California's proposition 13

[unlucky]

Re: California's proposition 13

Being able to have a debate about the relative merits of lower/higher taxes versus lower/higher spending, is a luxury enjoyed by states and nations who are solvent and who are not facing fiscal crises.

The world will know that California, and the US, are serious about tackling deficits when we see you folks talking about ways to increase taxes and cut spending. (A third option of course is to just cancel your debts. I don't exclude that as a possibly favorable option ).

[grapejelly]

Re: California's proposition 13

Being able to have a debate about the relative merits of lower/higher taxes versus lower/higher spending, is a luxury enjoyed by states and nations who are solvent and who are not facing fiscal crises.

The world will know that California, and the US, are serious about tackling deficits when we see you folks talking about ways to increase taxes and cut spending. (A third option of course is to just cancel your debts. I don't exclude that as a possibly favorable option ).

that is crazy. Taxes must fall. Spending will ALWAYS equal or exceed taxes collected. The ONLY way is to reduce taxes, otherwise the private sector withers away and we all get poorer and poorer...

[SeanO]

Re: California's proposition 13

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.

??? Aren't we seeing exactly the opposite? Even with the job market in tatters, the fall there is nothing in comparison to housings fall from the peak. Housings boom/bust cycles seem less stable to me. Have you see Shillers inflation adjusted chart. Some pretty significant swings even before the latest bubble.

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.

What your missing is that the primary point in time where income matters for qualifying for a mortgage is at purchase - and at that particular point CA taxes are not held down by prop 13.

Now if you'd like to argue that properties should be re-assessed at the time of a cash-out refi, then I'm all for that. If the person can afford bigger payments, they can afford more taxes. This may have been an oversight in P13, and should be addressed, but lets not throw out the baby with the bathwater.

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

I disagree with each of those points at some level, and challenge you to show any evidence to support them. In fact the chart you quote above clearly shows that CA has among the highest property tax rates in the nation despite prop 13.

I think it is simply impossible to argue that CA's problems are due to a lack of taxes - the simple fact is that we have higher taxes on ALL fronts than most states, while having lower quality of service.

[unlucky]

Re: California's proposition 13

that is crazy. Taxes must fall. Spending will ALWAYS equal or exceed taxes collected. The ONLY way is to reduce taxes, otherwise the private sector withers away and we all get poorer and poorer...

Spending exceeds taxes in states that are not serious about repaying their debts. When debts reach crisis levels, states either default or else put in place a government that will do the necessary to deal with the crisis. That certainly requires massive spending cuts, but a plan to increase tax receipts is also necessary. Whether that involves increasing tax rates depends on where you are on the Laffer curve. If you are on the right-hand side of the curve, then reducing tax rates might increase receipts. But the key objective has to be a laser focus on reducing the deficit - ideological debates about higher/lower taxes have to be put on the shelf.

My understanding from reading the International press is that California has laws (put in place by popular referenda) that both forbid all kinds of new taxes, and also forbid many forms of spending reduction. Consequently, the state is regarded as ungovernable.

[Starving Steve]

Re: California's proposition 13

that is crazy. Taxes must fall. Spending will ALWAYS equal or exceed taxes collected. The ONLY way is to reduce taxes, otherwise the private sector withers away and we all get poorer and poorer...

The Republicans just don't want to admit that they are WRONG. Their policies have proven a failure. Grapejelly's remark above is exactly how the Republicans think in America. That is why America is in crisis now.

We saw this with the comments by Ben Bernanke this past week. Just like Greenspan, he refused to take responsibility for the mess (bubbles) his low interest rates have created.

And we will never get Arthur Laffer, Larry Kudlow, The Terminator, nor any Republican to admit that supply-side economics (Reaganomics) led to disaster in California and America. They refuse to take responsibility for the failure of Reagan's policies to really prove viable over the long-term.

