https://robertstark.substack.com/p/t...g-and-property
California’s existing framework on property taxation has its origins in a tax revolt that led to the passage of prop 13 in 1978, a citizens initiative which freezes property taxes at the rate of when a property is first assessed. California’s property taxation laws have unique attributes but overall tax rates rank in the mid-range nationally, compared to the highest in Texas, Illinois, and New Jersey, and the lowest in Hawaii, Alabama, and Colorado.
Besides the debate about whether tax rates are too high or too low, there is the issue of split roll. This means that under prop 13 one’s neighbor often pays vastly less in taxes on a home that is worth the same market value due to living their much longer. The tax fairness map shows the degree to which prop 13 subsidizes the ultra-wealthy and the extreme tax disparities that exist within the same neighborhoods. Split role is particularly unfair to new buyers and protects the elderly but at the expense of young families.
The left’s opposition to prop 13 is primarily about the tax revenue, especially for funding public education, however the Democratic Party in California has failed to propose any reasonable reform to split role that would be fairer to families and new buyers. Other issues include incentivizing empty nesters to stay put rather than downsizing, which would not be a problem if there was a greater supply. Due to the housing scarcity, prop 13 has contributed to the ageing of the most desirable neighborhoods and a lack of inventory for younger buyers and families looking to get a foothold. It has even caused some wealthy California cities to go bankrupt.
Last fall two measures were put forth on the ballot that would have restructured prop 13. Proposition 15, which failed, would have ended prop 13 protections but only for commercial real estate. The proposition failed due to confusion, on the part some, as to if the measure would apply to residential properties, and concern, for others, that it would be a slippery slope to ending tax protections for residential property.
I reluctantly supported prop 15, but with some reservations. The best case to be made for supporting that measure was that it would have been good for urbanism due to taxing underutilized properties such as parking lots, vacant lots, and empty storefronts. This could have improved blighted urban areas, and helped retrofit suburbia by incentivizing mixed use development, and the creation of more walkable communities.
The other reason for support was the taxation of legacy corporations and the wealthiest commercial landlords who have an unfair advantage over newer businesses. Some extreme examples of beneficiaries under the existing laws include the wall street firm “The Blackstone Group/Boston Properties” underpaying by: At least $6 million,” “DisneyUnderpaying by: At least $25.8 million per year (and probably way more)”, “Los Angeles Country ClubUnderpaying by: $1.6 million”, and “Chevron Underpaying by: $100 million.” The potential downsides of this measure were the lack of accountability for the revenue that could further empower inefficient state bureaucracies, and also concerns about passing down the costs to consumers, even if this measure did offer protections for small businesses.
The other measure, which did pass, was prop 19. Prop 19 makes prop 13 protections portable for those looking to relocate, but only for those over the age of 55. Making prop 13 portable benefits retirees but eliminates tax protections for heirs and is an overall tax hike, as the tax raise on heirs is greater than the short term protections for the elderly. The tax increase on heirs would apply to homes worth $1 Million or more which could impact middle class millennials taking into account whether inheritance is split up between heirs and that California’s median home price reached an all-time high at “ $758,990, up 8.6 percent from February and up 23.9 percent from March 2020.”
The passage of this measure is flat out ageist and could exacerbate the intergenerational wealth gap in a state where the median net worth of Baby Boomers is $230,000 compared to Millennials with a net worth of $10,000. California’s Boomers also have homeownership rates close to the national average, but those of ages 25 to 34 have rates approximately 40% below the national average.
However there are some incentives for older homeowners to downsize which has led to a spike in property transfers to heirs which could open up new listings, potentially easing demand in some places while increasing demand in others. This is why, besides senior citizen special interests, the primary backing was from the real estate industry. The passage of Prop 19 grants well-off seniors financial perks but with the catch that their descendants pay up. It is the worst of both worlds in that it partially fulfills an agenda to redistribute wealth away from the middle class but is indirect by passing down the taxes to heirs rather than taxing wealthy homeowners directly.
Even though the measure would increase tax revenue and is opposed by many California Republicans, there was some progressive opposition to prop 19 in that it could impact the racial wealth gap because those who benefit from the tax breaks “have higher incomes and are more economically secure”. They “are long-term homeowners, many with access to substantial home equity, with more than half owning homes worth a half-million dollars or more, according to Budget Center analysis.”
Despite these concerns, the measure was backed by the Democratic establishment in California. There was support for both prop. 15 and prop.19 from Governor Gavin Newsom (D), State Controller Betty Yee (D), and the California Democratic Party. Opposition to both measures was from the conservative anti-tax organization and architect of the original prop 13, the Howard Jarvis Taxpayers Association. Support for prop. 15 but opposition to prop. Prop. 19 was from the ACLU of Southern California and the League of Women Voters of California, and support for prop. 19 but opposition to prop. 15 was form California NAACP State Conference, California Black Chamber of Commerce, California Business Roundtable, and the California Hispanic Chambers of Commerce.