[twblalock]

This is a good illustration of bad tax policy, specifically Prop 13.

Zoom in on a residential street, particularly in the Bay Area, and you will see a row of houses which are roughly equivalent in value. Some homeowners pay several times as much annual property tax as their neighbors, because they bought their homes more recently and paid more for them.

That's kind of insane, and nobody would design the property tax system that way if they were starting from scratch.

[toast0]

It's kind of insane. But it's also kind of insane that when the housing prices double or triple, you can expect your property tax to go up quite a bit as well, which makes it hard to plan for the future.

I think if the value increase cap was raised (gradually) to something like 4-5% per year, you would still have assessed values trailing market values, but not by nearly as much. People could still make worst case projections of taxes to see if they could afford things.

Washington state has a different system, where the total property tax of each taxing jurisdiction can only increase by 1% each year (subject to exceptions and what not), and then that amount is apportioned to each property based on the assessed value. This provides a limit on government spending as CA prop 13 does, but it doesn't limit changes in tax on any individual homeowner; if your property becomes more relatively valuable than others in your taxing districts, your bill goes up and theirs goes down. Which I'm sure causes assessments to be a lot more contenious.

[cameldrv]

The solution is to let people run a tab with the government. Make the minimum payment the Prop 13 rate, but if there's a change in ownership, you have to pay back the difference plus a fair rate of interest.

This ensures that no one has to move because their home appreciated, but it also ensures that no one gets to pay taxes like their home never appreciated, but then pocket appreciation at sale time.

[danhak]

This seems like it might introduce a different perverse incentive for people to remain in their homes indefinitely even if they’d prefer to downsize / move. Might further exacerbate supply / demand issues.

[cheriot]

That's the status quo. People avoid moving because buying a house worth the same amount means paying far higher taxes.

At least with paying taxes on a sale then everyone is paying their fair share. It also reduces the incentive to vote in favor of a housing shortage.

[deepakhj]

You can allow people to carry it with them if they purchase another home. They should not be able to pass it to their children. It should also only apply to a primary residence. No investment properties or 2nd homes+.

[nathanvanfleet]

The problem is that there are so many people with locked in tax rates that the residents of san francisco has consistently prevented developments that would actually create relief for tax rates. But since their rates are locked they don't have any reason to ruin their view.

[xtiansimon]

> "...which makes it hard to plan for the future."

Let alone letting you retire in your home on a fixed income.

[nullc]

Many, ... most? states have some kind of homesteading tax relief.

For example, in Florida property tax increases are capped to the lesser of 3% or CPI. 25k of value is also exempted from property taxes and 50k is exempted from non-school property taxes. But only for a single primary residential property.

Where CA13 is different is that it applies to everything: commercial property, industrial property, rental property, second homes, third homes, etc.

I think there is a pretty good case to be made that there is a massive public interest in keeping people from being pushed out of their homes by taxes. Capping tax increases is also necessary to make it possible to financially plan for them (e.g. I can invest enough so that my investments will pay the taxes w/ increases for the rest of my life, and just add that to the 'cost' of the home-- given historical market returns this requires investment of 25x your annual property taxes, so long as they can't grow faster than inflation). One could also make the case for a public interest in not letting some businesses get pushed out (primarily small, single location businesses).

But prop 13 goes far beyond that-- applying to all property and with extremely expansive portability-- and as a result creates a massive windfall for existing property owners at the expense of new property owners.

I'd like to see at least a rule that for rented properties that assessments should be allowed to increase as much as rents have. There is little to no prevent-displacement justification for not tracking rents.

[twblalock]

> But prop 13 goes far beyond that-- applying to all property and with extremely expansive portability-- and as a result creates a massive windfall for existing property owners at the expense of new property owners.

It's even worse than that -- it creates a massive incentive not to sell homes.

People who have owned homes for more than just 10 years would see their property taxes double if they sold their homes today and bought another home for the same price elsewhere in the state. The longer you have owned your home, the worse the tax increase becomes.

