California's proposition 13

[charliebrown]

Re: California's proposition 13

I live in suburban chicago. High property taxes, low income tax. Last year 2009, my property taxes increased 5%. I have a 2200 sq/ft. home with
average / low construction quality. On this home I pay 8000 bucks a year. This is killing me. My wages are lower than in 2000, but these taxes keep going up. Then we have the politicians cry about the banks foreclosing on people. How many foreclosures would be stemmed by giving people property tax relief? If I'm unemployed, where am I going to get 8K?? At least with an income tax, if you are not working you don't have a tax liability.

[we_are_toast]

Re: California's proposition 13

Can you give me an example (I'm sure there is one) where the citizens made a clear demand for more services while understanding the tax ramifications? Can you give any indication of how these "informed demands" scale against what has actually been implemented simply because of vote buying?

At least 40 measures propose to increase or decrease taxes or restrict or lock in spending. Maine, Montana, Nebraska, and Oregon have measures that attempt to replicate Colorado's Taxpayer's Bill of Rights (TABOR) initiative that passed in 1992. TABOR-style measures restrict spending growth to inflation plus the population growth rate. South Carolina and South Dakota have measures limiting the growth of property tax assessments to approximately 3% annually.

TABOR did not have any immediate credit impact when passed in Colorado in 1992, but it did contribute to credit problems years later, during a statewide recession. Voters in Colorado recently approved a five-year exemption from TABOR.

...

http://www.businessweek.com/investor...131_page_2.htm

In 2000 Colorado voters passed Amendment 23 with 54% support. Amendment 23 is an amendment to the Colorado Constitution that increases funding for kindergarten through twelfth grade (K-12) public education and establishes a funding source for the increased spending.

I resent that you would accuse me of claiming voters were making "informed demands". I would never, ever, ever claim voters were informed about anything! ;)

[tsetsefly]

Re: California's proposition 13

I think its time to repeal any budget that does not significantly reduce spending, when has a government ever had enough moneys?
California, which if I remember correctly has the 9th largest economy economy in the world and is in the top 10 states when it comes to tax burden, should have no problem with revenue and covering the budget, but they do because they overspend...

[skidder]

Re: California's proposition 13

http://www.businessweek.com/investor...131_page_2.htm



I resent that you would accuse me of claiming voters were making "informed demands". I would never, ever, ever claim voters were informed about anything! ;)

Good quote's Toast. No, I'm not accusing you of That!!!
Perhaps the reason the these non-tax/spending measures don't work is because the purchasing power of the money declines faster than the nominal increase allowed under the proposition thus not allowing for a continuation of the various programs at current staffing?

I guess if the gov't statistics were somehow "fudged" (heaven forbid) and biased towards low inflation+, then this could actually happen. What are the odds???

[ThePythonicCow]

Re: California's proposition 13

So the real issue is: would you rather have lower house prices across the board or would you prefer to subsidize the older generation but penalize the future generations?

I like the way Texas handles it. They can't take your real property from you after age 65 for non-payment of taxes, but you still owe the taxes. If you fill out the proper forms you can delay payment until you choose to pay, or until your estate can be charged after your death.

[Starving Steve]

Re: California's proposition 13

Proposition 13 actually increases real estate prices in California so repealing it will LOWER real estate prices and hence LOWER the overall tax intake.

It sound counterintuitive at first but Prop 13 results in massively restricted home inventory because once you purcahse a home, it often does not make sense to EVER SELL IT in order to lock in the property taxes.

If Prop 13 is removed then there will be a huge number of new homes on the market and hence push down prices in general.

There are people living in places such as Beverly Hills paying crazy low property taxes and would never, ever be able to pay the "market value" property tax and so would need to sell.

Prop 13 is the primary reason California Real Estate is so expensive.

Prop 13 is indeed the primary reason why real estate in California is so darn expensive, and this outrageous real estate has destroyed the economy in California. No-one can live there except as a peon.

The best move would be to repeal Prop 13 and hike taxes on homes to what they are really worth. The poor should not have to subsidize (give tax breaks) to the rich.

Isn't it interesting on how the Republicans make-up all kinds of stories for why California has gone to hell, for why people are leaving the state? And the Republican excuse is that taxes are too high in Cal.:rolleyes:

The Republicans just don't want to take responsibility for the disaster they created in America. Similarly, the Republicans refuse to take responsibility for the damage low interest rates have done to the economy. (Witness Bernanke's remarks this past week, taking no responsibility for the mess his policies and Greenspan's policies created.):rolleyes:

[grapejelly]

Re: California's proposition 13

California real estate is expensive for one major reason. Financing is mainly non-recourse.