Somehow to the Republicans, doing more of what has proven to be a complete failure, is the way to restore the economy. And sadly, that kind of thinking is what earns Ph.Ds in economics departments to-day.

[bobola]

Re: California's proposition 13

California's 2010 - 11 budget summary;

http://www.ebudget.ca.gov/pdf/Budget...ogramAreas.pdf

[c1ue]

Re: California's proposition 13

??? Aren't we seeing exactly the opposite? Even with the job market in tatters, the fall there is nothing in comparison to housings fall from the peak. Housings boom/bust cycles seem less stable to me. Have you see Shillers inflation adjusted chart. Some pretty significant swings even before the latest bubble.

According to the California revenues - we are seeing exactly what I stated (and which Dr. Michael Hudson has asserted in his work):

http://www.lao.ca.gov/sections/econ_...l_Revenues.xls

CA sales and income tax 1977 2010.bmp

From the CA government data - we see that there have been 2 separate instances in the last decade where personal income tax revenues fell 36% (2000 - 2003) and 19.6% (2008 - 2009)

Sales tax numbers are more stable, but even there we see a 16% fall from 1991 - 1994 and a 12% fall from 2004 - 2009.

Property taxes, in contrast, have probably not fallen anywhere (until these past 2 years) since the Great Depression. I had posted several examples in the Bay Area where tax assessor's were noting property tax revenue would decline for the first time since the Great Depression. Clearly property taxes were stable even before Prop. 13. given that Proposition 13 only spanned less than half the period since 1929...

What your missing is that the primary point in time where income matters for qualifying for a mortgage is at purchase - and at that particular point CA taxes are not held down by prop 13.

Now if you'd like to argue that properties should be re-assessed at the time of a cash-out refi, then I'm all for that. If the person can afford bigger payments, they can afford more taxes. This may have been an oversight in P13, and should be addressed, but lets not throw out the baby with the bathwater.

I'm not sure what your point is.

Future interest costs (in the case of ARMs), future maintenance costs, future utility bills, future food prices, future sales taxes, etc etc are not 'frozen' at time of purchase.

Why should real estate property taxes be different?

I am sympathetic to the plight of those who are forced out of their homes due to rising property taxes - but there's a huge difference between being forced to sell, take a large sum of cash, and move vs. trying to live somewhere where housing costs are driving away jobs.

I disagree with each of those points at some level, and challenge you to show any evidence to support them. In fact the chart you quote above clearly shows that CA has among the highest property tax rates in the nation despite prop 13.

I am unclear where you get the idea that CA has the highest property tax rate. Texas' rate is nearly 3x that of CA; the entire NE, the central Midwest, Florida, Georgia all have higher tax rates.

Only the western Midwest and such states as Mississippi and Alabama are in CA's range.

(Not coincidentally?) the states with the largest bubbles also had the lowest effective property tax rates. Florida was the only exception to this.

As for evidence, read Dr. Michael Hudson's work. Many examples have been posted in the past.

[ThePythonicCow]

Re: California's proposition 13

I am unclear where you get the idea that CA has the highest property tax rate. Texas' rate is nearly 3x that of CA;

Texas has no income tax and substantially lower property valuations than California, so (if what you say is accurate) would have a higher property tax rate even though its aggregate state and local government budget per citizen is (I'm confident) less than California's.

[ThePythonicCow]

Re: California's proposition 13

Looking at the chart SeanO linked and you (c1ue) mentioned, I see that the property taxes per property at a little less in Texas than in California. Sure Texas has 3 times the rate, but it has 1/3 the value. A California house costs $467K; a Texas house costs $127K.

[SeanO]

Re: California's proposition 13

From the CA government data - we see that there have been 2 separate instances in the last decade where personal income tax revenues fell 36% (2000 - 2003) and 19.6% (2008 - 2009)

Sales tax numbers are more stable, but even there we see a 16% fall from 1991 - 1994 and a 12% fall from 2004 - 2009.

