Wednesday, November 21, 2007

Taxing us out of House and Home

After reading the article about Elk Grove's insane tax bill levied on a custom home.....I thought it was time to talk taxes. The following is probably more opinion than educated analysis, as I am still trying to figure out California's system of local housing and property taxes.

I was just a wee lass when Prop 13 and the District Mello-Roos initiatives were passed in California. Combined, these two initiatives really make it tough for new comers to the state, first-time buyers, and new housing developments (basically all the things that help grow an economy).

I do favor localized taxes for localized benefits, like taxing the folks living in the flood plains to strengthen the levy. In theory their lower home value reflects that they live in a flood plain, just as homes under the approach path of an airport tend to be priced lower as well to reflect the environmental externalities.

However, the way I understand many of the new development taxes and the Mello-Roos, it seems only the newly purchased homes get taxed at higher rates (property taxes for both resale and new homes, and Mello-Roos for the new homes and newer resales). So us new buyers end up paying more taxes, while everyone in the community benefits from the services those taxes provide. This doesn't sit well with me.

While I am happy to pay taxes for local infrastructure and schools, I shouldn't have to pay twice as much compared to others down the street in my local community. The perverse economic and social consequences created by this system have wrought havoc on our once well performing school system and forced local governments to promote unfettered growth so they can collect adequate revenue.

I am not arguing with taxes based on the assessed value of the home, as I feel its a good surrogate for ability to pay. The system they had in Virginia where I lived seemed to work relatively well....and their pubic schools and transportation system are consistently ranked top in the nation.

20 comments:

Anonymous said...

The whole idea is to prevent rising taxes from punishing retirees who are on fixed incomes. Nonetheless, the tax code does a good job of promoting certain lifestyles:

Good (tax benefits) = legally married, homeowner, procreator.

Bad (no tax benefits) = single or not legally married, renter, no children.

Things aren't always equal in the land of opportunity, but we already knew that.

Buying Time said...

Speaking as if I were a true economist....if the goal is to " prevent rising taxes from punishing retirees who are on fixed incomes", then we should address the situation directly, with tax credits or some other type of subsidy (perhaps adjusted for their income).

As a bleeding heart, I would also advocate this approach for those with very low incomes.

But why should someone making above average income who has lived in their house 10 years pay less in taxes than those moving into the neighborhood? The current system would actually create an incentive for them to stay in their house rather than move up to a nicer home.

Anonymous said...

Don't forget what you mentioned in your post, that property taxes are tied to Prop 13. If you are looking for the logic, simply ask the next voter you see.

Buying Time said...

Anon -

I know you are merely stating the reality of the situation....but it doesn't mean I have to like it =)

Especially cause I will be one of the poor slobs forking over a disproportionate share of taxes when we finally decide to purchase.

P.S. I was voted most likely to lead a protest group my senior year in high school.

mbc said...

I agree that it makes no sense for a newcomer to be paying much more in property taxes than their neighbor, who benefits equally from the services those taxes provide. However, Prop. 13 is the "third rail" of California politics (as in touch it, and you die) so I don't know how the system could be meaningfully changed.

Cmyst said...

I remember way back when Prop 13 was passed. At the time, my ex's grandmother was in danger of losing her home because of property taxes. She had been a relatively wealthy woman, and was the widow of a prominent politician/lawyer, and she had a home on Mulholland Drive that was paid off.
It was a family emergency, and of course we were so young and so poor that the whole thing seemed surreal to us. I think she did actually end up losing the home, but obviously after that the entire family were big Prop 13 supporters.

Luckily, most people really aspire to buy into new subdivisions, and don't pay attention to how expensive the additional taxes and fees are.

Cmyst said...

I remember way back when Prop 13 was passed. At the time, my ex's grandmother was in danger of losing her home because of property taxes. She had been a relatively wealthy woman, and was the widow of a prominent politician/lawyer, and she had a home on Mulholland Drive that was paid off.
It was a family emergency, and of course we were so young and so poor that the whole thing seemed surreal to us. I think she did actually end up losing the home, but obviously after that the entire family were big Prop 13 supporters.

Luckily, most people really aspire to buy into new subdivisions, and don't pay attention to how expensive the additional taxes and fees are.

Sippn said...

The result of prop 13 is that if you want good schools, newer and pretty good public services, go to where there are lots of impact fees paid and lots of homes recently purchased (higher base).


Older areas with low tax bases find it hard to maintain the schools, etc. and get any voter support - it becomes a circling drain.

mr big said...

local govt's are about as corrupt as the mob.You guys just sit back and take in the rear as they give themselves fat raises and spend foolishly.It is about time someone had the balls to challenge the bullsh@t.

sacramentia said...

The Elk Grove story is exactly why we need prop 13. Could you imagine if the city of Elk Grove had the ability set the tax rate and appraise the property themselves?

I pay 5x the tax my Dad does on a house that is worth 2x the price. That part is not so good, but the only way taxes would go if we eliminated Prop 13 is up,up,up for everyone involved.

Prop 13 is just another incentive to be a long term property owner in California, but the smallest house you can afford in the best neighborhood, fix it up, and enjoy it.

BT - this is off topic, but have you ever thought about buying a lot and building? If you are disciplined which I suspect you are based on this blog, you can save 15-20%, and the property tax rate is based on the amount you spend, not the amount you pay.

The lot prices have gone through the floor since that is the part of a house that really fluctuates in value. Constructions costs are down somewhat too. You're already renting which puts in the ideal position to build since there is not the risk of carrying 2 properties...

sacramentia said...

"the property tax rate is based on the amount you spend, not the amount you pay."

duh, should read - not the value of the house when finished, i.e. what you could sell it for.