It's kind of crazy that the people who bought their homes a long time ago, and therefore have realized the most return on investment, pay the least taxes. Meanwhile, people who bought their homes this year, and have made little to no investment return, pay the most taxes of anyone.

[seiferteric]

Counterpoint: Why should your property taxes go up just because the market around you skyrockets, when this is completely outside of your control? The bay area is a prime example of this.

[roenxi]

Because the money is being used to pay for local services that "you" are enjoying.

Someone has to pay the taxes. It is difficult to see a good argument that having been a landholder for a long time gives some sort of moral right to be supported by others.

[mehrdadn]

It's not exactly hard to imagine what problems occur here. You spend a huge chunk of your life saving to buy a home, and you plan it so that you can pay the taxes on it when you retire, then the rest of the city forces you to "enjoy" higher taxes you never demanded, predicted, or wanted, based on an income stream that you no longer have to pay it with, suddenly driving you out of the home/neighborhood/town you worked your entire life to finally afford. In many senses it's hardly "fair".

I don't know what the answer is here; I see it as a tough policy challenge. There might very well not be a solution that's "fair" to everyone. If you think there's an easy "moral" solution and you can't think of decent arguments for both sides, I feel like you're only kidding yourself.

[ladberg]

Then you can just sell your house and buy another one in a less expensive area and make insane profits. The people who support prop 13 are literally lottery winners who are complaining about paying taxes on their winnings.

If you don't want to move then you can get a reverse mortgage and still profit, you just won't get to pass the house to your children. Still, you'll make way more from the property value increases than anything you would have paid in taxes and can pass those gains on to your children.

[nullc]

> Then you can just sell your house and buy another one in a less expensive area and make insane profits.

That is extremely presumptive. Your friends, family, and support infrastructure is all in the place you've been over the last 40 years.

Purchasing another home and moving to it have huge transactional costs.

It would have been completely reasonable to include plans for the reverse mortgage as part of your finical planning already: Americans often have a significant fraction of their net worth tied up in their homes. So that money may well be spoken for. It also may be just unavailable: The city's assessment of your home's value may not match with a lender's assessment.

Think of it this way, if I show up at your town council's office and offer to pay 2x the property taxes you currently pay, should I be able to bid you out of your home? If that wouldn't be ethical, why is it ethical to do it in a distributed way?

I think Prop13 is nuts, but the opposite idea of continually subjecting people's homes to volatile and unpredictable market price based taxes is also nuts.

[majormajor]

"Congrats, you have won the lottery, now you have to move somewhere way cheaper - probably because it doesn't have many of the features that drew you here in the first place!"

"All because a bunch of people with more money than you are now willing to pay a bunch of money for your neighbors' places."

I think laws and policy should exactly be focused on protecting those who have less from the impact of those who have more. Not because they're morally superior or anything, but just to try to keep things balanced because the people with the money already enjoy so many other advantages.

Moving is hugely disruptive to people's life, so the ability to plan expenses - both for property tax and in terms of rent control - has a lot of non-financial appeal as a policy. "Make people move when folks with more cash want to come in" is at best a somewhat heartless position, and at worse a major driver of homelessness.

[cheriot]

> "All because a bunch of people with more money than you are now willing to pay a bunch of money for your neighbors' places."

You're missing the part where city policy creates the housing shortage. It's the city that approves zoning for a huge number of offices and then refuses to allow more homes. The homeowners reaping these massive rewards are who vote in favor of the housing shortage.

There's easy ways to deal with the down sides of increasing property values. Delay the payment to sale or even tax the value from some number of years ago.

> Moving is hugely disruptive to people's life

The housing shortages in CA are doing this to renters and anyone else that's forced to move. Older couple that can't handle stairs, growing family, etc.

Prop 13 is a horrible way to address any of these problems.

[pc86]

Then you move. That's how it works; if you can't afford the property taxes, you can't afford to live there.

[seiferteric]

The image of 90 year old widows being forced out of their home was how prop 13 was passed so...

[Gibbon1]

Lot of other states have laws that either cap or defer property taxes for retired people. Not much reason California couldn't do the same.

