Let’s face it. California is going bankrupt. I don’t have to put some quote or a link to some article toback my statement. Just turn on TV and listen to California news. (And if you REALLY want third party validation, take a look at this article.) California can’t even issue more bonds because the credit rating for the state tanked. Declining property values and declining employment equals declining tax revenue. And what about expenses? You guessed it. Going up.
So why don’t we get with the times and change? What about proposition 13?
If you are unfamiliar with proposition 13, it’s basically the stupidest real estate taxation law. Ever. Not only that, it’s an outdated law written in 1978.
In essence, Prop 13 limited property taxes in California to no more than one percent of a home’s assessed value. Assessments of property values could not rise by more than two percent per year, unless a property was sold, in which case it could be assessed at a new value. Prop 13 also added a measure which would require a two thirds majority to increase any taxes in California, making it very difficult for the legislature to pass laws to raise the tax rate, even when the state struggled to balance the budget.
Now, let me give you an example.
I had a coworker who live in San Mateo county who inherited a house from his grandparents, who bought the house in the 40′s or something like that. Less than $20k for the house. Guess how much he pays in taxes? Once again, my blog readers are brilliant: 1.25% of something over $20k (there was some re-assessment event). Guess how much the next door neighbor was paying? 1.25% on $600k. Is the house newer? Nope. Exact same layout, same size, same yard. Sure, the appliances are new and there were some updates, but for the most part, same house.
Now, I’m no genius here but I’m certain my ex-coworkers’ kids and his next door’s kids attend schools in same school district. And I’m pretty certain teachers there want to be paid in today’s dollars, not 1940′s dollars. Does my ex-coworker’s kid cost less? Does he eat less? Does he require no books? Do they have gnomes that teach kids in the basement and work for nothing?
What a dumb law. So why wouldn’t politicians change this? Because politicians don’t want their careers to get “electrocuted” to death (according to Wikipedia article):
A large contributor to Proposition 13 was the sentiment that older Californians should not be priced out of their homes through high taxes. The proposition has been called the “third rail” (meaning “untouchable subject”) of California politics and it is not politically popular for Sacramento lawmakers to attempt to change it.
Yes, ladies and gentlemen. The so-called people’s representatives care more about being your representatives than actually representing you.
If the people are “priced” out of homes due to taxes, well, isn’t that what free market economy is supposed to be all about? We’re all subjected to same conditions. Some survive, some don’t. But government cannot incentivize people to not change and to be basically outdated. When I was in track team in high school and got out of shape, I got cut from the team. I didn’t have no proposition mandating that fat, out of shape students cannot be cut from athletic teams. Who cares about the team? The team wants to win as a collective. If the lagger is bringing down the team, not only the coach, but the entire team wants him/her out!
Here’s what I don’t get: politicians don’t mind jacking the taxes on the golden gooses of the economy that actually create jobs – i.e. companies. Yet they care so dearly about this old, outdated crap tax law that only hurts everyone. I’m for cutting taxes but as long as it’s fairly distributed. Prop 13. is an unfair taxation.
Costs go up. That’s a fact of life. The people who support prop 13 are the same people who bitch and complain about how school teachers don’t get paid enough, or how there’s not enough crossing guards near schools, etc. If they want more social services, fork up the dough.
Governator, if you’re gonna retire, take this proposition 13 with you.
[EDIT] Here’s my response to some of these comments.
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Based on the distinctive grammar in this article, I’m guessing the writer hasn’t been in the USA long enough to understand the need for proposition 13. Get a clue buddy! We don’t take kindly to having our money taken and squandered by politicians who think they are our overlords. Expect more sweeping tax revolts in the future.
property taxes should be eliminated entirely. why tax a home that you live in? It doesn’t make sense. If you need the tax dollars, then create a capital gains tax or sales tax. Taxing someone for living in a home is kind of crazy. Kind of like taxing someone to eat.
