Californians support reform of Proposition 13 corporate giveaways
by David Atkins
The Field Poll is one of the most reliable polls in California. One of its latest findings shows enormous support for changing California’s Proposition 13 as it relates to commercial properties, a reform known as “split roll”:
A majority of Californians favor tweaking Proposition 13, the state’s landmark restriction on property tax increases, as it applies to business and commercial properties, according a poll released Thursday.
The Field Poll found that 69% of registered voters favored changing tax laws to ensure that commercial and business properties are reassessed when they change ownership, which would trigger a higher property tax rate.
Prop. 13, the 1978 ballot initiative that transformed property taxes in California, restricts yearly property tax increases on homeowners – but once a home changes ownership, the tax rate is reset based on the new reassessed value.
Because of the complexities of the law, however, commercial and business properties are not always reassessed when they change ownership. The poll found strong bipartisan support for changing Prop. 13 to include those properties.
Real estate and taxation experts have estimated that the loophole costs the state tens of millions of dollars a year in revenue, and has shifted more of the state’s tax burden onto homeowners.
It’s arguable that something did need to be done to prevent taxes on homes from increasing beyond the ability of people to pay. But Proposition 13 was a drastic, overreaching step that led inevitably to overinflation of real estate prices in California.
Proposition 13 also essentially constitutes a massive giveaway to baby boomers and early Xers at the expense of later generations. Houses purchased in 1985 for $50,000 are often worth ten times their original purchase price today, but the property taxes on them have barely increased. That same house if sold to a new homebuyer would have its property tax reassessed at the current value–and there is absolutely no chance that a $500,000 house today will be worth $5 million or even $1 million in twenty years, simply because wages aren’t keeping pace with the rise in home values. Taxes to fund schools, infrastructure and social services decreased, home prices increased beyond reason, and a fairly narrow band of people received the benefits at the expense of their children. People like to pretend that isn’t so because they’re under the delusion that the home and stock price increase of 1975-2008 was anything but a perverted, unsustainable aberration created by artificial asset inflation at the expense of the public square and workers’ wages. Wages and assets will find a more sustainable equilibrium, one that will inevitably lead to a well-deserved downturn in asset values.
Even worse, however, is the situation with commercial property. That situation has two key problems. First, many commercials simply never change hands. Disneyland pays little more than 1970s-era property taxes. Second, many commercial properties can be “gifted” through inheritance and other means in such a way that it doesn’t constitute a “transfer” under state law.
While far too many of the Californians who actually vote continue to receive the benefits of the homeowner provisions of Proposition 13 (a situation that may change as the number of less entrenched voters who are so priced out of the real estate market that they can only afford to rent becomes ever larger), most Californians are very clear that corporations are making off like bandits off rules designed to protect homeowners.
That bodes well for California’s finances, and for a greater degree of tax fairness.
.