Property taxes, in contrast, have probably not fallen anywhere (until these past 2 years) since the Great Depression. I had posted several examples in the Bay Area where tax assessor's were noting property tax revenue would decline for the first time since the Great Depression. Clearly property taxes were stable even before Prop. 13. given that Proposition 13 only spanned less than half the period since 1929...

Certainly none of those instances compare to the recent rise and fall of property values in CA, which I still believe leaves income/sales more stable. Plus compare those charts to Shiller's and you'll see home prices have ahd significant periods of volatility in the past as well... especially here in CA.

Now assessors do their best to avoid downward adjustments so perhaps this hasn't translated into corresponding declines in revenues... but assessor gamesmanship hardly proves your point.

I'm not sure what your point is. Future interest costs (in the case of ARMs), future maintenance costs, future utility bills, future food prices, future sales taxes, etc etc are not 'frozen' at time of purchase.

Why should real estate property taxes be different?

Perhaps you forgot your point. :-) Which I'll remind you was that if we had higher property taxes we'd have lower property values in CA. Clearly not true since folks purchase at the time tax rates are effectively highest here. If anything Prop 13 encouraged folks during the bubble to pay far more than they should have as they were afraid to wait and have prices (and taxes) be higher should they purchase later.

I am sympathetic to the plight of those who are forced out of their homes due to rising property taxes - but there's a huge difference between being forced to sell, take a large sum of cash, and move vs. trying to live somewhere where housing costs are driving away jobs.

Again specious as there's simply no correlation between low property tax rates and high prices. Either nationally or locally. Compare the Northeast with the Southeast.

And lets not forget a fundamental reason this country exists was because folks came here to escape rentiers and unjust taxation. People headed west for the promise of owning a piece of land they could call their own. It's one thing to decide to sell of your own free well. But to be forced off your land because of rising taxes is the most un-American concept one could proffer.

It's high time we focus on property as place to live, build community, life long friendship, etc. To you its seems to be all about the money. A way to pay for services, and if your forced out by high prices, at least you got a check. Seems to me those values are part of the problem not the solution.

I am unclear where you get the idea that CA has the highest property tax rate. Texas' rate is nearly 3x that of CA; the entire NE, the central Midwest, Florida, Georgia all have higher tax rates.

Only the western Midwest and such states as Mississippi and Alabama are in CA's range.

(Not coincidentally?) the states with the largest bubbles also had the lowest effective property tax rates. Florida was the only exception to this.

Huh? As the #2 bubble state its hard to count Florida as an "exception". Plus looking at your chart there are at least a dozen with lower "rates" than CA - many of which saw NO bubble at all. Are you really also saying that property values in the Northeast which have among the highest property tax rates didn't get bubbly?

Finally note that I did not say highest, I said among the highest... though upon review I should have said "among the highest property taxes" and left off rates. It was a quick reaction to the color scheme on the chart you posted which indicates by shade that CA has among the highest median property taxes (if not rates).

As for evidence, read Dr. Michael Hudson's work. Many examples have been posted in the past.

Come on now, don't go pulling the appeal to authority fallacy as a get out of jail free card. :-)

[c1ue]

Re: California's proposition 13

Certainly none of those instances compare to the recent rise and fall of property values in CA, which I still believe leaves income/sales more stable. Plus compare those charts to Shiller's and you'll see home prices have ahd significant periods of volatility in the past as well... especially here in CA.

Excuse me, but we were talking about taxes.

I've shown that income and sales taxes have shown over 10% volatility twice just in the last 2 decades. Look through the numbers and you see many more examples.

I've noted that real estate property taxes - even before Prop. 13 - have not declined since the Great Depression, a nearly 80 year span. Assessor games are irrelevant in light of this record.

Yet you still are attempting to link real estate property PRICES to real estate TAXES. What you still refuse to acknowledge is the possibility that the PRICE volatility is exactly BECAUSE of the TAX setup.

