California Property Taxes Mapped(officialdata.org) |
California Property Taxes Mapped(officialdata.org) |
Zoom in on a residential street, particularly in the Bay Area, and you will see a row of houses which are roughly equivalent in value. Some homeowners pay several times as much annual property tax as their neighbors, because they bought their homes more recently and paid more for them.
That's kind of insane, and nobody would design the property tax system that way if they were starting from scratch.
I think if the value increase cap was raised (gradually) to something like 4-5% per year, you would still have assessed values trailing market values, but not by nearly as much. People could still make worst case projections of taxes to see if they could afford things.
Washington state has a different system, where the total property tax of each taxing jurisdiction can only increase by 1% each year (subject to exceptions and what not), and then that amount is apportioned to each property based on the assessed value. This provides a limit on government spending as CA prop 13 does, but it doesn't limit changes in tax on any individual homeowner; if your property becomes more relatively valuable than others in your taxing districts, your bill goes up and theirs goes down. Which I'm sure causes assessments to be a lot more contenious.
This ensures that no one has to move because their home appreciated, but it also ensures that no one gets to pay taxes like their home never appreciated, but then pocket appreciation at sale time.
Let alone letting you retire in your home on a fixed income.
For example, in Florida property tax increases are capped to the lesser of 3% or CPI. 25k of value is also exempted from property taxes and 50k is exempted from non-school property taxes. But only for a single primary residential property.
Where CA13 is different is that it applies to everything: commercial property, industrial property, rental property, second homes, third homes, etc.
I think there is a pretty good case to be made that there is a massive public interest in keeping people from being pushed out of their homes by taxes. Capping tax increases is also necessary to make it possible to financially plan for them (e.g. I can invest enough so that my investments will pay the taxes w/ increases for the rest of my life, and just add that to the 'cost' of the home-- given historical market returns this requires investment of 25x your annual property taxes, so long as they can't grow faster than inflation). One could also make the case for a public interest in not letting some businesses get pushed out (primarily small, single location businesses).
But prop 13 goes far beyond that-- applying to all property and with extremely expansive portability-- and as a result creates a massive windfall for existing property owners at the expense of new property owners.
I'd like to see at least a rule that for rented properties that assessments should be allowed to increase as much as rents have. There is little to no prevent-displacement justification for not tracking rents.
It's even worse than that -- it creates a massive incentive not to sell homes.
People who have owned homes for more than just 10 years would see their property taxes double if they sold their homes today and bought another home for the same price elsewhere in the state. The longer you have owned your home, the worse the tax increase becomes.
It's kind of crazy that the people who bought their homes a long time ago, and therefore have realized the most return on investment, pay the least taxes. Meanwhile, people who bought their homes this year, and have made little to no investment return, pay the most taxes of anyone.
Someone has to pay the taxes. It is difficult to see a good argument that having been a landholder for a long time gives some sort of moral right to be supported by others.
The fallacy of the argument for tax breaks to homeowners is that the problem of rising prices is entirely orthogonal to homeownership. Renters face the exact same challenge of affording to live in an increasingly popular place, except without the cushion of an appreciating asset and without any tax relief under Proposition 13. If renters and homeowners face the exact same problem, then clearly subsidies to property owners is not the solution.
The finances of homeownership should be decomposed into two parts: 1) the rental cost of the property, and 2) what fraction of the rent goes to the government in property taxation.
The remedy for rising rents is obvious: more construction of housing and rental subsidies to the poor. This is how to address the underlying problem for homeowners and especially for renters. Temporary rent controls and tax caps can also be helpful to provide relief for people who were caught off guard by the rapid changes. Note that the solution should help all those who are affected by the problem, not only the ones who own more assets.
When property values are rising, this is not an excuse to enact regressive tax breaks for property owners; that just makes inequality worse without solving the underlying problem of lack of housing, which then becomes worse for renters and future homeowners. Property taxation is the most progressive form of taxation available to local governments, and if anything tax rates should be increased when there is a property value boom in order to reduce the incentive to speculate on land prices and to raise money to solve the problems associated with inequality such as homelessness. Basically, when I bought a house in San Francisco, I paid a windfall of a few hundred thousand dollars to the previous owner, who took that money out to a different county. It would have been better for the city to collect that money and use it to incentivize housing construction and subsidize the poor in the city, rather than to let it be lottery winnings to the person who left.
Among other things, this method of taxation tightly couples school funding to local home values. Areas with expensive homes have the best schools. (And areas with cheap homes have bad schools, which is not really what you want if you are trying to do something about inter-generational poverty.) This is self-reinforcing because now parents compete with each other to buy homes that are located in the best school districts, which drives up prices even more.
