The political winds are changing direction in re: Prop 13 loopholes

[bearishgurl]

CAR should be happy to hear about the recent introduction of AB 2372:

Has hell frozen over? Taxpayer group drops opposition to Prop. 13 changes

posted by Matthew Taylor | May 19, 2014 . . .

Palm Desert Assembly member Brian Nestande said it best: “It must be a cold day in hell. The cow jumped over the moon. And pigs are flying somewhere.”

The Howard Jarvis Taxpayers Association (HJTA) has withdrawn its opposition to Assembly Bill 2372. AB 2372 proposes to close a longstanding loophole in the 1978 Proposition 13 (Prop. 13) property tax law. This statement follows HJTA’s indication last year that they and other tax watchdogs were “open to narrow legislation to fix the law.”

The laws implementing Prop. 13 enable incorporated property owners to skirt reassessment by gaming the legislation’s definition of “transfer of ownership.” Under the current scheme, reassessment is triggered only if one person or entity gains a majority ownership interest in the transferred property (or an entity which owns the property).

AB 2372 instead provides that a change in ownership occurs when 100% of the ownership interest in a property or a property-owning entity is transferred in a single transaction, regardless of whether anyone takes a majority stake….

Has hell frozen over? Taxpayer group drops opposition to Prop. 13 changes

If AB 2372 is successfully passed into law, I would be willing to volunteer to campaign for the repeal of Props 58 and 193 and most especially bring to light the fact that these two types of reassessment-avoidance loopholes can be repeated by the same family into perpetuity thus having the effect of their properties NEVER getting reassessed after being handed down multiple times. I feel the use of these two loopholes by property owners is far more widespread than the the use of Prop 13’s corporate loopholes which AB 2372 was written to close.

Although the corporate loopholes in Prop 13 are causing the state, cities and counties to lose just as much (or more) money in property tax revenue, Props 58 and 193 have a MUCH GREATER impact on the amount available residential inventory available for sale in CA’s most established and therefore most coveted real estate markets at any given point in time.

I feel that without Prop 13’s corporate loopholes and Props 58 and 193 to “prop it up into perpetuity,” its detrimental effects to the state, cities and counties would have most certainly already begun to wither away with the deaths of the original affected owners who still own their properties today. In another decade, its effects would have been moot.

AB 2372 is a step in the right direction and will be interesting to follow …. one thing at a time.

[CA renter]

Very happy if they eliminate the corporate loophole, but not as concerned about inherited Prop 13 protection as long as the heirs are using the property as their sole, primary residence. That being said, I do think that if they get the inherited Prop 13 protection, then they should not be able to step up the cost basis to market value when the original owner passes away. One or the other, but they shouldn’t have both. I value community roots and private property; families should not be priced out of their own homes, no matter which generation lives there.

OTOH, I’m much more bothered by landlords and other property owners of rental or other non-primary homes getting Prop 13 protection. Taxpayers have absolutely no business subsidizing landlords’ profits and/or the costs of a second home, vacation property, or tracts of raw land (as with the Williamson Act).

[Coronita]

War of have versus have not’s continues…..

[spdrun]

OTOH, I’m much more bothered by landlords and other property owners of rental or other non-primary homes getting Prop 13 protection. Taxpayers have absolutely no business subsidizing landlords’ profits and/or the costs of a second home, vacation property, or tracts of raw land (as with the Williamson Act).

Profits get taxed as income. Much more equitable for the state to tax income and distribute it to municipalities than having rich towns be able to tax much more than less wealthy areas.

Capping property taxes at ~1% of value with a defined rate of increase for everyone in the state seems like an equitable solution. It makes the property market fairly predictable — owners can’t suddenly be hit with a 50% rise in taxes, killing their profit margins or making properties suddenly money-losing. A large tax increase would either be passed on to tenants, or if it can’t be, would result in a lot of abandonment and insurance fires. As happened in places like Detroit and Newark, NJ in the 60s.