Perhaps you forgot your point. :-) Which I'll remind you was that if we had higher property taxes we'd have lower property values in CA. Clearly not true since folks purchase at the time tax rates are effectively highest here. If anything Prop 13 encouraged folks during the bubble to pay far more than they should have as they were afraid to wait and have prices (and taxes) be higher should they purchase later.

Again you must be reading some other post.

What I've noted is that tax RATES are what affect property values. One thing you can easily see from the MS chart - which does not show tax RATES but tax PAID - is that the AMOUNTS of real estate property taxes paid is fairly constant even though the RATES differ.

It is EXACTLY the bad tax policy represented by Prop. 13 allowing over-pricing via mortgages using a low initial tax RATE plus the illusion of buying into the pyramid via an artificially low assessment increase cap which is what I and Dr. Michael Hudson refer to.

Again specious as there's simply no correlation between low property tax rates and high prices. Either nationally or locally. Compare the Northeast with the Southeast.

Is there a direct correlation? Yes, but you must look into the specifics of overall tax policy, specific real estate tax implementation (i.e. Prop 13 vs. reassessment triggers vs. homestead exemptions vs. quality of schooling etc etc).

And lets not forget a fundamental reason this country exists was because folks came here to escape rentiers and unjust taxation. People headed west for the promise of owning a piece of land they could call their own. It's one thing to decide to sell of your own free well. But to be forced off your land because of rising taxes is the most un-American concept one could proffer.

It's high time we focus on property as place to live, build community, life long friendship, etc. To you its seems to be all about the money. A way to pay for services, and if your forced out by high prices, at least you got a check. Seems to me those values are part of the problem not the solution.

This is a laugh. You are trying to tell me that California has a better sense of community than the rest of the nation?

As someone who's lived in several parts of CA, as well as several other states, I say that this statement is bulls**t.

People went West because of free land and/or the gold rush and/or jobs.

The free land is gone. The jobs are going. And the Gold Rush, either literal or figurative (houses, internet, etc) is also gone.

Huh? As the #2 bubble state its hard to count Florida as an "exception". Plus looking at your chart there are at least a dozen with lower "rates" than CA - many of which saw NO bubble at all. Are you really also saying that property values in the Northeast which have among the highest property tax rates didn't get bubbly?

Florida has some characteristics which compensate for its high property tax rate - including among others the bankruptcy homestead exemption. Thus it is easily argued that Florida property prices are inflated by factor beyond just real estate property taxes - i.e. bankruptcy shelters.

As for the NE - yes, I do say the NE didn't get all bubbly. The primary bubble states were indeed the ones which had the lowest tax RATES. There were certainly some exceptions: NY-City - but NY City also has its own unusual characteristics including FIRE money and a Prop. 13 like assessment system. Examine the real estate property taxes of co-ops vs. houses to get an taste of this.

Come on now, don't go pulling the appeal to authority fallacy as a get out of jail free card. :-)

There is no appeal to authority. As I and others have posted extensively on Dr. Michael Hudson's work - as well as it being available on the Internet, it is not my job to correct your ignorance.

So far you've not put out a single fact yet - merely made a bunch of statements and assertions. Where are your charts and data?

Or are you just talking your book?

[medved]

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.

Exactly. In reality nobody can be protected from volatility. If it applies to taxpayers, it should also apply to their gov’t. There is, indeed, some basic level of gov’t revenue to support necessary services (police, fire dep’t, military etc.). Anything above the minimal level is subject to revenue volatility, and there is nothing wrong with that. Stability in gov’t revenue is not an absolute value. If revenue falls, so should spending (adjusted for some reasonable Keynsian correction).

Besides, government meddling in our lives is the main reason for volatility. If not for excessive gov’t “regulation” (read manipulation) of the markets, we would have much less volatility. Who needed the Fannie Mae monster created by the dogooders? Home ownership is not an absolute value either, you don’t need to promote it. As a temporary Kenesian solution it might be okay, but as a way of life it is a disaster. The same applies to the home mortgage deduction.