When home values drop, such as they did in 2008, property tax revenue drops too (Prop 13 is not a one-way ratchet, you can get re-appraised and lower your taxes, and 2008-2009 was a pretty convenient time to do that).
It doesn't seem like a good idea to base city revenue on something that is so undependable, especially something that is so often treated as a speculative investment.
What I would rather do is come up with a system where a simple tax is paid per parcel, perhaps a flat tax or one based on the size of the parcel, and which is not based on the market value of the parcel.
The rest of city funding can be covered by income tax -- unlike the current system, at least that has a chance of being progressive. No old people will be priced out of their homes by tax increases, and school funding would be distributed somewhat more evenly because not all high earners live in the most expensive areas. And if you are worried about an influx of high earners flooding into your area and driving up the prices, a local income tax would certainly discourage them.
If ownership transfer didn't reset the rates, it would be a slightly different story.
Edit: In that, it'd still be something that makes an economist cringe, and it'd still be "unfair" but in fewer ways.
It’s as simple as that.
It wasn’t designed this way. There was a complaint that elderly were being driven from their homes by high property taxes.
Also, check out this organization I'm part of: https://techworkers.vote
If my tax bill is X, the rates are as follows, for nearly identical houses, all valued nearly the same on Zillow/Redfin:
2.3X
0.4X
1.0X
0.1X
2.0X
The rest of us have kids roughly the same age.
So basically the people who just moved in are subsidizing the rest of us significantly.
It's completely unfair.
Comparing same model houses only (same as mine), tax rates are in the range of 5K to 8K. But just a couple of the same model houses are shown as $800 to $900! If I didn't know this neighborhood I would jump to the conclusion that those houses have been owned for so long that their taxes are so low and curse prop13.
But, I've been in this neighborhood since it was built so I know the tax was never below 2K even on the first year of constructed.
So either these outliers are just errors in the published records, or is there some tax exemption program in CA for people who qualify to some criteria?
In any case, it does give the impression that the tax range for this model house is $800 to $8K (10x) when that is not true. It is really 5K to 8K.
There are exemptions which allow some people (seniors and people with disabilities I think) to be "portable" with their property taxes. I.e they can buy a new property and the taxes of their old property transfer over to the new one..
Edit: found this https://www.boe.ca.gov/proptaxes/prop60-90_55over.htm
Might just be errors in the reported data.
I'm not especially inclined to link to it because it falsely claims that no other state has non-mark-to-market property taxes, and for residences that is simply untrue.
No one should be surprised by this since it’s public information. Plus if you hang around long enough your taxes also stay frozen
Revisionist History A GOOD WALK SPOILED SEASON 2 - EP1 http://revisionisthistory.com/episodes/11-a-good-walk-spoile...
Thank you for conceding this exception.
> and they should thank you for your share of the taxes that you paid over the years to keep community in good shape.
After four years, I'd already paid more in lifetime taxes than my neighbors. After eight years, I've paid more than they will ever pay in their lifetime.
After twelve years, my new neighbor will have paid more than my lifetime tax bill.
It's completely out of line.
Somebody call the waaahmbulance.
No CA homeowner should be surprised by this. Guess what you probably paid a higher price than them - voluntarily!!!
Also, I'm not sure how what I paid is at all relevant to a tax that is based on current value.
When you register a car, which is also taxed on current value, it has nothing to do with what you paid. If you got a good deal you don't save on your registration fee. Even in the first year.
Not as much as the ratio of property taxes would make you think; given Prop. 13’s other provisions, like the limit on nominal rates, much of the revenue functions that are served by ad valorem property taxes in places that aren't crippled by Prop 13 are, in California, served by a combination of:
(1) Mello-Roos fees (per-parcel assessments that are weighted by value and so aren't affected by the Prop 13 assessment increase discrepancy),
(2) state and local income taxes,
(3) state and local sales taxes.
At least with paying taxes on a sale then everyone is paying their fair share. It also reduces the incentive to vote in favor of a housing shortage.
That's a ridiculus assertion. When I buy something, having paid income tax and the government gets paid the taxes on the sale, why should I have to permenantly rent that item from the government?
If that logic applied to you car and computer and clothes, and prized heirlooms from your family, I think you'd object. Thats a fundamental assault on freedom and property rights.
Taking it to the extreme, it means ONLY the very wealthy could ever own things like land and that is just a fundamentally unamerican idea.
Upkeep != Rent. The government uses that money to pay for the roads and services, mainly police and fire (you know, the people who protect your property).