You are an idiot. Prop 13 keeps the politicians in check. If not for it we would pay 90% in taxes here. Where I live there is an alarm fee a compressor tax etc etc etc. How about easing up and letting people breathe a little. We pay people to be on welfare while we let illegals do the jobs that they should be doing and not pay taxes because they have no SSN. 2.8 million illegals in CA that is why it is in deep s&*T. Plus the number of public employees is staggering. In San Diego we have fireman making 100K a year and when they try to cut they run around crying hero hero hero. How about all of the police with a radar gun on every corner. There is no way they bring in enough to cover there costs. That is not real police work and they should be cut. I know that when I hear that they are adding police I do not want them on every corner with a radar gun. The fact is that every form of public employment is out of control and needs to be brought back in check.
Interesting article. There are two issues and most of the people writing the comments are not understanding the difference because they are too caught up in the fact that they are paying less than their neighbors:
1) Prop 13 is unfair: This is certainly true and your example is pretty good. It has a lot more consequences, though. For example, since the tax gain is capped at 2% but houses have been rising a lot more than that people never move, it’s simply too expensive, which drove up prices even more. Old grannies by themselves in a huge house but the family of five can’t buy, wonderful.
2) Prop 13 ruined the CA budget: Possibly true, but there could be many other reasons as well. The people who claim that Prop 13 was the only way to have the government spend less are simply happy they have to spend less than their neighbors because they bought 10 years earlier than him. There are many ways to have the state government spend less, starting with electing an administration that is frugal enough and spends money where it belongs, education, basic infrastructure etc. But most people don’t even vote I guess.
But well, so now housing is going down. 2% a year could level most unequal neighbors after 10 or 20 years again. In Japan housing has been going down since 1992, let’s see what will happen here.
There are two proper ways of looking at property taxes: either (A) property taxes is RENT on something you are supposed to own or (B) property taxes is criminal extortion. Property taxes is obviously unconstitutional because if you really own something you don’t to pay money to keep it.
I fail to understand why there needs to be 5,000 ways to collect taxes when just one is sufficient. Oh thats right, people would revolt if they knew how much they were really paying and taxes were collected just by one income tax or one business tax because they have never bothered to add up the 5,000 ways they pay taxes to see that they pay so much in taxes they are more a slave than they are free.
taewoo, you are basically a criminal since your here advocating the unconstitutional extortion of money by having people’s property held hostage if they don’t pay RENT on something they OWN. I just don’t get what is so difficult to understand about property rights. If you have to pay annual rent on something then you very obviously don’t own it. How anybody in the world supports this is just mindblowing because it is so obviously an uncivilized systemic extortion. And sure you sometimes get something in return but that does not really make it any better than a criminal mugging you and throwing you back a couple of bucks.
Baby boomers, et al. love their special rights on taxes (if they were smart enough to buy a home back in the day). They had a free country and turned it into what it is today. Nothing will change, for they hold too much power at the voting booth (because of how many of them there are). So the country will continue to deteriorate. Get used to it.
For those posters who want property and tax protections (Prop 13)removed, none of you have suggested budget cuts for social services and education services to persons who shouldn’t even be here. Are we all supposed to pay ever-increasing taxes? Or do you have a limit for yourselves?
Here’s thought to *you*: how about buying a house that’s within your means!
If you cannot afford the taxes, insurance, fees,& maintenance along with the sales price of a home, how about buying a home that does fit your budget instead of requiring that other Californians pay more property tax so that you can buy a 1500+ sq ft one.
This Prop 13 issue has nothing to do with anything other than living within your means!
As all the foreclosure “walk-aways” have told us: “It’s a business decision” – well just use that line of thinking to make a business decision to buy a house you can truly afford.
~Misstrial
You just made the case that if you want services from the government you should then pay for them, but the fact of the matter is is that with Prop 13 and what just happened with 1a-1e on May 19. 2009 proves that you are the minority and that the majority of Californians actually want less services and a smaller government. If you want a doll please move out of state. You are swimming against the tide.