Prop 13 is not a subsidy. It’s a tax limit. One that can be overridden anyway by things like parcel taxes, provided the people living in an area have the will to do so.

[CA renter]

IMO, the ideal situation is a steeply progressive income tax, along with a reasonable property tax that has a limit to annual increases for primary residences. If one wanted to make the argument that there should be a cap on other types of property, it might be reasonable to have a cap that is higher than for primary residences.

Property taxes cannot be passed on to tenants unless the landlords are willing to accept much higher densities in their rental house. Renters have to pay out of pocket, so there is an upper limit on what can be charged. Of course, one might suggest that if higher property taxes should be passed on to renters, then the subsidy should be passed on to renters as well. With a few exceptions, most LLs will charge the highest that the market will bear, though a few smart ones will charge somewhat less in an effort to attract premium tenants.

A variable property tax will also help correct market inefficiencies since the higher taxes will hit higher-end homes that likely are in high demand and short supply. This will have the effect of putting more homes on the market at precisely the time (and place) when they are needed to keep property prices in line.

Just so you know, Prop 13 is absolutely a subsidy in every way, shape, and form. It is the very essence of a subsidy.

[spdrun]

Property taxes cannot be passed on to tenants unless the landlords are willing to accept much higher densities in their rental house.

So what’s a landlord to do when the rental property is no longer profitable because increases can’t be passed on?

I see a few alternatives:
(1) condoize and sell to tenants. takes money.
(2) insurance fire
(3) abandonment/foreclosure

Making rental properties unprofitable is not in the public interest, as shown by (2) and (3). This kind of stuff was very common in the 70s and 80s.

Lastly, a limit on taxation is not a subsidy, any more than taxing incomes at 50% vs 100% is a “subsidy to business.” It’s just a tax cap, which is what it is.

And as far as subsidizing landlords vs owner-occupied, the last decade has shown that many Americans are too financially illiterate to safely own their own homes. Better to put more ownership in the hands of people who can (and do) run the numbers, rather than paying $100,000 over value and operating with zero margin for error because OMG! the view!

[CA renter]

[quote=flu]War of have versus have not’s continues…..[/quote]

Actually, it’s an argument for doing the right thing, even when it goes against one’s own self-interest.

[CA renter]

No need to go through the trouble of any of those three options. Just sell. If taxes make it unprofitable, chances are prices are higher than they should be. That would mean the LLs could sell when prices are highest, all the while increasing desperately needed inventory in times when it’s in short supply.

We should not allow speculation or “ownership for profit” of finite natural resources, especially if those resources are in excess of what that person/family needs for their own use. Rentier capitalism is NOT productive; it is zero-sum and subjects the economy to dangerous booms and busts, and it has the potential to create dangerous wealth/income inequalities while exploiting those least fortunate.

As for the subsidy:

“Definition of ‘Subsidy’

A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction.”

http://www.investopedia.com/terms/s/subsidy.asp

…..

tax subsidy
noun [C or U] TAX, GOVERNMENT, ECONOMICS
› a reduction in tax in order to reduce the cost of producing food, a product, etc. and to help to keep its price low:

[Which Prop 13 largely fails to do, BTW, since most LLs charge market rent, irrespective of the subsidies they receive.]

http://dictionary.cambridge.org/us/dictionary/business-english/tax-subsidy
—–

Prop 13 is absolutely the very essence of a tax subsidy to those who least need it (people who own more property than they can use for themselves). It is unconscionable that we are providing these subsidies when the state and local governments are so strapped.

[Coronita]

Aint gonna happen…

[spdrun]

No need to go through the trouble of any of those three options. Just sell. If taxes make it unprofitable, chances are prices are higher than they should be.

We should not allow speculation or “ownership for profit” of finite natural resources, especially if those resources are in excess of what that person/family needs for their own use.

