A New Deal for Californians

Isn't Prop 13 a good idea?

Don't we want lower taxes for home owners?

• In 1978 when Prop 13 was passed, its goal was to reduce the increasing tax burden on home owners. It was meant to be a relief to Californias, who were feeling more and more burned by increasing taxes.
• Unfortunately, over time Prop 13 has turned into something else. It has become a tool for large corporations and historic wealth to indefinitely maintain control over local markets, while paying a fraction of the normal tax rate.
• How has this happened? An individual's Prop 13 reduced assessment expires when they pass away, but Corporations do not have this limitation. Many still own the same properties they held in 1978 and are paying pennies on the dollar for their property tax.
• Not only is this unfair to local home owners who are paying significantly more, it creates backwards incentives that lead to the broken housing system we have today.

Today, what does Prop 13 incentivize & disincentivize?

• Incentivizes holding onto long held assets
• Incentivizes leasing / renting long held properties that pay low property tax
• Disincentivizes improvement in existing property (to avoid partial or full reassessment)
• Disincentivizes moving to a new house (Unless 55 and older) [2]

How do we get there?

Our proposal is to replace the current 2% annual assessment cap with a direct property tax credit to all home owners.

What would that look like? Would that actually be better for the majority of Californians? To find out we need to answer..

How much are tax payers saving today with the 2% annual increase limit of Prop 13?

• California’s average effective property tax rate today is 0.73% [5]
• For a new property sold today, the average effective tax rate is ~1.15% (1% + an average of ~0.15% for county special initiatives) [6]
• California generated 74 billion in property tax in 2019, at the 0.73% rate [1]
• If all property had been taxed at 1.15% instead, California would have taken in 116 billion. (74 billion * 1.15/0.73)
• 116 billion - 74 billion = 42 billion of revenue

How could we translate this into a direct property tax credit for home owners?

• California today has ~7 million owner occupied homes [4]
• 42 billion / 7 million = $6000 yearly savings available per home owner
• What does that look like in terms of a property tax reduction?
• This would allow us to instead tax the first $500,000 of a owner occupied home at 0.1%, instead of the usual 1.15%
• With these new rates, the savings for a home owner with a 500k house would be $5250 annually. ($500,000 * (1.15% - 0.1%))
• And because $5250 is within than the $6000 budget above, California would still have the same amount of property tax revenue each year

Further ideas

• For any primary residence purchased before 2021, the owner can pick between the old and new Prop 13 system
• Offer a similar incentive to small business owners for a reduction in locally owned commercial property tax

References