Grab and Keel

In his comment to my blog the other day, Alessandro raised several points; it does seem counterintuitive to essentially ask for higher property taxes, by eliminating the effects of Proposition 13 in California. Why would anyone want to do that? Especially now? There are three reasons. First, sales and income tax have become higher, in part, to make up the difference in lost revenue. Second, not all citizens are paying an equal tax amount for equivalent property. Third, yes, California did have an artificially high housing price, that was bound to deflate because of Prop 13. Forth, California does not necessarily have a high tax rate.

To clarify, start by reading the State’s Equalization’s Board publication entitled “California Property Tax, Publication 29”.

The State doesn’t directly get property tax, except for an exception having to do with railroad cars. That law has been on the books since 1933. It is the counties, cities, schools and special districts that receive revenue from property tax. The money is allocated by percentage to those entities. We all know what they use the money for, schools, police, sewer, firefighters etc, everything your locality needs to function.

However, in the two years after Prop 13 passed, the local governments lost at least 9.23 billion in revenue, which the state had to pick up. (This is an interesting figure, since it looks pretty close to what we will be short for 2008, and 2009.) In addition, the state is mandated to step in when things like schools are failing because they need money. Therefore, the state has to plan for these increased expenditures. That means State legislators have to decide who gets short changed instead of local jurisdictions. Guess who is in budget gridlock every year? By reducing the flow of money to local jurisdictions, money decisions were increased for the State.

As the publication says, Prop 13 changed the tax system from a “value-based tax system to an acquisition-based system”. This, not actual land value encouraged speculation, marketeering, and spiraling prices.

As I said, not everyone is treated fairly. The current system has created increasing disparities based on when one’s property was purchased.  As an example, just this year, my property tax finally increased to tip out at around $1010. That’s because I purchased my property in 1995, at around 89,000. (This was already a little high for a fixer, but I thought it was now or never.) My neighbor, now gone in foreclosure, purchased his house at around $249,000. Thus, his tax for essentially the same house was around $2500 in the same year. Housing prices in our neighborhood today are around 130-140,000, and are closer to what are probably true value, or maybe still a little high, if judged by income to affordability, since this was always a blue collar community.

That’s my little corner of the world, but consider what it means if you have lived in the same place since 1975; the date to which Prop 13 values were first adjusted. Not to pick on Speaker Pelosi’s hometown unfairly, but median house prices, in San Francisco, in 1975, were expected to be around $45,000. In 2003, before the slide started, median SF house prices were $656,700. Clearly, long time homeowners are making out like bandits. It’s even better, if you put the home into a living trust, and never have to transfer it.

Finally, there are pundits that will tell you California has a high income tax rate. The Tax Foundation, in existence since 1937, is consistent in their promotion of this fact. Look closely at their Wikpedia and you will realize that they have a conservative viewpoint. This is not necessarily bad. However, their recent PDF pamphlet entitled “Facts & Figures Handbook: How Does Your State Compare?” is disturbing.

For example, they calculated, based on the 2006 Census Statistics, in their pamphlet, that California had a 2007 median income of $130,028. The Foundation also claims that California has the 5^th highest taxation. Here are the 2006 median income estimates from the Census Statistics for California:

2-person families      60,032 

3-person families      64,766

4-person families     74,801

5-person families      64,132

6-person families     61,348

7-or-more-person families 68,030

So, the Bureau of Census says a median family size in CA is three (Or 2.94). That would make the median income $64,766, not $130,028. (According to the CA State Franchise Tax Board, it’s $66,810 for a two-earner family, but let’s use the Foundation’s figures, since FTB’s doesn’t describe family size.)

Read the Foundation’s pamphlet entitled: “State Individual Income Tax Rates, 2000-2008”.

Having started with a suspect median income figure, they rank CA has having a rank of 5^th both in state and federal collections. For example, the Federal tax burden is assumed to be $29,792 while the state for 2006 was $9,163. If people earning a little under $65,000 a year were really paying out $38,995, or 60% of their income to taxes, there would definitely be a lot more riots, marches, shootings, and moving out of state.

Since Conservatives are generally anti-taxation, one can’t help but look a little askance at the way in which these figures have been determined and the Foundation’s intent. If there is justification, it doesn’t appear in their literature.

The motivation has to be something or someone else. Having crapped in their nest by engaging in this furious land speculation, corporations are the ones who protested, and then moved out. They are ones that railed most vociferously against increased taxation. Now they are doing what they will; moving to Texas, South Dakota, and overseas, where and the codes are lax, land is still cheaper and it doesn’t first need environmental cleaning.

The other part of this argument is that a median income does not mean an average income. Just like elsewhere, 20% earn the most and the other 80% are more likely to fall into the median income category or below. Some counties have higher median income than others as well

Finally, California has a high standard deduction rate, it does also have a tax structure that graduates to a higher income level than some other states. Look again in the pamphlet to compare Arkansas and California. You’ll see that at the $30,000 level and below, the tax rates jockey back and forth. After $30,000 Arkansas doesn’t charge more than 7%, while California continues to graduate upwards to 10.3% for $1,000,000 and over. Going further, Idaho, taxes 7.4% for anyone making more than $8,986, while California is still taxing 6% or less for anything up to $35,461.

So, in California, the more you make, the more you pay, up to 10.3%, except, anybody who is earning a million bucks here, is NOT, for darn sure, taking a standard deduction. Therefore, they are unlikely to be paying 10.3%.  So I ask you, how much did YOU pay in income tax last year? Did you itemize. if you did, of course you might have kept all you receipts and diligently deducted sales tax.