[ak217]

Prop 13 would be fine if it only applied to retirees over the social security retirement age, and did not pass down the basis to their children.

[mehrdadn]

Ah, duh! I'm so dumb. If only the rest of us were smart enough to think of these simple and fair solutions ourselves :)

[HideousKojima]

Or abolish property taxes and fund cities with consumption taxes or some other tax

[yonran]

Property taxes are a consumption tax on the property that you occupy. Even better, the land portion of the property tax can also be considered a Pigovian tax because it is a tax on the natural resources that you are depriving others of occupying.

[avmich]

A more generic tax would be a wealth tax. Don't tax real estate at all; instead, tax net worth.

However, if all you have is a house in an area with rapid price growth, this change won't save you.

[dredmorbius]

Land tax is among, if not the most equitable tax there is.

[roenxi]

Taxes are pretty miserable. A person would be able to afford something. Then taxes happen. Now they can't.

There isn't a solution that is fair, the major activity in the debate over California housing seems to be people turning themselves in knots to find solutions where long time residents enjoy a high-demand city without paying for its upkeep. The goal is for long time residents to reap rewards without doing anything - there is no fair way to do that. It drives inequality too. Rich people tend to own lots of land for long periods of time.

> ...the rest of the city forces you to "enjoy" higher taxes you never demanded [...] or wanted...

I do not hesitate in pointing out this part of your post applies to most taxpayers. I personally disagree with most of what my tax money is spent on, and distrust the people who spend it. That is why it is taxed from me.

We should go with https://en.wikipedia.org/wiki/Georgism - it is fairest over the long term. Moving homes is not so terrible that it has to be prevented at all costs.

[oceanghost]

Is there a correlation though between city expenses and property values for large moves in property value?

Just because property values double doesn't mean the cost of pothole repair doubles?

[roenxi]

Pretty much must be, because the city is spending the money on something. If the city isn't using the money on something essential, they could reduce taxes.

Might be a struggle to get tax reductions past the voting public. But I think a bit of political elbow grease could get it done.

[refurb]

What’s really unfair is someone whose home goes from $100k to $2M, for a total capital gain of $1.9M gets a 90% discount on their property taxes.

The people with the greatest ability to pay are the ones getting the biggest tax break.

[jjav]

> The people with the greatest ability to pay are the ones getting the biggest tax break.

They don't necessarily have any ability to pay, which is the scenario that brought prop13 to life in the first place (low-income grandma kicked to the street by taxes).

Someone of modest income who bought a modest 100K house years ago isn't cash-flow rich today just because the paper value of their house went up. They are probably retired living on a small social security check and don't have much any ability to pay, let alone the "greatest ability".

It's fine to have different views on how society should handle this tricky scenario, but let's be intellectually honest with the core facts.

[lambdaops]

There are property tax postponement programs in California for that person and honestly, they should be downsizing: https://sco.ca.gov/ardtax_prop_tax_postponement.html

Also, I think low-income grandma was and always has been a useful narrative piece. Howard Jarvis, the author of prop13, was literally a lobbyist for apartments and businesses. Please watch The First Angry Man when you get a chance: https://www.kcet.org/shows/the-first-angry-man/episodes/the-...

[seiferteric]

The part that doesn't make sense to me is that if your property value 20x's, your value from tax does not go up by 20x, so why is property tax linked to the market value of the property anyway?

[mehrdadn]

Yes, as I mentioned, there are indeed two sides to the argument.

[leetcrew]

fortunately there is a financial instrument for exactly this situation: the reverse mortgage. it's kind of absurd to treat the quintupling in value of one's home as some sort of hardship.

[mehrdadn]

Unfortunately even the intro on Wikipedia explains some problems with reverse mortgages.

Not to mention that it's kind of a lot to force, idk, 80-year-olds to take out reverse mortgages just so they can keep living in homes they've already paid for and own. Though I guess it's not surprising if people half their age don't care about their burden.

[leetcrew]

maybe I'm being insensitive, but it sounds like a problem I would absolutely love to have.

[deepakhj]

why does it apply to 2nd or 3rd homes?

