It's the Law: The law of parcel taxes.
This article, in the Press-Banner, near Santa Cruz, California, describes local reliance on parcel taxes which has been one of the many negative effects of Proposition 13, the 1978 voter initiative which capped property tax rates at 1% of assessed value, and capped annual increases in assessments at 2%, even when the market was soaring by 8%, 10% or more, until the property changes hands. Prop 13 has held down the revenue available to meet local needs, forcing towns to court auto dealers and big box stores because they would provide sales tax revenue, and to rely on parcel taxes, which add insult to injury for newer property owners.
Under Prop 13, a long-time owner of a home might pay 0.1% of the home's market value in property taxes, while the newcomer next door, in an identical home, pays 1.0%. Adding parcel taxes to the mix, the two homeowners pay equal taxes -- and the apartment house pays the same amount the two homeowners do. Likely, the apartment house hasn't changed hands. So our younger homeowner gets the worst of both worlds.
What would be so bad about treating these three parties equally, and basing each's share of the costs of providing local services on their share of the land value each calls his own?
The apartment house owner wouldn't like it much, at least if that is the only business he's in. He loves his low taxes. Rents based on the current market, taxes based on, say, 1976? 1990? 2000?
The older homeowner wouldn't like it much. He loves being subsidized in his property taxes, and since he's not earning wages these days, this is just fine. His home is furnished, so sales taxes may not be too troublesome. And that parcel tax is just a few hundred bucks a year. And when his children or grandchildren buy the home from him or inherit it, they will be able to keep his "grandfathered" assessment, and pay a tiny fraction of the hapless newcomer next door. What's not to like? (Except that the house may be a bit too big for an elderly couple, or a widowed man or woman; a bit much to clean, to heat, to cool, to maintain; some stairs that are tough; too many bedrooms. A small price to pay for giving such a fine gift to one's heirs.)
Our young homeowner gets the brunt of it. He pays 1% of the home's purchase price in a regular property tax, and then whatever parcel taxes the local voters have approved. And he's paying a hefty mortgage (or two) plus, perhaps, private mortgage insurance, if he didn't have a 20% downpayment in order to pay the seller of the property. But the bulk of his payment to the previous owner (and therefore to the lender and the PMI insurer as well) is NOT for the house itself, but for the locational value. In California, in large part (but not exclusively) as a result of Proposition 13, land represents an exceedingly high share of the value of most single-family homes: in 2004, according to a 2006 Federal Reserve Board study, land ranged from 62% of the value of a SFH in the Bakersfield metro to 88% in the San Francisco metro. So the buyer is paying the seller mostly for land value, not the value of the structure itself, or any other improvements to the property which the individual has provided.
So our young person is paying a good (bad!) deal more than his neighbor.
Doesn't seem right. But there are Californians who think it is a fine thing. They get a free ride, or a reduced-price ride. What they forget is that they get it at the expense of their neighbors. Real people, like them. But not favored by California's tax policy.
Why not treat every one as if they were equal?
Why not choose the superior tax base, and stop taxing that which we shouldn't tax?
Why not? Because the privileged folks like the current way just fine, thank you.
See also: concentration of income, concentration of wealth, landed gentry, privilege. in the cloud, at left.
This article, in the Press-Banner, near Santa Cruz, California, describes local reliance on parcel taxes which has been one of the many negative effects of Proposition 13, the 1978 voter initiative which capped property tax rates at 1% of assessed value, and capped annual increases in assessments at 2%, even when the market was soaring by 8%, 10% or more, until the property changes hands. Prop 13 has held down the revenue available to meet local needs, forcing towns to court auto dealers and big box stores because they would provide sales tax revenue, and to rely on parcel taxes, which add insult to injury for newer property owners.
Under Prop 13, a long-time owner of a home might pay 0.1% of the home's market value in property taxes, while the newcomer next door, in an identical home, pays 1.0%. Adding parcel taxes to the mix, the two homeowners pay equal taxes -- and the apartment house pays the same amount the two homeowners do. Likely, the apartment house hasn't changed hands. So our younger homeowner gets the worst of both worlds.
What would be so bad about treating these three parties equally, and basing each's share of the costs of providing local services on their share of the land value each calls his own?
The apartment house owner wouldn't like it much, at least if that is the only business he's in. He loves his low taxes. Rents based on the current market, taxes based on, say, 1976? 1990? 2000?
The older homeowner wouldn't like it much. He loves being subsidized in his property taxes, and since he's not earning wages these days, this is just fine. His home is furnished, so sales taxes may not be too troublesome. And that parcel tax is just a few hundred bucks a year. And when his children or grandchildren buy the home from him or inherit it, they will be able to keep his "grandfathered" assessment, and pay a tiny fraction of the hapless newcomer next door. What's not to like? (Except that the house may be a bit too big for an elderly couple, or a widowed man or woman; a bit much to clean, to heat, to cool, to maintain; some stairs that are tough; too many bedrooms. A small price to pay for giving such a fine gift to one's heirs.)
Our young homeowner gets the brunt of it. He pays 1% of the home's purchase price in a regular property tax, and then whatever parcel taxes the local voters have approved. And he's paying a hefty mortgage (or two) plus, perhaps, private mortgage insurance, if he didn't have a 20% downpayment in order to pay the seller of the property. But the bulk of his payment to the previous owner (and therefore to the lender and the PMI insurer as well) is NOT for the house itself, but for the locational value. In California, in large part (but not exclusively) as a result of Proposition 13, land represents an exceedingly high share of the value of most single-family homes: in 2004, according to a 2006 Federal Reserve Board study, land ranged from 62% of the value of a SFH in the Bakersfield metro to 88% in the San Francisco metro. So the buyer is paying the seller mostly for land value, not the value of the structure itself, or any other improvements to the property which the individual has provided.
So our young person is paying a good (bad!) deal more than his neighbor.
Doesn't seem right. But there are Californians who think it is a fine thing. They get a free ride, or a reduced-price ride. What they forget is that they get it at the expense of their neighbors. Real people, like them. But not favored by California's tax policy.
Why not treat every one as if they were equal?
Why not choose the superior tax base, and stop taxing that which we shouldn't tax?
Why not? Because the privileged folks like the current way just fine, thank you.
See also: concentration of income, concentration of wealth, landed gentry, privilege. in the cloud, at left.
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