It’s not an immediately farcical concept from first principles.
It's gotten to the point that we have ballot amendments carving out exceptions for senior citizens, so they can take their old property tax rates with them when they buy new homes, but only if they move between certain counties that have a reciprocity agreement, blah blah blah. Clearly not the kind of policy a sane system would result in.
If you've owned a home in California for more than about 20 years, and you aren't in one of the senior citizen categories that is exempt from tax increases, it just doesn't make sense to sell your home unless you leave the state.
And there is another ballot prop on this years' ballot (prop 19) being pushed by the Realtors' Assc. to expand the '86 law to include all properties within the state, rather than just county, and to cover up to 3 moves instead of 1.
Go read the whole proposition. They supposedly let you do it 3 times. That is the candy. Too bad many counties already let you do it once. So you haven’t gained much if anything. The poison is transfer to children resets the property tax for anything over a million. Now read each proposition and find the candy and then find the poison.
Richer areas get less state funding than poorer school districts. These districts have to scramble to just narrow the gap rather than have more funding.
The richer areas have higher scoring schools because wealth correlates with school scores probably due to a combination of natural ability and a more conducive parental and community environment (all multiplicative and compounding over time]. A change in taxes does not affect this one iota.
There are already flat rates paid per parcel in many cities.
There are age over 55 exemptions for certain parcel taxes to raise money for schools.
An income tax per parcel does not scale. How do you tax rentals? Who pays the tax for rentals? What if you want to own multiple homes? What if you are buying a house for your parents to live in?
True enough.
> Richer areas get less state funding than poorer school districts.
Also true.
> These districts have to scramble to just narrow the gap rather than have more funding.
The necessity of narrowing the gap is not at all obvious; as you point out, test scores correlate with local wealth. But test scores also correlate with per-pupil spending -- and that correlation is (1) small; and (2) negative. This is easy to explain with the model "poor students attract spending", but you also need the coda "...and it doesn't accomplish much".
I was not proposing an income tax per parcel, I was proposing a flat tax per parcel and also an income tax on everyone who lives in the city.
Parcel taxes should be paid by the owner of the parcel. Income taxes should be paid by the earner of the income. It's not hard to deal with.
So you are taxing an owner of a rental on their total income rather than the income they earn on the property?
School district funding in most districts is property taxes supplimented with state funds to a specific level per student. There are a small number of school districts that have property tax revenues above that, but most don't. IIRC, in the sf bay area, Santa Clara, one of the Palo Alto districts, and maybe one or two others are not getting state funds, but I think Cupertino is on the state funding schedule, and is well regarded.
Only the hardest hit counties like Fresno saw property tax decrease in the 2008 time frame. Although market values dropped, many properties were still below their capped assesment, and so their taxes would increase either by the yearly cap or because they were sold and triggered a fresh assessment. I don't know about other counties, but Santa Clara's assessor did assess down automatically; but the tax rolls still increased. So in that way, it's a lot more dependable than an income tax.
Isn't property tax a pretty reliable source of income?? I thought the income tax was an unreliable source of income because people can't always be relied on to generate income... but they do tend to pay their property tax.
Whoops, I just described Santa Clara County. And LA.
I don't know what the answer is here; I see it as a tough policy challenge. There might very well not be a solution that's "fair" to everyone. If you think there's an easy "moral" solution and you can't think of decent arguments for both sides, I feel like you're only kidding yourself.
If you don't want to move then you can get a reverse mortgage and still profit, you just won't get to pass the house to your children. Still, you'll make way more from the property value increases than anything you would have paid in taxes and can pass those gains on to your children.
That is extremely presumptive. Your friends, family, and support infrastructure is all in the place you've been over the last 40 years.
Purchasing another home and moving to it have huge transactional costs.
It would have been completely reasonable to include plans for the reverse mortgage as part of your finical planning already: Americans often have a significant fraction of their net worth tied up in their homes. So that money may well be spoken for. It also may be just unavailable: The city's assessment of your home's value may not match with a lender's assessment.
Think of it this way, if I show up at your town council's office and offer to pay 2x the property taxes you currently pay, should I be able to bid you out of your home? If that wouldn't be ethical, why is it ethical to do it in a distributed way?
I think Prop13 is nuts, but the opposite idea of continually subjecting people's homes to volatile and unpredictable market price based taxes is also nuts.
"All because a bunch of people with more money than you are now willing to pay a bunch of money for your neighbors' places."
I think laws and policy should exactly be focused on protecting those who have less from the impact of those who have more. Not because they're morally superior or anything, but just to try to keep things balanced because the people with the money already enjoy so many other advantages.