(a) most landlords are small businesses and work damn hard at maintaining their properties, dealing with tenants, etc
(b) not everyone wants to own. A good supply of inexpensive rental properties is important for mobility — if I have to move to a given city for six months for work, I’d want to rent, not buy
(c) the current situation has proven that a lot of Americans are simply too rock-dumb, not to mention financially retarded to be allowed to buy property

[CA renter]

[quote=spdrun]

No need to go through the trouble of any of those three options. Just sell. If taxes make it unprofitable, chances are prices are higher than they should be.

We should not allow speculation or “ownership for profit” of finite natural resources, especially if those resources are in excess of what that person/family needs for their own use.

(a) most landlords are small businesses and work damn hard at maintaining their properties, dealing with tenants, etc
(b) not everyone wants to own. A good supply of inexpensive rental properties is important for mobility — if I have to move to a given city for six months for work, I’d want to rent, not buy
(c) the current situation has proven that a lot of Americans are simply too rock-dumb, not to mention financially retarded to be allowed to buy property[/quote]

Yes, many landlords work hard, and many don’t. Still doesn’t mean that taxpayers have to subsidize their profits.

Agree that many people do not want to own property, and many are too stupid or incapable of dealing with the responsibility. But most would agree that owning vs renting tends to be in society’s best interests because people will be able to (hopefully) have a paid-off home in retirement, and because people tend to be more engaged in their communities when they own.

For those who need/want to rent, I have no problem with tax subsidies as long as the renters receive a major portion of the benefits. Otherwise, we’re right back to subsidizing the profits of landlords who neither need nor deserve the subsidies.

[spdrun]

How is a given level of taxation a “subsidy?” It’s just a given level of taxation.

By your logic, any level of taxation below 100% would be a subsidy. Besides, owning to live in is already plenty subsidized vs owning as a business.

As to renters, there are plenty that are engaged in their communities in areas where renting is the norm. Look at NYC and San Francisco for examples of this.

[CA renter]

Please read the above definitions (and feel free to look it up for yourself). If a person or group of people are given a subsidy that enables them to pay less than market taxes, then they are being subsidized by other taxpayers, and/or other service providers, and/or consumers of those public services.

Money doesn’t grow on trees, and when some people are specifically excluded from paying the same tax rates/amounts that others are paying, then they are being subsidized.

Yes, renters *can* be more engaged, but study after study shows that ownership is what enables most lower/middle-class families to gain wealth, and it also shows that neighborhoods where most people own tend to be cleaner, safer, and nicer than neighborhoods in which people rent.

Of course, correlation isn’t causation, and I do understand that traditional mortgage standards excluded those who would be less desirable neighbors (irresponsible, broke, don’t pay bills, BKs, etc.), so the comparison between renting/owning neighborhoods isn’t exactly fair because it’s not the act of owning that makes a person a (generally) better neighbor, but the fact that they’ve shown the responsibility and capability to pay off a mortgage over time.

[spdrun]

My point is that Prop 13 *is* the market rate. At least for residential property, the same protections should apply regardless of usage.

If you want to tax landlords more, the equitable way to do so would be to put a surtax on rental income. Same as taxes on cigarette sales, rental cars, or hotel rooms in many states.

[CA renter]

Ah, perhaps you don’t understand how Prop 13 works.

If a person bought a home in 1978, for instance, their property taxes are 1% of the price at the time of purchase, plus a 2%/year maximum increase.

Another person can buy an identical house next door to the one above for 3X (or 10X+) the price of the house purchased next door, and their property taxes are assessed at 1% of their purchase price, plus the 2%/year max annual increase.

So, you can have two identical houses where one owner is paying say $1,000/year, while the next-door neighbor is paying $10,000/year. Now do you see why this is a subsidy?

Now, I don’t mind doing this to help out the elderly neighbor (or any owner-occupier who owns and lives in only that one house) so that they aren’t taxed out of their home, but I’ll be damned if I’m going to pay a higher tax bill than the landlord who is pocketing this entire subsidy for no reason.

[Author]

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