The Tax Relief Act of 1997 sponsored by former Ohio Assemblyman John Rasich

To: John Fensterwald Editorial Writer – San Jose Mercury News(Sent back on May 26th, 2008

Subject: The Tax Relief Act of 1997 sponsored by former Ohio Assemblyman John Rasich

One of the primary provisions was to raise the Capital gains tax exemption to $250,000 per person up from $125,000 when selling their home with no age limitations. The legislation continues to differentiate the sale of homes from commercial property, securities, etc. He did California a favor by allowing thousands possibly millions of homeowners to sell homes free of taxable Capital gains which includes California at 9.3%. New owners paid the up-to-date market property taxes. The problem was obviously not unique to California to 1997. Speculators here in California jumped into middle-to-upper class neighborhoods which helped increase revenues as new owners moved in and moved on. However, there were thousands possibly millions of homes that had appreciated well above the $250,000 per person exemption. These are the homeowners we are discussing today… 10 years later. The higher the Capital gain obligation, the less likely they are to move on. The illustration clearly points to the problems associated with homes and commercial property. Despite the tax break, prices moved upward. For the most part the middle to upper class, well established neighborhoods are not yet affected seriously by the sub-prime problems to date.

Currently, there are 456,981 taxable parcels in Santa Clara County. Of these, 417,641 are considered homes for tax purposes and 39,340 are commercial. Furthermore, 17% or 70,998 are considered original Prop 13 beneficiaries. The number is higher if compared to how many taxable parcels there were in 1978. We have to assume a very high percentage of those homeowners are over 70, and their homes have appreciated more than the current $250,000 per person Capital gain exemption.

Would allowing the 70,998 or ages 65 and above to sell free of Capital gains before they have to here in Santa Clara County increase revenue? We know increasing the exemptions or eliminating the gain all together would do it. The free market at work should help. The California 9.3% coupled with Federal Capital gain at 15% from the sale of homes in excess of the $250,000 exemption slows potential growth from property tax revenue because of the lock-in effect.

Capital Gain Connection to Federal Estate Tax Legislation: The 1997 legislation included Federal Estate tax modifications. I would be willing to bet that Assemblyman Rasich didn’t understand the tax implications of the ‘Double-Step-Up’ (Incentive) at first Death in this Community property state. Nor the favor he did for helping to increase property tax revenue here in California by increasing the exemption to $250,000 per person.

The potential to increase property tax revenue by allowing seniors 65 and older to sell free of Federal and State Capital gains is the most promising revenue solution we’ve seen. In the present form, Prop 13 won’t go away. The Feds gave California a boost in 1997. Maybe, they will do it again. The problem may be nationwide in certain areas again as it was in 1997.

We don’t have the resources to look at the numbers state nor nationwide. California is probably more affected than any other state. There is a story here. Why doesn’t a California legislator introduce federal legislation to help restore some property tax revenue here in California! The Bush tax cuts have to be dealt with soon.

Conclusion: A soundly structured broad-based cut in tax rates on Capital gains for those over retirement ages selling their homes (62-65) would significantly increase property tax revenue for California and schools. It would allow seniors that consider themselves in the middle-class to sell paying no taxes. It would increase their mobility of capital. Their savings could be used more productively. Billions of dollars would go directly to retirement funds over a period of time. Better use of capital than having it all tied up in brick and mortar waiting for one partner to die. This is a recommendation to get around the tax restriction of Prop 13. Government spending is another subject to cover.

James U. Hall, CLU

Sources: Santa Clara County Tax Assessor


2 Responses to The Tax Relief Act of 1997 sponsored by former Ohio Assemblyman John Rasich

  1. Doug says:

    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.

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