Monday, July 16, 2012

Gutting Prop 13: Going after the symptoms instead of the cure

Sometimes, all the information you need is right there in front of you... it's just not always on the same page.

In the Forum section of yesterday's Sunday Sacramento Bee, the above-the-fold editorial was (and always seems to be) yet another hatchet job on Prop 13 entitled Is Prop 13 behind the times?.  The Leftists and Statists here in the People's Republic of California have always hated Prop 13 because it limits the amount of taxpayer moolah that can be pissed away on their dreams and schemes.

For all you non-Californians out there, Prop 13 was passed by California's voters in 1978 in response to exploding property tax rates that were going up as the value of houses went up.  Many people - especially those on fixed income - were often unable to afford their annual property taxes (even if their house was paid off) and were being kicked out of their own homes because the government mafioso here in Sacramento wasn't getting enough tribute.

Enter Prop 13, which limited an annual rise in property tax to 2% (essentially the rate of inflation), and required that a house could only be reassessed to determine property tax rates when that house was sold.  For instance, say a guy buys a house in 1980 for $50,000; he would pay his taxes based on that amount as long as he owned the house.  If he sell the house 30 years later for, say, $400,000, the new owners will now pay property tax based on that new, much higher, purchase price.  Before Prop 13, the 1980 owner, after 30 years owning that home, would have found himself with a property tax bill that was 800% higher than when he first bought the house.  It was madness.

Ever since Prop 13 was passed, California's statists have blamed it for California's budgetary woes.  Since homeowners couldn't be gouged every year, that must be causing our fiscal shortfalls, right?  It couldn't have anything to do with out-of-control spending, right?

The Bee editorial simply posits that Prop 13 is out of date because circumstances in California have changed since 1978: Instead of increasing housing prices causing property taxes to spike, we now worry about falling prices. So let's just get rid of Prop 13, right? As the Bee's anti-Prop 13 editorial puts it:
In the decade ahead, we no longer must guard against explosive, runaway house prices. Instead, we would be grateful if foreclosures ended and house prices stopped falling.
So the bottom line is: get rid of Prop 13 because unlike in 1978, our state's economy stinks and our housing market along with it. What is not explored in this editorial is what made our economy stink in the first place.

For that, we turn to another editorial in the very same Forum section; this one written by none other than Dr. Arthur Laffer (as in Curve).  In an editorial entitled Brown should go back to idea of a flat to help the economy, Laffer lays out exactly why California is in such a financial mess. After talking about how California's Democrat-dominated government spends way too much and taxes way too much, Laffer sums it up:
Between 1992 and 2008, the Golden State lost a net total of 869,000 tax filers. Add up all the taxes they would have paid had they stayed put, and California lost roughly $500 billion.
So out-of-control government that is spending and taxing California citizens into oblivion is causing taxpayers to flee the state, but the Statists who support all this taxing and spending keep trying to tell us that the reason California is in such financial doldrums is because Prop 13 prevents them from getting hold of even more of our money. I love my home state of California, but I don't know how much longer it is going to last.  

"If a nation expects to be ignorant and free... it expects what never was, and never will be." -Thomas Jefferson


Moxie D. Hoxie said...

There are problems with Prop 13. And the problems it causes are not about money for the state coffers (that's because of the idiots in Sacto) but in that it helps contribute to the wacky real estate values in the State. While it's a great idea for someone who buys a house for 40,000 in 1965 and not get totally taxed into penury when it's valued at $750,000 forty years later. Groovy. But what happens is that there are people who snap up houses during economic down turns for a relative song. Then the property is "sold" to a trust, and it is used as rental property, Rents go up with the market, but property taxes are paid as if the owner is living there without sufficient increase in personal income. Not too mention that. A lot of that rent isn't claimed as income to the degree to which it should be. Now, there are some landlords who keep rent low-ish, or at least at the low end of market. I used to live in Marin in a building that the landlord had owned since right before Prop 13. The taxes he paid were low. Our rents were at the low end of normal market rate rents. But this was a multi-unit dwelling. Check out more properties in Marin and see who (or more correctly, what) owns them and what property taxes are. And a lot of these are rental units. (You'd be surprised at how many single-family rental units are in Belvedere.) And what this does is help to drive up property costs in those places--houses are never available to move on the market. So while prices are crashing in places like Modesto, in Marin, they are still ridiculously high. And that $750,000 house is NOT by any stretch of the imagination, a $750,000 house. But thanks to suffocating zoning regulations, the loopholes of Prop 13, and those crazy Williamson and Quimby Acts,* housing is artificially expensive and out of reach of middle class people. (My parents weren't savvy enough to do this, so I gave up on the idea of ever purchasing a house. I now live in another state, in a 1500 SF house on two acres we bought for $125K.)

But Prop 13 is, admittedly, only ONE of the problems. Or more correctly, a badly drafted Prop 13.

* The Williamson and Quimby Acts are ridiculous because somewhere just under 50% of the land in California is government owned. The government (fed, state, county, municipal) can do what it wants with the 46.9% and stop trying to force more of it being taken out of use.

Darren said...

"I love my home state of California, but I don't know how much longer it is going to last."

I was with you for a moment, but then I thought, why? Why do we love our home state? Is it just the real estate? Because there's nothing else here for me anymore.

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