I think Colorado has a better system, the Taxpayer Bill of Rights, TABOR limits the government’s increase in spending to inflation adjusted for population growth. i think that limiting spending is what it’s all about. Prop. 13 was to limit out of control spending growth. I like the TABOR approach better, but to repeal 13 without putting in something else to limit the out of control growth in government spending would be a disaster. To leave it in place for personal residences, but remove it from business property would just be one more nail in the coffin of business in California, which is already one of the most business unfriendly states in the country. The problem is too much spending, not that we don’t collect enough taxes.
Prop 13 is a disaster! What a terrible law that puts breaks on free market trading in housing, people prefer not to sell and move to a house that’s better suited for them becuase buy doing so they can save on real estate taxes. Idiotic law with horrible consequences to the real estate market.
Lets kick old people out of their homes! Right…
Connecting the free market with tax increases is breathtakingly stupid.
If you want to pay more taxes I suggest you do just that.
Prop 13 is clearly unconstitutional under the 14th amendment. You might as well double taxes on blacks, and triple it on asians – it’s just as constitutional as giving one person a tax break and another a tax penalty based exclusively on when and where they were born and purchased a home.
There is nothing free market about taxation. Taxation is by definition coercion. The track team analogy is way off. Being a track team member is optional, whereas being required to pay taxes is not optional at all. The correct analogy to having your taxes raised because some other moron in town voted themselves bigger spending hence bigger taxes is: if the average obesity of the entire student body is increasing, you are required by law to stuff yourself and gain weight!
The idea that your neighbor being taxed more would reduce your own tax burden is also absurd. The more a government gets in taxes, the more programs get created, and the more you will be taxed to support those programs! Hence, the more your neighbor gets taxed, the more you will be! I wish all my neighbors could figure out ways to reduce their own tax burdens.
Proposition 13 is not a violation of the 14th Amendment or any other Amendment to the US Constitution.
In 1978, the California Supreme Court sustained Proposition 13′s constitutionality (California Constitution) in this case: Amador Valley Joint Union High School District v. State Board of Equalization.
It’s constitutionality was later upheld by the U.S. Supreme Court in Nordlinger v. Hahn in 1992 by an 8 to 1 decision.
Advice: Just buy a home you can really afford (sales prices, taxes, insurance, fees) instead of requiring other Californians to suffer property tax increases just so that you can buy more house.
Next.
Fresh, Super, and oh yes, Cool?
How about stupid, idiot, and oh yes, looter?
“Another truck-sized loophole is that corporations do not sell their properties; they sell the holding corporation, thereby avoiding the trigger that would increase property taxes.”
This is one of the few references I could find, scanning quickly, to a key reason for 13′s existence, that is, that large commercial landlords and corporations bankrolled the measure, because they benefitted greatly.
The carrot held out to the public was the structure of property taxation we’ve been under for thirty years now.
I favor changing the way commercial and investment property is taxed under 13. That has nothing to do with “being taxed out of your home”. There is no sense in giving corporations a break such as a homeowner gets: Corporations already pay less and less income tax as the years go by.
Why do they get the free ride?
It should be repealed and EVERYONE should be paying the ADJUSTED HIGHER price. It should be a Class-A felony to employ ANY illegal alien, and it should be REQUIRED to report such people to DOD ANYPLACE they may go! Jobs/DMV/Gov Offices/Hospitals/ ANYPLACE where ID should be checked. The owners/managers/hr personel of companies that allow illegals to work should be jailed! Illegal Aliens in prison should be DEPORTED IMMEDIATLY! If Mexico OR any other country FAILS to jail VIOLENT OFFENDERS we should CUT OFF trade with them! WE DO NOT NEED MEXICO, THEY US! Bend over and take it California! The people who have GAMED the system and about to get off!