It’s an easy policy challenge. Let the person carry the tax until a sale. Or they can carry it until death. It should not pass to kids and the tax assessment is taken at the final sale.

[geomark]

Pretty sure that when tax payments skyrocket the quality of services do not. As per parent comment, the bay area is a good example.

[tzs]

The cost to the city/county to provide those local services does not depend on the current market value of my house or my neighbor's houses.

What the service costs depend on is how many houses are in an area, or how many people are in an area.

[cheriot]

The value of the house didn't go up because the owner did anything. So why should the homeowner reap such a massive reward? And now that they've won the lottery the rest of us have to subsidize their taxes! It heavily incentivizes people to vote in favor of a housing shortage.

It's gotten so bad in SF that high housing prices actually are driving up the cost of services. Every worker from barista to bus driver has to be payed enough to afford living here or to commute in.

[Gibbon1]

Lot of government services have a large labor component. The cost of labor is very strongly influenced by cost of rent. Rents increase along with property prices.

[bradlys]

I'd agree to some extent if it only extended to your verifiable primary residence. Sadly, it pretty much pertains to every property... regardless of who owns it and how much they use it.

[yonran]

> Why should your property taxes go up just because the market around you skyrockets, when this is completely outside of your control?

The fallacy of the argument for tax breaks to homeowners is that the problem of rising prices is entirely orthogonal to homeownership. Renters face the exact same challenge of affording to live in an increasingly popular place, except without the cushion of an appreciating asset and without any tax relief under Proposition 13. If renters and homeowners face the exact same problem, then clearly subsidies to property owners is not the solution.

The finances of homeownership should be decomposed into two parts: 1) the rental cost of the property, and 2) what fraction of the rent goes to the government in property taxation.

The remedy for rising rents is obvious: more construction of housing and rental subsidies to the poor. This is how to address the underlying problem for homeowners and especially for renters. Temporary rent controls and tax caps can also be helpful to provide relief for people who were caught off guard by the rapid changes. Note that the solution should help all those who are affected by the problem, not only the ones who own more assets.

When property values are rising, this is not an excuse to enact regressive tax breaks for property owners; that just makes inequality worse without solving the underlying problem of lack of housing, which then becomes worse for renters and future homeowners. Property taxation is the most progressive form of taxation available to local governments, and if anything tax rates should be increased when there is a property value boom in order to reduce the incentive to speculate on land prices and to raise money to solve the problems associated with inequality such as homelessness. Basically, when I bought a house in San Francisco, I paid a windfall of a few hundred thousand dollars to the previous owner, who took that money out to a different county. It would have been better for the city to collect that money and use it to incentivize housing construction and subsidize the poor in the city, rather than to let it be lottery winnings to the person who left.

[twblalock]

Maybe the solution is to stop making property tax the main way that cities are funded.

Among other things, this method of taxation tightly couples school funding to local home values. Areas with expensive homes have the best schools. (And areas with cheap homes have bad schools, which is not really what you want if you are trying to do something about inter-generational poverty.) This is self-reinforcing because now parents compete with each other to buy homes that are located in the best school districts, which drives up prices even more.

When home values drop, such as they did in 2008, property tax revenue drops too (Prop 13 is not a one-way ratchet, you can get re-appraised and lower your taxes, and 2008-2009 was a pretty convenient time to do that).

It doesn't seem like a good idea to base city revenue on something that is so undependable, especially something that is so often treated as a speculative investment.

What I would rather do is come up with a system where a simple tax is paid per parcel, perhaps a flat tax or one based on the size of the parcel, and which is not based on the market value of the parcel.

The rest of city funding can be covered by income tax -- unlike the current system, at least that has a chance of being progressive. No old people will be priced out of their homes by tax increases, and school funding would be distributed somewhat more evenly because not all high earners live in the most expensive areas. And if you are worried about an influx of high earners flooding into your area and driving up the prices, a local income tax would certainly discourage them.

[babesh]

This comment is wrong on a fundamental basis.

Richer areas get less state funding than poorer school districts. These districts have to scramble to just narrow the gap rather than have more funding.