Gov’t is not god. Even the church at the peak of its power collected ~10% of income, be it in time of abundance or famine. I don’t care which schemes gov’t invents to collect taxes, I just don’t want it to use taxes as a tool of social engineering like it does with mortgage deductions and now with carbon tax. I care to keep gov’t taxation and manipulation under some kind of control. Prop 13 is one of the very few measures that limit insane gov’t appetite for the real taxpayer money with the promise of mythical “better services”.

[SeanO]

Re: California's proposition 13

Excuse me, but we were talking about taxes.

I've shown that income and sales taxes have shown over 10% volatility twice just in the last 2 decades. Look through the numbers and you see many more examples.

I've noted that real estate property taxes - even before Prop. 13 - have not declined since the Great Depression, a nearly 80 year span. Assessor games are irrelevant in light of this record.

Yet you still are attempting to link real estate property PRICES to real estate TAXES. What you still refuse to acknowledge is the possibility that the PRICE volatility is exactly BECAUSE of the TAX setup.

Sorry it seemed painfully obvious to me that if taxes were not fixed as they are under prop13 they would in fact vary with prices. If in fact they haven't it can only be due to assessor games so it is completely relevant.

Again you must be reading some other post.

What I've noted is that tax RATES are what affect property values. One thing you can easily see from the MS chart - which does not show tax RATES but tax PAID - is that the AMOUNTS of real estate property taxes paid is fairly constant even though the RATES differ.

It is EXACTLY the bad tax policy represented by Prop. 13 allowing over-pricing via mortgages using a low initial tax RATE plus the illusion of buying into the pyramid via an artificially low assessment increase cap which is what I and Dr. Michael Hudson refer to.

Two problems with your assertions:

1. While I haven't dumped that data into a spreadsheet and fully analyzed it I did look at rates and the fact is I just don't see the correlation you suggest. The Northeast has high rates and high prices, the Southeast has low rates and low prices. Seems pretty clear to me that prices vary with desirability - rates be dammed. I see your other points below on this, but I think you gave WAY too much credit to buyers to think they take all that into account.

2. You are simply wrong that CA has a "low initial tax RATE". My initial tax rate was 1.25%, which seems to puts it well toward the top of rates on the chart you provided. Further many new developments in CA have Mellow Roos taxes which can push those rates above 2% -- higher RATES then any other state in the nation, and yet those projects often sell at little, if any, discount to surrounding areas.

Is there a direct correlation? Yes, but you must look into the specifics of overall tax policy, specific real estate tax implementation (i.e. Prop 13 vs. reassessment triggers vs. homestead exemptions vs. quality of schooling etc etc).

This is a laugh. You are trying to tell me that California has a better sense of community than the rest of the nation?

As someone who's lived in several parts of CA, as well as several other states, I say that this statement is bulls**t.

People went West because of free land and/or the gold rush and/or jobs.

The free land is gone. The jobs are going. And the Gold Rush, either literal or figurative (houses, internet, etc) is also gone.

I get it. So because excessive taxes have been ruining this state, we should increase tax rates because it just don't matter anymore. Brilliant.

Florida has some characteristics which compensate for its high property tax rate - including among others the bankruptcy homestead exemption. Thus it is easily argued that Florida property prices are inflated by factor beyond just real estate property taxes - i.e. bankruptcy shelters.

Right because the majority of buyers headed to Florida desperately need bankruptcy protection. Let's go interview 100 buyers that recently moved to Florida and see how many even knew the exemption existed. Specious.

As for the NE - yes, I do say the NE didn't get all bubbly. The primary bubble states were indeed the ones which had the lowest tax RATES. There were certainly some exceptions: NY-City - but NY City also has its own unusual characteristics including FIRE money and a Prop. 13 like assessment system. Examine the real estate property taxes of co-ops vs. houses to get an taste of this.

