Opinion section in Mercury News

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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:
n 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.
n 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.

Opinion: Proposition 13 has caused many problems

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Posted on Sun, 08/31/2008 – 16:47 — by benicia_cliff
benicia_cliff

Joined: Mar 2008
Posts: 163
We spend half the amount Jersey does because we have well over twice the population of non-English speaking immigrants who DON’T pay taxes. Maybe if we hadn’t passed 13, our illegals wouldn’t be able to afford to live here. Perhaps I’ll rethink my position.

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Sun, 08/31/2008 – 17:05 — Prop 13
SJCharlie

Joined: Mar 2006
Posts: 61
Let’s not blame Proposition 13 for the illegal immigration issue.
The real negative effects of Prop 13 was the retaliation of the California government. “How dare the citizens of California put handcuffs on us for extravagant spending!” “We’ll show them who’s boss”.
As a result, the government was deprived from raising property taxes without conscience. To show us who really had the power, they started chopping services and projects that we needed, instead of cutting frivolous spending like the Proposition was intended to do.
We wound up with freeway landscapes that were left unattended, after school programs and equipment that were cut and parks and recreation sites were not kept up. We were punished and punished good. Prop 13 was passed in 1978, way too early to have an effect on the number of illegal aliens in California today. Besides, the illegals don’t pay taxes, they don’t own homes, they don’t pay insurance, they don’t pay for healthcare and don’t bother about driver’s licenses so what effect would Prop 13 have on their life style anyway?
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Sun, 08/31/2008 – 21:28 — Reduce taxes!
ima

Joined: Jun 2008
Posts: 66
Proposition 13 is not the cause of our problems in California, but too many social programs, unions in government, and illegal immigration are the cause of our problems. We do NOT need more taxes or to change prop 13, unless we abolish it.
What is really unfair is the insane amount of taxes we have to pay. Taxes were 1% of income above $250,000 (adjusted for inflation) in 1913 when the 16th Amendment became law. How did we go (in less than 100 years) from taxes being 1% of income above $250,000 to the taxes we have today? Now we tax everything from federal, state, and local income taxes to payroll taxes like Social Security and Medicare, to sales taxes, gas taxes, property taxes, parcel taxes, unemployment taxes, endless fees (taxes in disguise), etc.
We should permanently abolish property taxes and just pay a sales tax (indexed for inflation) when we buy or sell a home/property. Property taxes are similar to leasing property rather than owing property and since we own the property we should not have to pay annual taxes on the property. Furthermore, parcel taxes should be declared illegal because they are an increase in taxes over and above the 2% annual increase and are in violation of prop. 13. Parcel taxes are also a double tax on the same piece of property/parcel. Calling “property” a different name “parcel” does not mean you get to tax it again.
All levels of governments spend too much. Most politicians are looking for ways to increase taxes and fees to continue with their extravagant ways. Our so-called “representatives” will never be satisfied with some modification to prop 13, because they spend too much and refuse to cut programs.
Why is California one of the few states that has both property taxes and sales taxes, yet we continually run deficits? The needs of government keep growing and growing and growing…
Why do we give state, county, and city labor unions free passes to gorge themselves with taxpayers’ hard-earned money? It is not Proposition 13 that is creating the problems with local taxes, it is the greedy, self-serving unions that are stealing our tax dollars. Public employees are now able to retire at age 55 with full salary and full benefits. Who is allowed to do this in private industry?
Furthermore, public employee pensions should be abolished and replaced with 401k type retirement accounts. Why should taxpayers pay for their own retirement and the retirement of public employees too? Private industry employees do not have a guaranteed retirement payout and neither should government employees, especially not at the taxpayers’ expense.
We need to reduce government in every way from the number of people, boards, committees, salaries, benefits, pensions, programs, etc., and allow individuals and companies to keep more of their hard-earned money.
Requiring corporations to pay more taxes will increase costs for the consumer and/or force companies to move out of state. When taxes are reduced companies have opportunities to earn more and be more innovative. Companies also employ more people as taxes/costs are reduced. The countries/economies that are in the best shape today have low and/or flat taxes.
The tax and spend government cannot continue. People need to take responsibility for themselves and their families and we need to stop looking for government to solve our problems. We should give people a hand up NOT a hand out.
Didn’t the Soviets believe the government and central planning could solve all of their problems too? The former USSR collapsed because government is inherently inefficient in redistributing the resources and wealth.
The problem isn’t from too little revenue collected, it’s from unrestrained spending. The problem is NOT prop 13. The problem is that our government does not own a stop button when it comes to spending our tax dollars. Leave Proposition 13 alone and/or abolish property taxes altogether. _________________________ “The American people will never knowingly adopt socialism. But, under the name of ‘liberalism,’ they will adopt every fragment of the socialist program, until one day America will be a socialist nation, without knowing how it happened.”- Norman Thomas
“A government that is big enough to give you all you want is big enough to take it all away.” – Barry Goldwater, 1909 – 1998
In the end, when Americans finally wanted NOT to give to society but for society to give to them, when the freedom they wished for was freedom from responsibility, then America ceased to exist – paraphrased from Edward Gibbon
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Mon, 09/01/2008 – 07:28 — Proposition 13
Kendra Neal