...back to the wine - Happy Thanksgiving!

sacramentia said...

The Elk Grove story is exactly why we need prop 13. Could you imagine if the city of Elk Grove had the ability set the tax rate and appraise the property themselves?

I pay 5x the tax my Dad does on a house that is worth 2x the price. That part is not so good, but the only way taxes would go if we eliminated Prop 13 is up,up,up for everyone involved.

Prop 13 is just another incentive to be a long term property owner in California, but the smallest house you can afford in the best neighborhood, fix it up, and enjoy it.

BT - this is off topic, but have you ever thought about buying a lot and building? If you are disciplined which I suspect you are based on this blog, you can save 15-20%, and the property tax rate is based on the amount you spend, not the amount you pay.

The lot prices have gone through the floor since that is the part of a house that really fluctuates in value. Constructions costs are down somewhat too. You're already renting which puts in the ideal position to build since there is not the risk of carrying 2 properties...

sacramentia said...

The Elk Grove story is exactly why we need prop 13. Could you imagine if the city of Elk Grove had the ability set the tax rate and appraise the property themselves?

I pay 5x the tax my Dad does on a house that is worth 2x the price. That part is not so good, but the only way taxes would go if we eliminated Prop 13 is up,up,up for everyone involved.

Prop 13 is just another incentive to be a long term property owner in California, but the smallest house you can afford in the best neighborhood, fix it up, and enjoy it.

BT - this is off topic, but have you ever thought about buying a lot and building? If you are disciplined which I suspect you are based on this blog, you can save 15-20%, and the property tax rate is based on the amount you spend, not the amount you pay.

The lot prices have gone through the floor since that is the part of a house that really fluctuates in value. Constructions costs are down somewhat too. You're already renting which puts in the ideal position to build since there is not the risk of carrying 2 properties...

Sippn said...

sacramentia - opposite from what you think - your assessment will be based on market value. If you bought yesterday for 300K and tommorrow all the other homes on your street sold for $290, you could get your home reassessed for 290. They ask you what you paid to gather information for their database.

If builders could deliver below what you could buy resale for after they buy in bulk, they would do more. Unless you do all the labor and have no other job with value.

The Elk Grove story has been in the news for a couple of years, I think they were being a developer by dividing the parcel also - there's where the fees got applied. Now if you want affordable, I think EG should discount the fees to all other developers, not just this one.


anony - I think we get taxed more as married instead of co-habitating.

PeonInChief said...

Sippn--

It depends. If a couple makes roughly the same amount, they pay more in taxes. However, if one partner makes substantially less than the other, they pay less by cohabiting. And now you know one of the reasons I got married.

Gwynster said...

BT,

The reason Prop 13 exists is because Jarvis suceeded in selling fear of rising taxes to CA, much like how like the large estate tax cut was renamed the death tax to get it passed. The history of how it came about is really interesting reading. I think wikipedia has a decent summary.

Jarvis is buried in Forest Lawn down in So Cal. His is the one grave I always wanted to find so I could pee on it. Not terribly ladylike but it would have pretty much summed up my feelings on the subject >; )

Sold in '05 said...

Here's a different system- The Utopian State of Vermont. Property taxes there are set by the individual towns based on yearly expenses for the town plus any schools in the town. If you want lower taxes the city/town has to find a way to cut expenses or education. As a result, the property tax rate is between 4% and 8% depending on the town and can be/is changed every year based on school plus town budgets. For some salt on this wound, the town can re-appraise any individual property or the entire town whenever it likes. The result is that the schools suffer because any improvement in them means that taxes will have to go up.

To sum it up, IMHO California’s 1% system is WAAAYYY better than Vermont's (or New York's for that matter). When I buy, I may be paying more than my neighbor (unless I pay less for the house next year than they paid in 1999 ;) but over time at least I will be able to count on how much my yearly bill will be and as new people come in, they will pay more than I am. To top it all off, my CA income tax is lower, my car registration is lower, my insurance is lower and my utility bills are lower. My only gripe is the actual price of the houses and that is quickly being remedied.

Thanksgiving indeed!

bandj1946-google said...

I am having trouble following your logic path on the "Proposition 13" issue.

As a pre-prop 13 California property owner I watched as people- often of little means were forced out of their homes by huge increases in their property taxes. Over time, Prop 13 helped these folks.

The power-hungry corrupt politicians are licking their chops as they await the revenue bonanza they would be provided by an adjustment to Prop 13.

If more spending results in better government service why does the U.S. post office provide such lousy service?

Having spent many years in public education, the real problem is the school unions. Under the guise of "helping the kids" they are relentless in feathering their own nest with pay, benefits, reduced working hours while beating the drum for more "school funding." I continue to be amazed at how many bright people can't see the real problem with public education.

JMO

Duncan said...

I'm with the people who agree with Prop-13. While it is unfortunante that the new buyers have higher taxes, the new buyers know that they are paying those taxes going in. I knew what my taxes would be, and what my reassessment schedule would be when I bought my house, and worked from there.

I think we would be in even more trouble if the state had the ability to reassess property at market value any time they wanted.

Buying Time said...

Those in favor of Prop 13 seem to be afraid of runaway tax hikes.

There are two things that determine a tax bill....the tax rate and the assessed value of the house.

If property values increase dramatically, like they did over the last 7 years, then the tax rate can be readjusted downward.

And it does happen. It actually happened to us when we were living in Fairfax, VA. In response to concerns over the increasing tax bills levied on homes due to home appreciation, they reduced the tax rate.

Not all governments are run by greedy self serving bueracrats. Don't forget, we live in a democracy. Citizen input, oversight and participation is necessary piece of the puzzle.