The richer areas have higher scoring schools because wealth correlates with school scores probably due to a combination of natural ability and a more conducive parental and community environment (all multiplicative and compounding over time]. A change in taxes does not affect this one iota.

There are already flat rates paid per parcel in many cities.

There are age over 55 exemptions for certain parcel taxes to raise money for schools.

An income tax per parcel does not scale. How do you tax rentals? Who pays the tax for rentals? What if you want to own multiple homes? What if you are buying a house for your parents to live in?

[thaumasiotes]

> The richer areas have higher scoring schools because wealth correlates with school scores probably due to a combination of natural ability and a more conducive parental and community environment

True enough.

> Richer areas get less state funding than poorer school districts.

Also true.

> These districts have to scramble to just narrow the gap rather than have more funding.

The necessity of narrowing the gap is not at all obvious; as you point out, test scores correlate with local wealth. But test scores also correlate with per-pupil spending -- and that correlation is (1) small; and (2) negative. This is easy to explain with the model "poor students attract spending", but you also need the coda "...and it doesn't accomplish much".

[babesh]

They need enough to pay for teachers, administrators, facilities, and the supplemental education that better off folks love: debate, music, sports, speech therapy, early reading help, etc... That extra money has very high return.

[twblalock]

> An income tax per parcel does not scale. How do you tax rentals? Who pays the tax? What if you want to own multiple homes?

I was not proposing an income tax per parcel, I was proposing a flat tax per parcel and also an income tax on everyone who lives in the city.

Parcel taxes should be paid by the owner of the parcel. Income taxes should be paid by the earner of the income. It's not hard to deal with.

[babesh]

There are already flat taxes per parcel.

So you are taxing an owner of a rental on their total income rather than the income they earn on the property?

[babesh]

What if a corporation owns the property? If you do this, I would transfer the property to a corporation and then rent it back to myself for a $1 a year. The corporation would have only $1 of income per year.

This is so badly thought out.

[twblalock]

No, I'm proposing taxing city residents on their income regardless of whether they own or rent. If the owner of the parcel doesn't live in the city then he wouldn't pay a dime of income tax to the city -- he would pay the parcel tax to the city where the parcel is located, and he would pay income tax wherever he lives.

[toast0]

In California, cities are totally independent of school districts (except in that San Francisco is a combined county and city and its city counsil and mayor are also its county board of supervisors, and county boards and the state school board both supervise school districts).

School district funding in most districts is property taxes supplimented with state funds to a specific level per student. There are a small number of school districts that have property tax revenues above that, but most don't. IIRC, in the sf bay area, Santa Clara, one of the Palo Alto districts, and maybe one or two others are not getting state funds, but I think Cupertino is on the state funding schedule, and is well regarded.

Only the hardest hit counties like Fresno saw property tax decrease in the 2008 time frame. Although market values dropped, many properties were still below their capped assesment, and so their taxes would increase either by the yearly cap or because they were sold and triggered a fresh assessment. I don't know about other counties, but Santa Clara's assessor did assess down automatically; but the tax rolls still increased. So in that way, it's a lot more dependable than an income tax.

[bradlys]

> It doesn't seem like a good idea to base city revenue on something that is so undependable, especially something that is so often treated as a speculative investment.

Isn't property tax a pretty reliable source of income?? I thought the income tax was an unreliable source of income because people can't always be relied on to generate income... but they do tend to pay their property tax.

[lambdaops]

Wealth should definitely be taxed, especially land wealth. It's super easy to hide money in land wealth if you don't tax it. We need land to go to the highest best use for cities. Otherwise you end up with terrible strip malls, low density housing, and traffic everywhere.

Whoops, I just described Santa Clara County. And LA.

[SamReidHughes]

Because everybody else's does.

If ownership transfer didn't reset the rates, it would be a slightly different story.

Edit: In that, it'd still be something that makes an economist cringe, and it'd still be "unfair" but in fewer ways.