So now your suggesting the bubbles were caused by low tax rates?

There is no appeal to authority. As I and others have posted extensively on Dr. Michael Hudson's work - as well as it being available on the Internet, it is not my job to correct your ignorance.

So far you've not put out a single fact yet - merely made a bunch of statements and assertions. Where are your charts and data?

Or are you just talking your book?

I'm not debating Hudson, I'm debating you, and you've completely failed to provide a single compelling argument that isn't completely specious. Simply claiming your are right and that I'm ignorant because I haven't extensively read Dr. Hudson is the definition of the appeal to authority fallacy. So feel free to quote facts from him, or do anything that clearly demonstrates your case or say Uncle. :-)

P.S. I've got no book in this game. I don't sell RE, and I can afford higher property taxes, and I've nearly paid off my house so I don't really care. But having watched this argument for some time I remain unconvinced of the argument against Prop13. I think our values would be relatively high in CA regardless of rate as it is simply a great place to live. I also don't think we'd get anything other than poorer quality of service for the extra taxes. Finally I believe that Prop13 together with less incentive to flip (Taxpayers Relief Act), or refinance (govt subsidized mortgages) people might instead actually stay put and pay off their mortgage which would encourage folks to put down roots and build community. I appreciate your taking the time to TRY to make your case against prop13 and convince me otherwise.

[c1ue]

Re: California's proposition 13

Sorry it seemed painfully obvious to me that if taxes were not fixed as they are under prop13 they would in fact vary with prices. If in fact they haven't it can only be due to assessor games so it is completely relevant.

Again, the facts: property taxes haven't gone down in 80 years in most counties until perhaps last year.

This includes 30 years of Prop. 13, but also 50 years without.

So if you want to ascribe this to assessor games - then Prop. 13 itself is irrelevant isn't it? Again I fail to see how this illustrates your point in any way.

1. While I haven't dumped that data into a spreadsheet and fully analyzed it I did look at rates and the fact is I just don't see the correlation you suggest. The Northeast has high rates and high prices, the Southeast has low rates and low prices. Seems pretty clear to me that prices vary with desirability - rates be dammed. I see your other points below on this, but I think you gave WAY too much credit to buyers to think they take all that into account.

Buyers' intelligence is irrelevant. Dr. Michael Hudson's assertions are based on cash flow analysis. Once again (3rd time): if the percentage of income used to pay for housing is relatively constant, then the amount of cash flow available for housing is also relatively constant. Within this cash flow, a high relative cash spend on property taxes MUST bring down the cash flow available for mortgages. Conversely lower property taxes frees up more cash for mortgages which in turn drives up house valuation.

2. You are simply wrong that CA has a "low initial tax RATE". My initial tax rate was 1.25%, which seems to puts it well toward the top of rates on the chart you provided. Further many new developments in CA have Mellow Roos taxes which can push those rates above 2% -- higher RATES then any other state in the nation, and yet those projects often sell at little, if any, discount to surrounding areas.

The 1% California rate (plus 0.2% +- for local add-ons) is very low compared to most other states. Examine the tax rates in a few others and see.

As for developments - if this is truly a generalized statement then it might have value. But you know full well that there are reasons why a subset of homes might have high demand outside of taxes: location, schools, price, etc.

The overall CA property tax rate clearly dictates that these developments are the exception, not the rule.

I get it. So because excessive taxes have been ruining this state, we should increase tax rates because it just don't matter anymore. Brilliant.

You can be sarcastic all you like.

The reality is that California could as easily go to a 0.65% rate without exceptions without any overall impact on tax revenue.

Or a 1% rate without exceptions but with a 10 year 'catchup' period for those under the existing rate.

The tax rates overall don't have to increase in either of these examples.

Right because the majority of buyers headed to Florida desperately need bankruptcy protection. Let's go interview 100 buyers that recently moved to Florida and see how many even knew the exemption existed. Specious.