People buy houses with very low down payments in California because they cannot be pursued for any deficiencies, basically.

This is far, far more important than Prop 13 because purchasing a house in California is the same as purchasing an option. If the house appreciates, wonderful. If it depreciates, walk away.

[c1ue]

Re: California's proposition 13

So Prop 13 keeps properties from being sold, thereby restricting supply?

So why is supply so high in California? Why have housing prices been dropping like a stone for several years?

No, Dr. Michael Hudson argues that Proposition 13 increases housing prices by freeing up cash flow for mortgages.

What he asserts is that on average people spend 'X' percent on housing. If the portion of 'X' which is due to property taxes is reduced, then people will spend this difference on larger mortgages.

Conversely if property taxes go up, then there is less money available to people seeking to buy property.

[ThePythonicCow]

Re: California's proposition 13

California real estate is expensive for one major reason. Financing is mainly non-recourse.

California is not the only non-recourse state. According to http://www.helocbasics.com/list-of-n...ency-statutes/, the non-recourse states are:

Anti-Deficiency / Non-Recourse States

• Alaska
• Arizona
• California
• Connecticut
• Florida
• Idaho
• Minnesota
• North Carolina
• North Dakota
• Texas
• Utah
• Washington

The real estate situation in these states varies widely. So I don't see a strong correlation between whether the state is recourse or not and other real estate market factors.

[SeanO]

Re: California's proposition 13

Don't forget that under prop 13 property taxes do go up... it is just held down to a reasonable 2.5% per year. Does a lot to protect people from things like our recent credit driven housing bubble. In many parts of CA that meant values fictitiously doubled or tripled in a few year period. Given that government was complicit in creating this bubble, do your really think we'd be better off allowing governments to increase revenue by manipulating house prices?

You might argue increases should be tied to an inflation measure instead of a fixed 2.5%, but given the manipulation of CPI I'm not sure how you would do it in a way that actually protected folks from govt manipulation to increase revenue.

So IMHO, what Prop 13 really does is make property tax revenue less manipulatable by government. If the lack of revenue causes services decline to a point where people can't take it, then a 2/3rds vote can change it. Seems like the right solution for ALL taxes to me.

[c1ue]

Re: California's proposition 13

Don't forget that under prop 13 property taxes do go up... it is just held down to a reasonable 2.5% per year.

The 2.5% per year is the problem.

2.5% has clearly lagged actual house price increases - not just in the recent decade but in the 2 decades prior.

Given that government was complicit in creating this bubble, do your really think we'd be better off allowing governments to increase revenue by manipulating house prices?

The problem with this statement is that it implicitly assumes property taxes are a wholly inclusive category.

As Dr. Hudson has pointed out - if the government needs revenue and cannot get it via property taxes, the resulting tax increases just get pushed to income, sales, or other taxes.

[SeanO]

Re: California's proposition 13

The 2.5% per year is the problem. 2.5% has clearly lagged actual house price increases - not just in the recent decade but in the 2 decades prior.

Perhaps, but why should government revenue be tied to home prices? The government doesn't need to buy homes. Seems to me increases in government revenue should be tied to inflation. In fact that is better for governments too as we see right now. Home values are plummeting and with it property tax revenues. By tying revenue to the boom/bust housing cycle we are doing no one any favors.[/QUOTE]

The problem with this statement is that it implicitly assumes property taxes are a wholly inclusive category.

But they are. Income taxes vary with income, so when I'm doing well I pay more. Consumption taxes vary with consumption, so again I get some implicit control. As a a homeowner I have ZERO control over the market around me, or its manipulation. As such property taxes should be treated separately, and not subject to market whims mid-ownership. What if I happen to buy in an area that is well priced now, and affordable for me, that later becomes uber-hot. Should I really be forced out because I can no longer afford the property taxes? Again, remember I don't get a free ride, I still have increases every year under prop 13, but they are manageable, and I never have to worry about a 30% increase because of pay option ARMs.

[Starving Steve]

Re: California's proposition 13

The 2.5% per year is the problem.

2.5% has clearly lagged actual house price increases - not just in the recent decade but in the 2 decades prior.



The problem with this statement is that it implicitly assumes property taxes are a wholly inclusive category.

As Dr. Hudson has pointed out - if the government needs revenue and cannot get it via property taxes, the resulting tax increases just get pushed to income, sales, or other taxes.