What they should do is have everyone’s property tax bring down to 1978 level + 2% increase. So that it’s fair to every single person not to the people who have lived in their home forever. And if Calif government cannot afford that, then it’s time to cut services. Or hike the price of services. People who have kids can pay additional school tax. People who want to take public transportation can pay additional fare tax, etc. So we all pay for stuff we need and don’t pay for the pork projects that our government officials seems to like to spend on. Plain and simple. Pay for all the stuff yourself and not a penny more.
So many morons, so little time. Let me guess, you’re a public employee boo hooing as your monster pension is threatened because the taxpayers won’t pony up more in one of the top 5 taxed states in the country? Or are you just a fool who thinks his taxes will go down if everybody gets the same deal? The reason your taxes are so high, bunky is that California government tax and spending is out of control, and has been for 30 years. They spend up to the limit they can get away with and were caught in the inevidable downturn. If prop 13 had been repealed, the people who have lower taxes now would be paying the same as the people who just bought, which wouldn’t do you a bit of good, monetarily. But just based on the title of your post it’s obvious that you’re an envious twit who doesn’t care so long as your neighbors are screwed as much as you.
In the event that prop 13 is repealed, it will give me a long hoped for reason to leave the state for someplace sane, leaving the idiot majority here with the government they so richly deserve.
While you are at it, we should also repeal interest tax deductions. They are also just as unfair. Yeah I know, you’ll hate me for saying it. But why do homeowners get all these breaks, while renters keep getting screwed? In the past 7 years buying a home has been an unwise decision financially because all of these stupid incentives and “free money” financing that caused the super bubble. Now we are all screwed, renters and owners. Home prices are still really high on decent areas so renters still can’t buy, and current owners are underwater for not caring how much they paid or borrowed.
I notice complainers whining that it is “unfair” for some to pay less tax under Prop 13 for a similar home than what they are paying.
This same phenomenon happens every day in California under the CA sales tax – Prop 13 is like a sales tax on a house, except that it is payable yearly. Some people are frugal and buy homes on sale, while others have poor judgment and buy at the top of the market, thus the sales price is higher. Prop 13 assesses a 1% tax on the sales price of a home – thus frugal buyers pay less tax than the “big spenders” who bought at the top.
This is no different than buyer “X” going to the store when the Apple IPhone came out and paying top dollar (and sales tax) at the peak of the market – while Frugal buyer “Y” waited for the price to drop and for sales / markdowns by the stores and buy the IPhone for much less, resulting in a lower sales tax for the identical item. Don’t like paying a high property tax? Under Prop 13, Frugal buyers wait for the CA real estate market to drop, then buy low, locking in a low property tax. Prop 13 rewards thrifty home buyers, not spendthrifts and impulse buyers. Sorry to have to explain reality to the complainers – but soon the time to buy a cheap home will be here, with a low property tax to boot, thanks to Prop 13.
Monkframe, Would you like a government ID number tatooed to your chest? Why such a love fest for government ID’s? It’s silly to be talking about yet another entitlement program (government sponsored union closed shop based on place of birth) when we are already bankrupted by entitlement programs. War on anything illegal is not going to get anywhere, be that “anything” drugs, alcohol, fire arms or people; drugs, alcohol and fire arms do not even have legs that can transport themselves. Enforcing arbitrary laws against people’s natural desires (pursuit of happiness being one of them) always leads to waste and utter failure.
Taxation needs to be fair. Every dollar of residential property value should be taxed equally for ongoing services. California needs a revolution.
The fools on this board are the ones thinking they can go on paying squat in taxes and have services paid for by the newcomer next door.
Did anyone do the numbers?
If I bought a $500,000 house in California today, the value of the home does not increase, I add a conservative inflation of 2%, by the end of the 30 years (mortgage), my house will be worth $906,000 and I’ll be paying $11,000 a year in property tax… it’s fair, but I’m hopeful that I’ll be rich when I retire.