Hardly specious when there is an entire industry in Florida devoted to buying a giant house with all available cash then filing bankruptcy. Is it the only reason? Of course not, but it definitely is a factor.

So now your suggesting the bubbles were caused by low tax rates?

That is exactly what Dr. Michael Hudson asserts: that the FIRE industry seeks to reduce property taxes in order to free up cash flow for mortgages. Because every single sector of FIRE benefits from higher property valuations whereas only the buyers benefit from lower prices homes.

Was the most recent real estate bubble solely due to low tax rates? Certainly not. We both know that securitization games enabled the bubble to get much larger than 'usual'. But I point out that those states with higher effective tax rates saw a much smaller bubble than states like California. States like Texas with one of the highest property tax rates saw no bubble at all - and all 50 states had access to the same identical securitized mortgages.

I'm not debating Hudson, I'm debating you, and you've completely failed to provide a single compelling argument that isn't completely specious. Simply claiming your are right and that I'm ignorant because I haven't extensively read Dr. Hudson is the definition of the appeal to authority fallacy. So feel free to quote facts from him, or do anything that clearly demonstrates your case or say Uncle. :-)

You are welcome to use your ignorance - deliberate or actual - to debate with.

You've not responded to the summary of what Dr. Hudson has stated - the cash flow analysis of the situation.

Nor have you provided any data whatsoever of your own.

I don't claim right or wrong - I present what I understand, the basis behind it, and evidence anecdotal or otherwise.

You on the other hand have just complained about how high taxes are bad, how high taxes destroy the community, blah blah blah. All assertions which sound nice but mean nothing.

No evidence.

No theory beyond taxes are bad.

Nothing but sound bites.

[SeanO]

Re: California's proposition 13

Again, the facts: property taxes haven't gone down in 80 years in most counties until perhaps last year. This includes 30 years of Prop. 13, but also 50 years without. So if you want to ascribe this to assessor games - then Prop. 13 itself is irrelevant isn't it? Again I fail to see how this illustrates your point in any way.

You've accused me of making assertions with no evidence - seems you are doing the same with your assertion above. And no "Dr Hudson says so" doesn't count. I know Eric has pointed to some of his work, but one thing I love about Eric is that he never says "so and so says so believe him" he points you to the actual data that makes the point and walks you through why its relevant. You haven't.

Buyers' intelligence is irrelevant. Dr. Michael Hudson's assertions are based on cash flow analysis. Once again (3rd time): if the percentage of income used to pay for housing is relatively constant, then the amount of cash flow available for housing is also relatively constant. Within this cash flow, a high relative cash spend on property taxes MUST bring down the cash flow available for mortgages. Conversely lower property taxes frees up more cash for mortgages which in turn drives up house valuation.

I actually have a long record of asserting that people buy homes based on what they can afford. So I don't disagree with this assertion at all. You just take it way to far, and fail to realize that impact of P13 on prices is minimal compared to what I perceive to be its benefits (earlier stated).

Since you want details, lets assume we move CA from its .61 effective rate to Texas' high 1.76 effective rate (quoting the chart you cited). Property taxes on the median priced CA home ($261k), go from $1592 to $4393, which equals $41k at a 6% interest rate). Given that the CA bubble peaked at a median of $550k, tax rate was clearly a nearly meaningless factor in the bubble. It also hardly explains the difference in prices between CA and TX.

Given our governments recent history with the Taxpayer Relief Act of 1997, and the increasing support for subsidized housing (which only increases prices, not affordability), I believe it is time to disconnect property taxes from property prices completely so that government is not so incentivized to manipulate home prices upward.

I think we may agree high home prices benefit no one except FIRE interests and the government. Where we disagree is that getting rid of prop 13 would mean meaningful lower prices.

Your theory that we had a bubble due to low tax rates is laughable. Clearly the bubbles were credit driven, and the most aggressive loans were available in bubble states like CA, and FL because those areas are highly desirable internationally making the securitized packages easier to sell. Pretty hard to convince investors that property in TX never goes down - thus those loans were not nearly as available there.

