Bearish Girl: you have often made the claim here that Propositions 58 and 193 are huge giveaways to an undeserving group of Californians–those who take over the property of their parents and keep the same tax assessment. Please tell us exactly how big a tax break this is. How much money is involved? How many people?
First, I fully agree that it is an unearned and unwarranted giveaway. Why should the heir of a property owner, probably already above average in wealth and income, get this subsidy? Heirs of parents who are renters or are property-poor get nothing. From a wealth or income redistribution standpoint, the results are perverse. It’s like the government saying “Oh, you are going to inherit property? Here’s some more money, courtesy of all other California taxpayers.” Insane.
It was foolishly passed by the taxpayers (not, as you say, by the legislature) because it was a feel-good policy. The costs and benefits were not fully understood. As we economists often complain, policies that benefit a politically organized select few and harm a large, diffuse, and unorganized majority get approved.
But I suggest the dollar amounts involved are not huge. The reason is because property turns over an average of every seven years, which cuts in half the number of eligible heirs drastically since 1975–the base year of assessments for Prop 13. Furthermore, what percentage of sales involve an heir taking over a property? 2%? 1%? Please do not use personal anecdotes from your neighborhood. Bring data.
Back to that seven-year turnover rate, which may be off–I remember it from a few years ago. The 41 years since 1975 involve nearly 6 such turnovers. So whatever the number is of heirs who got the benefit must be cut in half every 7 years.
And what about the 2% increase Prop 13 allows every year? A cumulative 2% increase per year means a doubling every 35 years. So those original heirs did see a doubling of their tax bills. Oh, and there is the addition of taxpayer-passed bonds which makes the effective tax not 1% but about 1.25%. And there is the years when CA property values went down in the Great Recession, while those heirs still saw theirs going up 2% per year. But the main flaw in attributing a big welfare transfer to Props 58 and 193 is the rarity of its use when a property sells. Heirs seldom can or want to take over their parents property.
The actual dollars lost due to Propositions 58 and 193 would make an interesting research project, or Master’s Degree thesis. But I suggest it is a small and diminishing problem, and BG’s statement …”will eventually bankrupt our state.” is wildly exaggerated.