Moving is hugely disruptive to people's life, so the ability to plan expenses - both for property tax and in terms of rent control - has a lot of non-financial appeal as a policy. "Make people move when folks with more cash want to come in" is at best a somewhat heartless position, and at worse a major driver of homelessness.
There isn't a solution that is fair, the major activity in the debate over California housing seems to be people turning themselves in knots to find solutions where long time residents enjoy a high-demand city without paying for its upkeep. The goal is for long time residents to reap rewards without doing anything - there is no fair way to do that. It drives inequality too. Rich people tend to own lots of land for long periods of time.
> ...the rest of the city forces you to "enjoy" higher taxes you never demanded [...] or wanted...
I do not hesitate in pointing out this part of your post applies to most taxpayers. I personally disagree with most of what my tax money is spent on, and distrust the people who spend it. That is why it is taxed from me.
We should go with https://en.wikipedia.org/wiki/Georgism - it is fairest over the long term. Moving homes is not so terrible that it has to be prevented at all costs.
Just because property values double doesn't mean the cost of pothole repair doubles?
The people with the greatest ability to pay are the ones getting the biggest tax break.
They don't necessarily have any ability to pay, which is the scenario that brought prop13 to life in the first place (low-income grandma kicked to the street by taxes).
Someone of modest income who bought a modest 100K house years ago isn't cash-flow rich today just because the paper value of their house went up. They are probably retired living on a small social security check and don't have much any ability to pay, let alone the "greatest ability".
It's fine to have different views on how society should handle this tricky scenario, but let's be intellectually honest with the core facts.
Not to mention that it's kind of a lot to force, idk, 80-year-olds to take out reverse mortgages just so they can keep living in homes they've already paid for and own. Though I guess it's not surprising if people half their age don't care about their burden.
It’s an easy policy challenge. Let the person carry the tax until a sale. Or they can carry it until death. It should not pass to kids and the tax assessment is taken at the final sale.
What the service costs depend on is how many houses are in an area, or how many people are in an area.
It's gotten so bad in SF that high housing prices actually are driving up the cost of services. Every worker from barista to bus driver has to be payed enough to afford living here or to commute in.
You're missing the part where city policy creates the housing shortage. It's the city that approves zoning for a huge number of offices and then refuses to allow more homes. The homeowners reaping these massive rewards are who vote in favor of the housing shortage.
There's easy ways to deal with the down sides of increasing property values. Delay the payment to sale or even tax the value from some number of years ago.
> Moving is hugely disruptive to people's life
The housing shortages in CA are doing this to renters and anyone else that's forced to move. Older couple that can't handle stairs, growing family, etc.
Prop 13 is a horrible way to address any of these problems.
This is so badly thought out.
It seems wrong to me to make someone pay tax where they do not live. It's not like the owners of rental homes are the people who use the city services -- the people who live in the homes do, and they should pay for them.
Another hack. Buy the biggest parcel you can find. Then you can build a huge home and pay the same taxes as the 800 square foot bungalow. Build a bunch of huge vacation homes. The help have to pay for the services. You don’t.
Yet another hack. Build a house and rent it out on AirBnB. That way you only pay the parcel tax and NO ONE pays the income tax. Genius. It’s a discount to run an AirBnB. Better raise the hotel tax to compensate.
Also, I think low-income grandma was and always has been a useful narrative piece. Howard Jarvis, the author of prop13, was literally a lobbyist for apartments and businesses. Please watch The First Angry Man when you get a chance: https://www.kcet.org/shows/the-first-angry-man/episodes/the-...
Often the house isn't much to downsize from. If they bought a modest house for 100K back then, it's probably not big.
I bought my current house in my 20s. It is tiny because it was all I could afford back then. I always expected to move up, but it hasn't happened. So I've made my life on this street, these parks and forests. I could afford to move up now but it's a nice area and it has become home. I'm not ready to retire but when I do, there's no point in downsizing, it's already tiny.
Also don't underestimate the pain of moving for an older person. I often wish my >90yr mother would move closer to here but at that age she is terrified having to change any of her regular doctors and neighbors.
The grandma may be an "useful narrative piece" and it was, but it is also very real. These are the people who benefit the most from being able to stay in their home to the end. It is very cruel to force an older person to move from their comfort zone.
Of course, corporations taking advantage of prop13 is a travesty. It should be for individuals in their own home only.
Might be a struggle to get tax reductions past the voting public. But I think a bit of political elbow grease could get it done.
That's semantics at best.
However, if all you have is a house in an area with rapid price growth, this change won't save you.