Two Interesting groups

We are working with 2 interesting groups: http://www.4csl.org/ California Senior Legislature and http://www.cotce.ca.gov/. We are presenting at the last Commission meeting on July 16th in San Francisco. Also, Joe Coto’s colleague Lorraine Guerin is having a financial analyst look into the numbers our proposals might generate.

Jim Hall

Unions vs Taxpayers

Hello all:

Check out Wall Street Journal Opinion May 14th, 2009: Unions vs. Taxpayers by Steve Malanga: http://online.wsj.com/article/SB124227027965718333.html It might influence your vote on the initiative next week.

Regards,

Jim Hall

Prop 13 reassessment every 25 years won’t work

There are too many homeowners that currently benefit from Prop 13 to even think about an initiative to re-assess home and commercial property every twenty-five years. #1 A better and current approach would be to allow seniors over 65 to move anywhere in California without paying increased property taxes, as long as they are moving to a less expensive residence. #2 Prop 13 protections should be gradually removed from commercial and industrial property, increasing funding for schools and stopping the property tax burden from shifting to residences. #3 Capital gains should be eliminated for sale of a home by seniors over 65, to be replaced by a current taxpayer to stimulate tax rolls. This would free-up millions, possibly billions of capital for seniors that may have taken a hit in their retirement resources.

Regards,

James Hall

Sf Tax Proposals

TO:

Marisa Lagos – SF Chronicle Writer

Supervisor John Avalos

David Chiu – Board President

Chamber of Commerce President Steve Falk

Supervisor Sean Elsbernd

Subject: S.F. looking at tax proposals for ballot article by SF Chronicle Writer Marisa Lagos

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/06/10/BAK6183QK2.DTL

Parcel tax, vehicle fee are among proposals. ‘Parcel tax and sales tax would eventually expire’. This means they are not a structural long-term increase in revenue.

Does it make sense to analyze capital gain of 15% Federal and 9.3% state when selling homes that have appreciated more than the current $250,000 per person exemption? Despite the very severe downturn in the home real estate market, there are 3 million homes in the state owned by people over 60. How many have appreciated more than the $250,000 exemption established in 1998 is unknown.

Check out our Aug. 30th, 2008 piece originally published in the Mercury News which is attached. Our blog is http://jameshall.wordpress.com/. Capital gain over 24% is definitely locking seniors in their homes that pay low property taxes that could be replaced by a current taxpayer.

We have submitted proposed legislation through senior Senator Anne Mack. Hopefully, one federal and state legislator will pick up on it. http://www.4csl.org/

Regards,

Jim Hall

Prop 13 revisited

Hello all:

For those of you that are interested, the SF Chronicle Monday June 29th debates Prop 13 pretty thoroughly. Here are the article links: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/06/29/MNUJ18EHVH.DTL&type=politics&tsp=1 and http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/06/29/MN8B18EL7H.DTL&type=politics. Authors Joe Garofoli and Michael Cabanatuan debate the crisis and the push by San Francisco assessors leading attempt to change the commercial side of Prop 13’s restrictions. …no mention of capital gains nor the ‘Step-Up-Basis’. We sent Mr. Garofoli our Aug. 30th, 2009 piece that was published in the Mercury News. It can be seen on our blog: http://jameshall.wordpress.com.

Jim Hall

Legislative Changes proposal Part III

PART 3: What statement or statements do you wish to have included in the “Resolved” clause of your proposal?  The resolved clause is a clause or a series of clauses asking the Governor and the Legislature (State Proposals) or, the President and Congress (Federal Proposals), to rectify the problem outlined in your “Whereas” clauses.  The more detailed the solution, the better chance you have of successfully seeing your policy objective through the entire legislative process.

RESOLVED: Seniors over 62 should be able to sell their homes free of Federal 15%

And State (9-10%) capital gain taxes.

RESOLVED: Seniors over 62 should be allowed to move anywhere in California

Without paying increased property taxes, as long as they are moving to a less

Expensive residence.

PART 4: If your proposal requires additional funds, cite potential sources and any impact on the state budget.  (How much will this cost and how will it be paid for?)

No Funds

PART 5: Please list any co‑authors who should be added to your proposal.

1. Sr. Assembly Members:                                       Sr. Senate Members:

Banking System

Hi All:

For those of you that are still interested in our banking system, a Bill Moyers Interview with Bill Black is blood boiling. It is lengthy but worthwhile.

Here is the video tape of that interview:

http://www.pbs.org/moyers/journal/04032009/watch.html

You can view the transcript at http://www.pbs.org/moyers/journal/04032009/transcript3.html. Mr. Black is a former Director of the Institute for Fraud Prevention and carries experience from the Savings and Loan frauds of the 80’s. Here are comments from viewers: http://www.pbs.org/moyers/journal/blog/2009/04/william_k_black_on_the_prompt.html.

