Link: Pragmatic Politics. A short excerpt:
"The LA Times article posited Proposition 13 as a culprit in California's current mess. The PC isn't so sure about that. The Times pointed out that some Californians have some of the lowest property taxes in the country. Well, maybe that is true. But, some don't. Anyone that bought in the last 10 years does not have cheap property taxes because house prices were outrageously high. A heck of a lot of people have bought homes in California in the last 10 years. Since Prop. 13 passed in the 1970s (we think), property tax revenues have gone up over 5-fold. Also, California has a huge sales tax (7.75%) rate, high income taxes (but that varies up and down with the economy) and voters keep passing big bond measures for everything from badly needed infrastructure projects the legislators are incapable of funding on their own to stem cell research (mostly a sad waste of money).
For crying out loud, how freaking much money does the state need? The PC does not want to be cheap, but we suspect that there is tons of money that goes into rat holes the public knows nothing about. Those rat holes probably give back not much to the state, especially if that spending is payback for "campaign contributions". After all, if the legislators can gerrymander their districts for their own personal benefit, why can't they waste tons of money for exactly the same reason?"
I have a number of thoughts about this. First of all, there is a fair amount of expense involved in collecting wage taxes and sales taxes, over and above the excess burden and deadweight loss they impose on our economy.
You comment that despite Prop 13, property tax revenues have risen 5-fold. How much have sales tax revenues risen since 1978? How about income tax revenues? How about the cost of simply maintaining education at its quality level per student in 1978 (sans computers, etc.) And how much has California's population grown since 1978?
The property tax is two taxes, one of which is a very good tax -- superior to virtually any other tax available to us. The other part of it is one of the more perverse taxes. One could describe Prop 13 as cutting off some noses to spite faces, because it doesn't differentiate between the two parts of the PT.
The bad part of the property tax is the portion that falls on buildings. Taxing buildings leads to fewer buildings, poorer maintenance, less frequent redevelopment of choice sites to keep up with current community needs and demand. But what most people don't remember -- it is easy to lose sight of -- is that buildings depreciate. A Federal Reserve Board study (May, 2006) pegs annual depreciation at 1.5%.
What appreciates is land. It rises in value for reasons that have nothing to do with the activity or inactivity of the current owner. Rather, it rises because of 3 major factors:
(1) population growth, whether it be from increased fertility, increased longevity, immigration, or simply more people attracted to local amenities of various kinds (including views, a desirable climate, etc.) -- More people in the same, finite land space
(2) technological progress -- air conditioning made vast swaths of the American south livable for northerners; fiberglass boats helped make direct waterfront living more appealing; improvements in earthmoving equipment coming out of WWII made less choice terrain easier to develop for housing; elevators made urban land more valuable; building technology that withstands earthquakes makes land near faults more valuable; etc.
(3) public investment in services and amenities people find valuable: schools; good schools with a reputation that appeals to good colleges; infrastructure such as paved and cleaned streets, safe bridges, expressways and interstate highways, hospitals, public health, emergency services, social services, etc..
Most people value these amenities, and would prefer to live where they are available. If they can figure out a way to live in those places while someone else pays for the amenities, they are even happier. And if they can charge other folks rent for the right to live where they are available, and get someone else to finance the amenities, they are thrilled! And that is what Prop 13 has achieved.
Those who were of prime home-owning age in 1978 have benefited hugely. They shifted the burden of supporting the services that make their land more valuable this year than it was last year onto other people.
They offer the promise that if only you can grab the brass ring of homeownership, you, too, will be on the second tier of this pyramid scheme, and it will work to your benefit, too, someday! But of course in order to do that, you have to pay off someone who already is on that second tier -- and you'll be paying the mortgage lender for 30 years for value he didn't create -- if you can persuade him to give up his favored status and go to another house!! That doesn't come cheap -- he likes his subsidy, thank you very much!
What a deal!
And, by the way, the FIRE sector loves it. The mortgage brokers, and the mortgage lenders each get their monthly share of this bounty.
And you, as tenant or as mortgage-payer, get to pay twice. First you pay either your landlord or the mortgage lender who paid off the seller -- in both cases, mostly for land value, which he didn't create -- and then in addition to that, you must pay sales taxes and wage taxes -- and, on top of that, you must work in an economy that is burdened with the deadweight loss and excess burden that those perverse taxes impose.
What a deal!
There is a postcard from about 1915 -- California, by the way -- on ebay this week that speaks nicely to this situation:
"The many suffer because they keep alive a Social and Industrial Game that dooms the many to Failure and want."
And we call it the 3rd rail of California politics! What a game!
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