[creato]

Property taxes going up would be a negative feedback on property values. Perhaps part of why property values are so absurdly high is because there is little incentive to sell, which would add more supply to the market

[twblalock]

There is actually a negative incentive to sell, because your property taxes will almost certainly go up if you buy another home.

It's gotten to the point that we have ballot amendments carving out exceptions for senior citizens, so they can take their old property tax rates with them when they buy new homes, but only if they move between certain counties that have a reciprocity agreement, blah blah blah. Clearly not the kind of policy a sane system would result in.

If you've owned a home in California for more than about 20 years, and you aren't in one of the senior citizen categories that is exempt from tax increases, it just doesn't make sense to sell your home unless you leave the state.

[arrosenberg]

> It's gotten to the point that we have ballot amendments carving out exceptions for senior citizens, so they can take their old property tax rates with them when they buy new homes, but only if they move between certain counties that have a reciprocity agreement, blah blah blah. Clearly not the kind of policy a sane system would result in.

And there is another ballot prop on this years' ballot (prop 19) being pushed by the Realtors' Assc. to expand the '86 law to include all properties within the state, rather than just county, and to cover up to 3 moves instead of 1.

[babesh]

That’s a scam like most of the other propositions. Most of this year’s propositions are poison laced candy. They offer you one thing and take away something far more valuable.

Go read the whole proposition. They supposedly let you do it 3 times. That is the candy. Too bad many counties already let you do it once. So you haven’t gained much if anything. The poison is transfer to children resets the property tax for anything over a million. Now read each proposition and find the candy and then find the poison.

[CyberDildonics]

If everyone owed a percentage of the same total, they wouldn't have to go up.

[refurb]

The home owner is benefiting from increased home value and is still enjoying the services offered by the city, so why wouldn't they pay more?

[georgeecollins]

1) One of the reasons why prices skyrocket is because people who would feel the pinch of the rising prices and probably move, don't. 2) Nobody has the right to own an asset for pennies on the dollar indefinitely. Because property tax rates are heritable and transferable geographically (once you reach a certain age and only in certain counties) you are creating a tax advantaged class of people in California.

[Enginerrrd]

>2) Nobody has the right to own an asset for pennies on the dollar indefinitely

That's a ridiculus assertion. When I buy something, having paid income tax and the government gets paid the taxes on the sale, why should I have to permenantly rent that item from the government?

If that logic applied to you car and computer and clothes, and prized heirlooms from your family, I think you'd object. Thats a fundamental assault on freedom and property rights.

Taking it to the extreme, it means ONLY the very wealthy could ever own things like land and that is just a fundamentally unamerican idea.

[arrosenberg]

> That's a ridiculus assertion. When I buy something, having paid income tax and the government gets paid the taxes on the sale, why should I have to permenantly rent that item from the government?

Upkeep != Rent. The government uses that money to pay for the roads and services, mainly police and fire (you know, the people who protect your property).

[Enginerrrd]

So tell me then, what happens if you don't pay the "upkeep" fees?

[rrdharan]

There are actually a number of people who draw the distinction between possessions and land exactly that way. I.e. the argument would be that land ownership should never be allowed.

It’s not an immediately farcical concept from first principles.

[nathanvanfleet]

America is so setup for people who already have theirs. It's mind boggling

[babesh]

Do you know who voted it in? It’s not an officeholder. The voters of California voted for it. You want it changed? Go get a proposition to repeal it into the ballot and get it approved by the voters.

It’s as simple as that.

It wasn’t designed this way. There was a complaint that elderly were being driven from their homes by high property taxes.

[lambdaops]

Whenever you hear someone bring up the "elderly being priced out" issue, please point out the property tax postponement program: https://sco.ca.gov/ardtax_prop_tax_postponement.html

[ladberg]

I found a few places in Beverly Hills where people were paying over 100x less than their neighbors, which is insane. I wonder if posting screenshots of this map up in various neighborhoods showing nearby inequality would be enough combat the "poor old grandma getting kicked out of her house" counterpoint that's pretty much entirely fictional.

[lambdaops]

Note: seniors can use the property tax postponement program https://sco.ca.gov/ardtax_prop_tax_postponement.html