Joined: Aug 2008
Posts: 4
Why on earth would the authors want to change prop 13 when they confirm in their opening line that a substantial majority approve of prop 13? Some people are never happy unless they’ve squeezed every last dime out of our pockets.
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Mon, 09/01/2008 – 07:47 — prop 13
HEYDAD

Joined: Aug 2005
Posts: 5
Prop 13 has not caused the problem, GOV. SPENDING and MIS-MANAGEMENT has caused the problem. Let’s get it straight and refocus where the real trouble is. Here in Los Banos we have had 3 bonds passed in the last 7 years to fund expanded government services. Our property taxes went up each time. Our state government has not managed spending well, it has overspent, borrowed, and always seeks new taxes from the citizens in order to bail out politicians mis-management. What we need is MORE Prop 13 type laws and lets include vehicles, sales tax, and income protection from a government that no longer cares about those paying the bills..
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Mon, 09/01/2008 – 08:05 — Prop 13 unfair
TBone_Wing

Joined: Sep 2008
Posts: 6
There is nothing fair about a tax that let’s 60 year old people pay $2,500 in property tax while a new family next door with similar house and property pays $12,000. Period. The current 55+ generation wants to pay less to keep an unfair SS system, wants to opt out of apying new property assessments, wants aid on their prescriptions,…etc. When they were young, other older people paid more, so they could pay less. Now when it’s their turn, they screw the next generation. Prop 13 needs to be altered to make the payments equal. Sure, cut spending, but that wil never happen!
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Mon, 09/01/2008 – 08:13 — Silly boy! People over-55
Grumpy19

Joined: Apr 2007
Posts: 191
Silly boy! People over-55 rule the world. Those in their 20’s, thirties, and 40’s are too self-absorbed, poorly-organized, and poorly educated to change anything.
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Mon, 09/01/2008 – 11:53 — Richard Rider, Chair San
Richard Rider

Joined: Apr 2008
Posts: 1
Richard Rider, Chair San Diego Tax Fighters
The assertion that New Jersey spends over twice as much per student as does California false. Not even close.
For instance, go to the NEA union website, and you’ll find that California public school teachers were the highest paid in the nation, averaging $63,640 — vs. $59,930 average educator salary in New Jersey. [ http://www.nea.org/edstats/images/07rankings.pdf page 92 2006-2007 ] It is simply not possible that New Jersey spends over twice as much per student while paying lower teacher salaries.
It IS true that NJ spends more per student on education than CA, but nowhere near double. In addition, New Jerseyites have more to spend than we do (same website, page 28).
PERSONAL INCOME PER STUDENT IN AVERAGE DAILY ATTENDANCE, 2004
New Jersey $270,924
California $207,557
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Tue, 09/02/2008 – 20:17 — inequality
strnbrg

Joined: Jun 2008
Posts: 54
It does seem unfair to tax similar houses at vastly different rates, just because of when the current owners moved in. But rather than adopt the knee-jerk reaction of the Mercury News and the government lobby — increase the tax on those paying at a low level — let’s instead abolish the rule that lets the government reset the property tax after a sale!
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Fri, 09/05/2008 – 15:00 — Perfect Tax Storm
JHall30

Joined: Mar 2008
Posts: 4
Our opinion is a collaboration of three semi-retired professionals, one of which is an estate tax attorney. We are not debating government spending which has created rich retirement programs despite the limitations of Prop 13, Capital Gains (24.3) and the ‘Step-Up-Basis-at-First-Death’ on all assets, which is a provision of the current federal estate tax code.

A direct alteration which will eventually change Prop 13 will cost millions to do so using a referendum.

Our piece is really focused on changing the capital gains tax (Federal 15% & California 9.3%) which if eliminated would influence state revenue positively without a direct assault on Prop 13.

The Tax Relief Act 1997 changed the capital gain exemption from $125,000 per person to $250,000 when selling a home. An assemblyman from Ohio authored the legislation which helped a whole lot of folks selling their homes. Our recommendation will help seniors and the community. It will be a structural increase. We need a legislator to introduce similar legislation. This is a bi-partisan issue and should be looked at that way.

James Hall
https://jameshall.wordpress.com/
juhclu at yahoo.com

We encourage you to leave comments.

Jim

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