If I bought a $500,000 house in California today, the valued of the home goes up by 5% (average increase of the housing marking in the good years) and inflation is high at 3%, I’ll be super rich by the end of the 30 years with a $5 million house, but since social security will be gone by then, I would hope I’ll be able to pay for my $62,000 property tax per year.
I know this is over-exaggerated… I just cannot imagine how I could retire in California 30 years from now.
Do any of the proponents of Prop 13 here have kids? California’s educational system has fallen into absolute tatters since 13′s advent – this is California’s future that is at stake! How else can we fund school’s Give me an alternative. The good teachers are all slowly leaving this state!
I am thankful for prop 13. There is too much wasteful spending on the part of the government while an illegal population has overwhelmed our schools with no apparent blame. I think the CA citizens have spoken against no new taxes while asking for our state to live within its means no matter how painful it may be.
Prop 13 must go. A tax system must first be fair, and it is clearly not, as demonstrated by your example (and others where the extremes are higher – e.g. sometimes one neighbor paying more than 10X that of another. I agree in tax reduction; however Prop. 13 must first be repealed. I also agree that all people should first prove they are here legally in order to access CA schools (and non-basic healthcare). In addition, the US must get rid of this crazy law we have that allows a child of illegal aliens to be a US citizen merely because they were born here. One final thought: Why to we tax labor (which should be encouraged) when instead or focus should be more on consumption and wealth? Check out how much Disney pays in property taxes for Disneyland – you will be amazed. Another unintended beneficiary of Prop 13.
All you defenders of Proposition 13, let’s check your honesty and rationality. What damage has Proposition 13 caused to the State of California and to the nation? Can you think clearly and logically and then provide an answer? Start out by telling everyone why Warren Buffet needs a tax break on his California home. Oh yes, then please continue on and tell us why all the rich folk living in La Jolla, Bel Air, Malibu, and Marin County deserve a similar tax break on their mansions. Then tell us why doctors, lawyers, and movie stars need a tax break on their California homes. Go on give it your best shot, and let the good folk outside of California pass judgment on your reasoning and your character.
What fools!
So you want the state to tax everyone to death?
there’s no end to it.
It’s not like assessed values have remained what they were in 1978!
Wake up idiots!
There was a real estate craze from 1999 to 2007.
where homes worth 150k went up to 700k.
and all those people that bought new homes for 500k plus have paid in mucho $$$ into the treasury of state and local govs.
AND WHERE HAS IT ALL GONE??? The biggest jump in prop tax revenues during this period….spent.
SO what next? Repeal 13 and make everyone pay even more??
NO! cut gov spending (waste)…don’t milk us for more!
If warren buffet bought this multi million$ home back in 1950 then fine…
but he didn’t – go luck up how much he pays on zillow.
Nobody’s getting a break…everyone pays tax on their house based on the purchase price.
Home value is not income!
I get that those who have tax breaks like them and want to keep them, however that does not make them fair or reasonable.
Fairness: Property taxes go to cover local government costs. If you have two identical houses worth $500,000 sitting next to each other, needing the same city resources – police, fire, local roads, local govt etc – shouldn’t they contribut the same amount? Why should the family that bought their house in 1978 pay 90% less than the family that bought their house in 2010? to get the same revenues the new owners have to pay increasing rates to make up the difference.
Market impact: Prop 13 has also reduced the liquidity in the california realestate market making housing artificially expensive. The easiest way to think about this is to look at the cost to buy and own a house. Since the current owner pays much lower property tax than the new owner would, the house ends up being worth more to the current owner making them less likely to sell, reducing the number of houses for sale, reducing the competition, and in the end driving up the price. As supply shrinks in any system price naturally increases.
Over the long term, housing prices should increase with inflation as should local expenses making it a balanced system. If prices go up much faster it is almost always a bubble and due to revert eventually.