Regards,

Jim

Taxpayer Relief Act of 1997

From Wikipedia, the free encyclopedia

The Taxpayer Relief Act of 1997 (Public Law 105-34) reduced several federal taxes in the United States.

Subject to certain phase-in rules, the top capital gains rate fell from 28% to 20%. The 15% bracket was lowered to 10%.

Starting in 1998, a $400 tax credit for each child under age 17 was introduced, which was increased to $500 in 1999. This credit was phased out for high income families.

The act exempted from taxation profits on the sale of a personal residence of up to $500,000 for married couples filing jointly and $250,000 for singles.

The $600,000 estate tax exemption was to increase gradually to $1 million by the year 2006.

Family farms and small businesses could qualify for an exemption of $1.3 million, effective 1998. Starting in 1999, the $10,000 annual gift tax exclusion was to be corrected for inflation.

The act also provided tax relief for education savings and retirement accounts. Some expiring business tax provisions were extended.

It was signed into law by President Bill Clinton on August 5, 1997.

Legislative history

This was the first law devoted solely to tax cuts that Congress enacted using the fast-track budget reconciliation process.

Final House vote, July 30, 1997:

Vote by Party	Yea		Nay
Republicans	225	99.6%	1	0.4%
Democrats	164	80.0%	41	20.0%
Independents	0	0.0%	1	100%
Total	389	90.0%	43	10.0%
Not voting	2		1

Final Senate vote, July 30, 1997:

Vote by Party	Yea		Nay
Republicans	55	100%	0	0.0%
Democrats	37	82.2%	8	17.8%
Total	92	92.0%	8	8.0%

ELIMINATE FEDERAL AND STATE CAPITAL GAINS FOR SENIORS WHO SELL THEIR HOMES

Are we going to live with Prop 13 in the current form or are there other possibilities? The current administration is talking about raising Federal capital gains taxes to 20%. When combined with California’s 9.3% comes to a total close to 30% depending on your tax bracket.

Does it make sense that on the same street in hundreds of California neighborhoods, one resident pays $1,500 in property taxes while the owner of an identical house pays $15,000, thanks to Prop 13? The $1,500 taxpayer owner can best be described as over 62. A high percentage own their home free and clear, especially super seniors over 70. The $1,500 taxpayer has a whole host of complex choices whether to sell and move on, especially super seniors over 70. They have very strong incentives to stay which limits the states ability to raise property taxes more than 2% per year. They are:

1. Facing large capital gains over $250,000 per person exemption whether they sell outright or move to a less valuable home: Federal 15% and California 9.3%.
2. Increased property taxes unless they move to a few counties that accept the exchange. Proposition 60 allows seniors to move within their county to a property of equal value or lesser value and transfer their low tax base to that new property. Lesser value triggers a capital gain. The same holds true for Prop 90: purchasing down triggers a capital gain for everything over the $250,000 per person exemption. Both of the propositions have failed to increase senior mobility. Capital gain at 24.3% is too much to overcome.
3. Facing large fees to get into some retirement homes, plus monthly charges.
4. While an elderly couple pays the full capital gains when they move, a current surviving partner pays no capital gains tax on a sale following the death of his or her spouse.

The home is reassessed on a “stepped-up” basis. Take a home purchased for $15,000 in 1965 and sold for $1.5 Million in 2008. A current surviving spouse pays no tax while a couple selling would pay as much as $250,000 depending on improvements. A huge disincentive to sell.

1. Hit by market downturn and low interest rates on savings.
2. Fixed incomes

There is no need for those with 401k’s retirement plans at work or retirement to tell us they haven’t taken a serious hit the past year. There is no guarantee the market will be back in the near future. For seniors, the prospect of additionally losing 24.3% of the appreciated capital value of their homes is unacceptable, so they stay put. There is the case for allowing seniors over 62 to be able to sell their home tax-free: Help with their retirement; give their children some of their future inheritance early; and set-up educational trusts for their grandchildren. This solution is a better way to reasonably ensure that a lifetime of savings can’t be undone by forces beyond one’s control and a confiscating tax structure. These benefits could be realized without changing Prop 13.

For the state and local communities, it’s a win since many of those homes are protected by Prop 13, the new owners would not be based on a new purchase price. Increased property tax revenues will offset loss due to elimination of capital gains. It’s a win for:

1. schools, teachers and students – we know property taxes will be off.
2. county tax assessor
3. baby boomers approaching retirement who took a hit on their 401K
4. banks financing quality real estate mortgages, plus increased deposits from seniors unlocking their equity.