After Prop. 13 was passed in 1978, taxes went up and govn't fees (for example, at the DMV to register a car) went up. So the poor ended up paying for the tax holiday that Prop 13 rendered to the rich.

The rich then enjoyed a bonanza in property price appreciation, and the poor got nothing except for an annual rent increases.

Meanwhile, the state government just kept on with spending, some good spending, and some bad spending, but all spending, nevertheless. Senior teachers, for example, ended up with fabulous pensions thanks to CALPERS (Cal. Public Employees Retirement System).

But slowly, as the years passed after the passage of Prop 13, real estate became so outrageously over-priced in California that the state's economy began to decline and people began to move out of California. In Silicon Valley, for example, jobs were out-sourced via the internet to other states and other countries. California could no longer compete.

The Republicans like to make-up stories about high taxes driving people out of California, but the real truth was the outrageous real estate costs and the popping of the real estate bubble that drove people and jobs away. Reagan's supply-side economics experiment in California ( in Reagan's own words: "to put government on a diet,") was a complete disaster.:rolleyes:

To-day, you can drive through Silicon Valley during rush-hour at 65 MPH (105 KPH) because the freeways are almost empty. Some of the old companies still remain in Silicon Valley, but their high-paid workers are long-gone.

[SeanO]

Re: California's proposition 13

The rich then enjoyed a bonanza in property price appreciation, and the poor got nothing except for an annual rent increases.
...
But slowly, as the years passed after the passage of Prop 13, real estate became so outrageously over-priced in California that the state's economy began to decline and people began to move out of California.
...
The Republicans like to make-up stories about high taxes driving people out of California, but the real truth was the outrageous real estate costs and the popping of the real estate bubble that drove people and jobs away. Reagan's supply-side economics experiment in California ( in Reagan's own words: "to put government on a diet,") was a complete disaster.:rolleyes:

I love this clearly specious argument which I've heard many times about Prop13. The only way property values increase is from sales to new buyers. Those new buyers sign up for property taxes at the then FULL MARKET VALUE rate. So how exactly does P13 inflate values? Don't say by limiting supply. Also specious. We generally have more home turnover in CA each year as a percentage of total inventory than other states.

[c1ue]

Re: California's proposition 13

Perhaps, but why should government revenue be tied to home prices? The government doesn't need to buy homes. Seems to me increases in government revenue should be tied to inflation. In fact that is better for governments too as we see right now. Home values are plummeting and with it property tax revenues. By tying revenue to the boom/bust housing cycle we are doing no one any favors

Again, what Dr. Hudson has noted is that in the past (i.e. pre-Great Depression) the majority of government tax income was from property taxes. This was because property taxes were more stable in general than income and/or sales taxes - something which we are seeing in motion right now.

The second corollary from this observation is that at least part of the housing boom/bust cycle is because of the greater proportion of housing spending available for mortgages. While there certainly were housing bubbles in the past - it was not just the securitization boom which permitted this last bubble to get so large. A house with minimal cash payments between taxes and mortgage is much easier to leverage up to a high level.

But they are. Income taxes vary with income, so when I'm doing well I pay more. Consumption taxes vary with consumption, so again I get some implicit control. As a a homeowner I have ZERO control over the market around me, or its manipulation. As such property taxes should be treated separately, and not subject to market whims mid-ownership. What if I happen to buy in an area that is well priced now, and affordable for me, that later becomes uber-hot. Should I really be forced out because I can no longer afford the property taxes? Again, remember I don't get a free ride, I still have increases every year under prop 13, but they are manageable, and I never have to worry about a 30% increase because of pay option ARMs.

Again, you are viewing the situation from the prism of the bubble that has passed.

As noted before:

1) if government services are necessary, then stable government revenue is equally necessary. Therefore

2) which of the 3 tax classes represents the most historically stable income stream - property, income, sales? A: it is property taxes

3) Pay Option ARMs certainly distorted the picture, but equally Pay Option ARMs would have distorted the picture less if a) less cash flow was available for leveraging and b) the enticement of locked in Prop. 13 taxes was not there

While I understand where you are coming from - I fail to understand how you cannot recognize that the Proposition 13 setup is a pyramid scheme.

Only if new buyers are constantly being enticed into paying for ever higher priced homes can the tax pyramid known as Prop. 13 survive. That most people cannot recognize that high home prices are a symptom of low property taxes - this is unsurprising but I have yet to see an argument showing that this assertion (from Dr. Michael Hudson) is false.

An updated chart:

http://articles.moneycentral.msn.com...StateRank.aspx