The 1% California rate (plus 0.2% +- for local add-ons) is very low compared to most other states. Examine the tax rates in a few others and see.

As for developments - if this is truly a generalized statement then it might have value. But you know full well that there are reasons why a subset of homes might have high demand outside of taxes: location, schools, price, etc.

The overall CA property tax rate clearly dictates that these developments are the exception, not the rule.

Actually many developments with and without Mello Roos are in the same school districts, and are indistinguishable other than by the tax bill. Knowledgeable Realtors steer clients toward the non Mello Roos areas so those home tend to sell a bit faster and for a bit more, but not enough more to be explained by the difference in effective tax rate alone.

You can be sarcastic all you like. The reality is that California could as easily go to a 0.65% rate without exceptions without any overall impact on tax revenue. Or a 1% rate without exceptions but with a 10 year 'catchup' period for those under the existing rate. The tax rates overall don't have to increase in either of these examples.

I'm hardly being sarcastic... that is literally what you seem to be saying. I totally get that we could move off of P13 with either of your scenarios above. What I don't get is the benefit. The only one you've stated is lower prices. You'd more easily accomplish that by attacking real housing subsidies - taxpayer subsidized interest rates and mortgage interest deductibility (note FIRE interests have actually had influence on those items, unlike property taxes). CA is getting plenty of my dollars for taxes already, with little to show for it in comparison to other states.

That is exactly what Dr. Michael Hudson asserts: that the FIRE industry seeks to reduce property taxes in order to free up cash flow for mortgages. Because every single sector of FIRE benefits from higher property valuations whereas only the buyers benefit from lower prices homes.

Perhaps, but if that is the case it hasn't worked with regards to property taxes. Go back to the chart you cited. It clearly shows CA pays as much of their income in property taxes as the other states you cite - almost exactly the same as Texas. So we clearly have not shifted cash flow from property taxes to mortgages. Oops.

Was the most recent real estate bubble solely due to low tax rates? Certainly not. We both know that securitization games enabled the bubble to get much larger than 'usual'. But I point out that those states with higher effective tax rates saw a much smaller bubble than states like California. States like Texas with one of the highest property tax rates saw no bubble at all - and all 50 states had access to the same identical securitized mortgages.

Nope, sorry, they absolutely did not have access to the same identical securitized mortgage as I mentioned earlier.

You are welcome to use your ignorance - deliberate or actual - to debate with. You've not responded to the summary of what Dr. Hudson has stated - the cash flow analysis of the situation. Nor have you provided any data whatsoever of your own. I don't claim right or wrong - I present what I understand, the basis behind it, and evidence anecdotal or otherwise. You on the other hand have just complained about how high taxes are bad, how high taxes destroy the community, blah blah blah. All assertions which sound nice but mean nothing. No evidence. No theory beyond taxes are bad. Nothing but sound bites.

Dr. Hudson hasn't asserted anything in this thread, so I'm not sure why you expect me to respond to him. That said I did just respond to the cash flow analysis YOU asserted with claims that it is Hudson's, and quite clearly that cash flow analysis is false.

Keep in mind that you took issue with two points I contributed long ago...

1. That taxes under P13 do go up.
2. That P13 does help protect homeowners from being forced out of their home by a tax and spend government (which I think is safe to say we have in CA and beyond).

All of your ramblings have yet to counter my agreement that perhaps the 2.5% should be changed, but that it should be changed by taxpayers because they want more services, not by government because they want more taxes.

Nor have any of your assertions countered my point that P13 really does protect homeowners from being forced from there homes due to government enabled bubbles. Instead you simply countered that you thought that was ok because they got bonars.

From there you can make all the specious claims and ad hominem attacks you want, I'm doing my best to respond to each, but I'm honestly losing sight of what your point is.