The legislature needs to find partial long-term (5-10 years) solutions examining the tax code. The capital gains current exemption, $250,000 per person when selling a family residence, has not been increased for 12 years (TR-97). It needs to be eliminated to match the Federal ‘Step-Up-Basis-At-First-Death’ law to stimulate quality home real estate sales and restore tax fairness. In addition, seniors should be able to downsize and move to any county without a property tax increase. This stimulus package will take time, but it will work once the banks get back to lending to qualified buyers and some order returns to the stock market.

Our recommendation is not an effort to reward an older special interest group. This is a real estate stimulus solution that gets around the Prop 13 limitations and will structurally increase property taxes over the next 5-10 years.

James U. Hall is the former president of the Santa Clara County Chartered Life Underwriters Society, General Agents and Managers Association. His blog is http://jameshall.wordpress.com/. John E. Upton was a supervisor of El Dorado County Board of Supervisors from 1990 to 1998, and the former president of the California State Association of Counties.

Article posted in Mercury News on 8/30/2008

Opinion: Proposition 13 has caused many problems

By JAMES U. HALL and JOHN E. UPTON
Special to the Mercury News

Article Launched: 08/30/2008 08:40:46 PM PDT

A recent Field poll of Californians indicated substantial majorities had a positive view of Proposition 13, the law that severely limits property tax increases except when real estate changes hands. This poll was like asking people if they would like to see their taxes increase, without pointing out what the additional government revenue might be used for, or what the unintended consequences of Proposition 13 have been.

No mention was made that California now spends less than half of the amount per pupil on its public schools than New Jersey. The shortfall in funding can be traced largely to Proposition 13.

The great resulting tax disparity can be found locally. On a West Valley cul-de-sac sit 11 homes. Six families are pre-Proposition 13 taxpayers who pay a total of $14,200 worth of annual property taxes. The other five pay $125,000. The average age of six original owners is 77, whereas the average age of the other five is 50.

Most people are unaware that, in addition to protecting single-family residential property from sharp property tax increases, Proposition 13 also shelters industrial and commercial property. In general, property owned by a corporation or partnership will not be reassessed until more than 50 percent of the ownership of the corporation or partnership changes hands. Careful planning can avoid such ownership changes for many decades, even after some of the shareholders or partners die.

Even more startling, if real property was owned by a corporation or partnership before the passage of Proposition 13, it will never be reassessed, barring a sale, unless there is a shift of control of the corporation or partnership to a single individual or a single entity. That means, for example, that property owned by PG&E prior to Proposition 13 will essentially never be reassessed, since no one person or entity is likely to ever gain control of PG&E by owning more than 50 percent of its stock.

Proposition 13 has caused a steady shift of the property tax burden from commercial and industrial property to residential property. Commercial and industrial property is even more likely than residential property to be locked into pre-Proposition 13 assessments. Seniors who want to move to a less expensive home generally face a steep increase in property taxes, which causes them to stay where they are. This locks in outdated assessments, thus denying the community the additional tax revenues that would be paid by a new homeowner.

This works to the advantage of neither the elderly nor the community. State and federal tax laws, when combined with Proposition 13, discourage millions of homeowners, especially seniors, from moving. Homeowners are entitled to a $250,000 per person exemption when they sell their home. However, on sales above that amount, they pay a 15 percent federal and a 9.3 percent state capital gains tax. Seniors pay it wherever they move, even to assisted living units, where there are often heavy up-front fees.

The death of a spouse also creates a disparity in tax treatment. While an elderly couple pays the full capital gains when they move, a surviving partner pays no capital gains tax on a sale following the death of his or her spouse.

The home is reassessed on a “stepped up” basis. Take a home purchased for $50,000 in 1965 and sold for $2.5 million in 2008. A current surviving spouse pays no tax while a couple selling would pay as much as $500,000, depending on improvements. This step-up provision is an enormous additional disincentive to move for those seniors who are aware of it. For those who aren’t, their ignorance creates a huge inequity. Assisted living facilities are full of elderly who paid capital gains plus a large up-front fee to get into a retirement home, then find themselves in a financially-vulnerable position.

We suggest three solutions:

Seniors over 65 should be allowed to move anywhere in California without paying increased property tax, as long as they are moving to a less expensive residence.

Proposition 13 protections should be gradually removed from commercial and industrial property, increasing funding for schools and stopping the property tax burden from shifting to residences.

Capital gains taxes should be eliminated for sale of a home by seniors over 65.

 

·  Capital gains taxes should be eliminated for sale of a home by seniors over 65.