In California, the 2020 elections will feature an epic battle to allow cities to reinstate property taxes

Originally published at: https://boingboing.net/2019/08/16/dark-money-bonanza.html

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Doesn’t matter which way it goes: the real winners here are people selling ads.

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I’ve always found it insane that the legal bar for raising property taxes in California is higher than the bar for amending the state Constitution.

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Epic battle is right. Conservatives and Libertarians will not allow old Kookie Jarvis’ hellspawn to be killed or modified to allow collection of more taxes. If they lose this one, the “free” market fundies know that it’ll be the start of a substantive national trend against their outdated dogma.

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Good to hear. As it exists prop 13 has many flaws, but among the most egregious is the way that commercial real estate is treated. Currently, if private homes are sold they get reassessed at the current value and the taxes for the new owner goes up accordingly. But businesses avoid this by, instead of buying the properties directly, buying the property management company that owns the property on paper. Thus the ownership of property can effectively pass from all manner of unrelated companies from meat packers to fashion magazine publishers or whatever without ever getting reassessed. It’s ridiculous that this loophole has been allowed to persist for so long.

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I think the sentence:

so they can buy the vital services from the public sector because the private sector can’t afford to supply them anymore.

Should actually read:

so they can buy the vital services from the private sector because the public sector can’t afford to supply them anymore.

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Would it be possible to lease (residential) property from an REIT or company that you own?

Or would it be too hard for that company/trust to get a loan to buy the property in the first place?

Likewise, selling the trust/company instead of the property could save the next person a lot in property taxes, but could they get a loan to buy it instead of a mortgage to buy the property directly?

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Seems like if a lot of energy and effort are going into tax reform, it should be toward things like wealth taxes and high marginal income tax rates. That’s where the money is (and tax scofflaws are).

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Higher top marginal income tax rates are needed, but the worst of the tax scofflaws barely even pay income taxes. The hedge fund and real estate types get taxed through capital gains taxes, which are set far too low.

States and local governments get their revenues from a variety of sources, but in most states the single biggest source is property taxes. So taxing commercial real estate at a rate at least on par with what new homeowners pay should make a real difference.

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It isn’t viable for most people because you wouldn’t be using any of the assistance in the residential mortgage market. The terms of commercial mortgages tend to require faster repayment and higher down payments and FHA isn’t a possibility. In other words the wealthy can use the commercial tax structure, but the poor and middle class can’t.

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Higher top marginal income tax rates are needed, but the worst of the tax scofflaws barely even pay income taxes. The hedge fund and real estate types get taxed through capital gains taxes, which are set far too low.

Well, increasing capital gains taxes would be part of good, progressive reforms. And, of course, effectively taxing the real income and wealth of the upper 0.1%. It’s not that hard to do as a practical matter; it’s more about political will and priorities.

States and local governments get their revenues from a variety of sources, but in most states the single biggest source is property taxes. So taxing commercial real estate at a rate at least on par with what new homeowners pay should make a real difference.

I certainly agree that these are good things to be doing. But funding localities via property taxes ends up increasing wealth inequities – poorer areas get screwed over. Better to tax where the real money is and distribute it fairly.

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Taxing the real income of the top 0.1% is absolutely doable and is relatively straightforward once we muster the political will. I’m less optimistic about our prospects for taxing real wealth. It’s the right thing to do, but may prove to be fiendishly difficult to do right, which would mean taxing possessions and all kinds of property, not just real estate. It seems like it there are endless ways to cheat the system by neglecting to properly list the values of, (for example) the many artworks, antiques, jewelry, etc in your mansions, all of which might fluctuate in value year to year and would be extremely difficult to audit. This may be the reason that very few countries (even progressive ones) get more than 1% of their tax revenue from wealth taxes:

https://www.motherjones.com/kevin-drum/2019/08/wealth-taxes-are-a-dying-breed/

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Yeah, that’s the big problem with California’s governmental bodies–they don’t tax and spend enough.

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If properly taxing the wealthy will be difficult, then the progressive reaction should be to redouble our efforts and demand even more reform. As in real, systemic change.

California’s real estate taxes are considerably lower than the vast majority of U.S. states.

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Fair enough, but your first contribution to this whole conversation started with “Seems like if a lot of energy and effort are going into tax reform, it should be toward things like…” so it was you that first suggested that the energy and effort that’s available to direct towards tax reform is finite.

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Yeah I use to think that…but a possible way to deal with that is to allow any item to be purchased for say 120% of the declared tax value. Maybe give people a small number of times they can reassess a value (and pay the new back taxes) to allow for a reasonable number of “oh that had been in the family for years, I had no idea it was actually valuable, but it belonged to my great-grandmother and I really don’t want to give it up now!” things…

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It’s all self audited already. It’s insured for some value. Just get the insurance records the same way we get payroll records.

Sure, you could still hide wealth by keeping it in objects and not insuring them, but then you’re just one fire, flood, storm, robbery, whatever disaster away from losing it all.

Plus, on the grand scheme of things, what percentage of wealth is really stored in physical objects hoping to go up value vs financial instruments that are much more likely to go up in value? I’m not suggesting it’s “nothing”, but $1M earning even 3% interest is better than a $1M painting, hoping to go up in value by 3% compounded per year by the time you sell it.

Either way, the physical assets are all insured. The normal scheme is to try and value it for taxes for less than you insure it for or use as collateral for borrowing. Simply auditing that the two are within some tolerance should get you most of the way there. Then we’re just back at people not insuring stuff and most people don’t want to take that kind of risk or they end up poor fast.

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There were two selling points that struck a cord with the electorate.

  1. There was an epidemic of elders being taxed out of their houses because of the skyrocketing property values. That’s a situation that can still bite a post prop 13 world.
  2. Prop 13 does encourage a home owner to stay in a house, thereby stabilizing neighborhoods.
    Anecdotally, I don’t believe things are as bad as advertised in the housing market. Real Estate market has been very active at exorbitant prices providing plenty of tax revenue. I would not fight a normalization of the commercial market and would hope rentals be included along with rent control. It would get the corporations out of the home rental business.

The state wouldn’t necessarily have to get rid of Prop 13’s protections entirely, but they definitely need to address the loopholes allowing businesses to evade taxes through the fake property management company loophole.

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