Open Letter to Senator Elaine Alquist

Senator Elaine Alquist

SJR-20
Resolution Change 57 – 100% Yes Zero – No (http://www.leginfo.ca.gov/cgi-bin/postquery?bill_number=sjr_20&sess=CUR&house=B&author=alquist)

What Happened?

We will identify ourselves as the original group that worked with Senior Senator Ann Mack to develop the legislation that became SJR 20. We had a four-fold purpose:
1. Increase property tax revenue substantially over time without a direct confrontation with Prop 13. We expect this would occur because senior couples over age 65 would have a capital gains tax barrier to selling their homes removed. We believe their moving might cause a new buyer, paying current market value property taxes, to then occupy the home. The larger purpose, however, was the one listed below.
2. Overcoming a huge inequity for elderly taxpayers only, which is the Federal unfairness in application of the ‘Step-Up-Basis-at-First-Death’ (no matter what age.) By allowing all seniors over 65 to sell their primary residence and pay no capital gains, they would receive the same capital gains tax treatment given to surviving spouses. Since surviving spouses pay no capital gains in immediately selling their primary residence, whereas couples face a large capital gains over the $250,000 per person exemption, couples are second-class taxpayers to surviving spouses. We were primarily attempting to resolve that inequity!
3. Stimulate home real estate sales among seniors in middle to upper class neighborhoods
4. Free up billions of capital that is currently locked-up  

The three professionals that recommended the original legislation have graduate degree and over 100 years estate tax planning experience. We focused on three pieces of legislation that keep seniors in their homes. Most importantly, how to get around Prop 13:
1. Marital deduction
2. ‘Step-Up-Basis-at-First-Death’ and
3. Prop 13 are all tools used by savvy estate tax planners to keep homeowners to partially avoid income taxes and in some cases avoid capital gains completely using the ‘Step-Up-Basis-at-First-Death’ which keeps the elderly locked in their homes. And besides, it’s a smart tax move to stay put. As a result, neighborhoods are less homogenous. When an elderly couple is paying $2,500 per year in property taxes while a close neighbor is paying $36,000, something should be done to incentivize the $2500 a year to move on before one of them dies…. Common sense.

Senator Alquist, the new revised SJR-20 simply creates another class of taxpayer (those purchasing long-term care insurance) that turns into an insurance subsidy requiring home buyers to purchase long-term care in order to get a capital gains break. Does that make sense?

How does your new insurance legislation motivate seniors to sell their home that results in an increase in property tax revenue? You’ve added another reason for them to stay. There are three reasons to stay:
o Prop 13 low tax rates
o ‘Step-Up-Basis-at-First-Death’
o Purchase long-term care insurance to get a limited capital gain tax break in the future. It looks like another special interest complication to the tax code.

Of course, all three of the stay-at-home pieces of legislation create target customers for the huge, very profitable reverse mortgage industry and the new Equity Key. I thought the banking group would be our primary objectors. I admit the insurance twist was a surprise, but no threat to BofA or Wells Fargo, the largest purveyor of reverse mortgages.

Please explain how we got to a simple direct piece of legislation proposed through the Senior Senate to a piece that will cost seniors money for long-term care insurance they may never use to get a low tax break. We were given no notice that this change was being considered, yet were known and on information contact lists. How can we or the public have any trust in the system?

There is no way our group could recommend a piece of legislation so blatantly planned to help the insurance industry further locking in seniors, and create another reason to limit property tax increases. The result is worthless legislation.

Regards,
James Hall, CLU

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