti-tax zealots. Somehow in the 49 states without prop 13 this doesn’t happen.
Worst case, the retiree can downsize their home and cash out their equity, freeing what is most likely an oversized property for a younger family, or they can take out a home equity line to pay the taxes.
Taxes dropped because property values had dropped precipitously (for properties that didn't experience the damage that often accompanied foreclosure, dropping 50% by the trough of the crisis from the preceding peak only a couple years before wasn't unheard of in some areas), and where properties had changed hands, the new (often bank and other corporate) owners locked in the new rates as their baseline. (People who stayed in their home be benefited from the short term drop, but didn't reset their baseline, so could come back up to the maximum based on the pruchase price and maximum annual rate of increase when values went back up.)
Proposition 13 substantially lowers the ability of municipal governments to finance themselves. I recall the city of San Jose had to declare bankruptcy a while back (but I recalled incorrectly and they were just "on the verge") and the situation generally hobbles municipal government.
Moreover, note being able to turn to property taxes, municipal governments have to turn to other sources of incomes, most of which undesirable incentives for the residents. Where I live now, Nevada County, building permits run $30K and higher. This decreases the supply of new houses substantially, worsening the housing crisis here and basically across California.
General turnover may be 5-7 years but a given city doesn't get general turnover, they get people sitting on their houses 'cause they can.
So basically, I think we should care about the perverse situation created by Prop 13 and indeed think about repealing it. California's horrible situation is at least getting people thinking.
And corporations dodging taxes? kind of what-about-ism/thread-derail, huh? I'm against that too but come on.
When? I can find no references to this ever having occurred, though I can find early 2010s references to fears that it might occur in the (then-)near future, and some later articles contrasting San Jose which did not go bankrupt with Detroit which did.
All California cities will go bankrupt because of 8% public pensions in a matter of years. (This is well-documented.)
San Jose came close to already bankrupting itself on the new airport terminal, but an out-of-state airport construction consultant saved a billion dollars. (See the excellent Mercury News article.)
One mayor did a half-hearted attempt to fight the 8%, but "died on that hill."
Mountain View is one of the few cities in a good place, as 1/3 of their revenue comes from renting the business park they own across Central from downtown. Unless they bury Castro, which is estimated at $1 billion or so.
I'm curious what happens to Santa Clara City. Only 10,000 residents, but they're on the hook for the $1.2 billion stadium they built for the Yorke family, who live in Oakland. lol. :)
It's really not. It's widely accepted that most local governments in CA will need to cut services or raise taxes due to pension costs, but not at all that “all cities” or even many will need to declare bankruptcy.
Not sure what the 8% you are referring to is.
Only 10,000 residents
And Levi's stadium was privately financed.
So we could repeal 13 and cut property taxes in half and still have the same tax receipts we do now.
As far as keeping “grandma” in her home, if she is sitting on $2 million in equity, why should she get to pay lower taxes than someone who first buys a $2 million house with minimal equity? Neighbors paying vastly different tax rates for similar properties is unjust. Their consumption of public services isn’t different but grandma pays less than the young family just getting started. That’s ridiculous. Not to mention grandma is probably living in a 5 bedroom house alone with her five cats — which is an underutilization of scarce housing resources. Taxation should be absolutely equal.
I, for example, have kids in private schools, but I still have to pay property taxes to support the local public schools and get no deduction for that tuition despite me not consuming those resources. I’m ok with that because public schools are important, but when grandma next door pays a fraction of what I pay, it’s extremely unfair that I have to subsidize grandma. She isn’t my grandma.
Couldn’t you make the same argument about any form of progressive taxation? (Perhaps you would?)