>Basically, shows that the State's tax difficulties are themselves the consequence of exclusion.
I'm not sure what you mean by tax difficulties, if you mean the state has trouble raising revenue, that's certainly not the case. CA is running a large budget surplus right now. If they only relied on property tax it could be an issue, but they also have an income tax, so the revenue outlook in CA is pretty good right now.
Fari enough: let me clarify. Because California gets so little tax from property, it must get more from income taxes. That has a couple of negative consequences.
The nice thing about property taxes is that housing prices change slowly, even in boom/bust cycles -- essentially they are coupled to a dashpot. While income, especially in California with a progressive system coupled with most of the high earners paying cap gains, leading to large swings (further influenced by the Fed).
Also property taxes are the main source of municipal and school funding; with property taxes artificially pulled low, the state needs to step in instead. In addition, the structure of Prop 13 discourages people from moving which reduces the availability of housing stock.
Prop 13 wouldn't be so bad if it excluded commercial buildings (including rental properties) and didn't have the huge inheritance loophole. But neither of those is likely to change.
The reason I mentioned the coupling between prop 13 and exclusion: Californians voided all restrictive covenants in the 60s, which lead to more selective zoning restrictions; Prop 13 came from conservative southern californians and (due to the stickiness mentioned above, including a retroactive valuation reduction and the inheritance loophole) locked a lot of "those" buyers out of the existing neghborhoods.
Funny enough, Texas is basically the opposite: there's no income tax, and so it has to get taxes from property. That also has a couple of negative consequences:
There's a "homesteading exemption" for taxes on a primary residence. This means your property taxes can't shoot up massively if your property suddenly gets more expensive.
This pushes even more of the property tax burden onto investment properties, which sounds good to some in theory, but one affect it has is that rental properties are investment properties. So rents go up a lot. This means renters end up paying a lot of property taxes, which is, uh... a surprising outcome.
The Lebowski loophole is partially closed on large enough values. But I doubt it prevents corporations/trusts from being a simple workaround. Then they added new loopholes to make it so old people can move and keep their low property taxes.
Prop 13 is IMO the biggest problem that California faces, because it’s the most intractable to solve (it would be political suicide to try to roll it back now that so many people are paying way lower taxes than they would without it) but is also a major contributor to a lot of other problems in the housing market. I can think of ways to roll it back slowly, but let’s be real, people will freak out if they think they’ll have to start paying 5x what they currently pay in property taxes, even if it’s after they die or in 20 years from now.
As a proportion of net state product it’s property taxes are low. Compared to most other states, California provides a lot of services and looks after a lot of land (has a lot of thinly-settled land — people there need services too). It’s a major net contributor to the federal budget.
It should have a better mix of tax sources.
Remember the size of the state’s economy and population would make it one of the large EU countries.
Your point about moving is really important: there are a ton of boomers sitting in houses which are much larger than they need without children living at home but in many cases they're doing exactly what the system incentivizes. Accessory dwelling units (ADUs) can help somewhat if they have enough space and want to get in the landlord business (or have family who need it) but really we need to make it easy for people to downsize without financial precarity.
On one hand I’m sympathetic to the individualist argument that it’s unfair for these people to have to vacate their 30+ year residences just because a bunch of people moved to their area.
On the other, I agree that it’s ridiculous someone can be paying 10-20% what their neighbor pays in property taxes, and that this causes an inefficient allocation of resources.
If we ever want to solve this we IMO need some kind of gradual phase out. We can immediately/over a 5-20 year interval move the taxes to what they should be on commercial and non-primary residences. But for actual primary homes probably the only way we can do it is if we let the property taxes be deferred until the current homeowner dies. No matter how much pain the policy causes we must under no circumstances cause a single grandma to lose her home.
A lot of this also comes back to the “just build more housing” point: an 80 year old probably doesn't want to have to be responsible for a house, but if the choice is considerably more expensive or moving away from everyone & everything they've known for 40+ years they'll do it. If there were reasonably-sized options nearby, they'd probably have a different answer.
Where I live now has a couple of nice options for aging in place – dedicated 55+ apartment building, with government support for low-income; and a co-op where the units are smaller but they have more shared space. A lot of older neighbors have spoken glowingly the latter because it's all ages and it since they see their neighbors more they don't feel lonely the way someone in a detached suburban home might. I wish we'd build a lot more stuff like that where someone has an option which doesn't break the bank and avoids those other downsides.
Great point. Prop 13 creates a lot of illiquidity/friction that probably keeps people in places they wouldn’t stay in otherwise. Not just old folks. It’s probably just as much of a problem for people who inherit property or get a job an hour away.
Prop 19 passed in 2020 IIUC partially solves the problem you mention because people 55+ can maintain lower tax rates after moving, but of course it is just a bandaid. Definitely the better solution would be for the real estate market to not be so expensive that people can’t afford to move/live in the general type of housing they want though.
> It’s probably just as much of a problem for people who inherit property or get a job an hour away.
My knowledge is stale - I moved away from California a decade ago - but I think you’re right about downsizing at least to the extent that they can actually find a cheaper place.
I think now seniors can keep their Prop 13 tax exemption if they move anywhere in the state. However, that is a law that only passed a few years ago. Before then, I believe you were restricted to moving only within the same county.
The income+sales taxes are so high in CA partially because prop 13 reduces the amount of funding able to be gathered from property taxes. The reliance on income taxes, as the other reply mentions, means that CA gets streaks of extra tax from capital gains sometimes (leading to occasional budget surpluses).
IMO Prop 13 is at the root of a lot of dysfunction in CA, but personally I hate it because these extra income+sales taxes put a lot of tax burden on new residents and young professionals.
I'm not sure what you mean by tax difficulties, if you mean the state has trouble raising revenue, that's certainly not the case. CA is running a large budget surplus right now. If they only relied on property tax it could be an issue, but they also have an income tax, so the revenue outlook in CA is pretty good right now.