This is a guest post from WirePoints founder Mark Glennon.
Coveting California? Beware Its Perverse Tax Envy
Many Illinois progressives openly favor California’s progressive income tax structure and Governor-elect Pritzker is committed to taking Illinois at least partially in that direction. Something like California’s approach is key to solving Illinois’ fiscal crisis and funding a wish list of new programs, we’re often told.
But guess what’s happening in California. Progressives are making headway steering their state a little more in Illinois’ direction on an additional revenue source. They want property tax increases made easier – something that’s been off limits in California for 40 years. That’s where Illinois has excelled, taking its property tax rates to about the worst in the nation – twice the national average.
The Tax Foundation ranks California second worst among states for income taxes. Its one-percenters pay almost half of all its income tax, with rates up to 13.3%. What more could Illinois progressives hope for?
California property owners have been protected, however. Proposition 13, passed in 1978, imposed tough restrictions on frequency of reassessments and maximum annual tax increases for many properties. Since then, messing with Prop 13 has been a political third rail. Even California’s notoriously liberal lawmakers have been loath to touch it.
Not any longer
“Proposition 13 is no longer off-limits in California,” said a headline last week in the San Francisco Chronicle. Proponents of chopping Prop 13 down now claim to have enough signatures to get an initiative on the ballot in 2020 that would pave the way for an additional $14 billion in property tax revenue, according to the Chronicle.
And in the legislature, a constitutional amendment is pending that would takes aim at Proposition 58, part of Prop 13’s legacy, which voters approved in 1986. The amendment would eliminate Prop 58’s provisions insulating children from spikes in property taxes triggered by reassessments when parents die.
Perhaps not surprisingly, one of the primary activists behind the proposed changes to Prop 13 is a former Chicagoan, according to the Chronicle. That’s Catherine Bracy, executive director ofTechEquity Collaborative, who moved to California from Chicago six years ago. Says Bracy: “For newcomers (to California) like me, who were born after Prop. 13, we want to experience the California dream, too. But we don’t have the opportunity to, because all the goodies have been locked up by the older generations.”
Maybe Bracy has been inspired by developments back home. Illinois property tax rates often exceed 5 3%, 4% and 6% per year on homes, and often far higher on commercial property. With property values remaining exceptionally high in California, there’s a gold rush in waiting for tax collectors.
And since California, like Illinois, has more people moving out than moving in, maybe she’s keeping up on the rationale for taxing property in a shrinking state. Property can’t flee, so seize it. That the reasoning behind that idea for a statewide property tax in Illinois, detailed earlier this year by three economists from the Federal Reserve Bank of Chicago.
Also not surprisingly, the League of Women Voters is playing a major role in the attack on Prop 13. As in Illinois, the League in California apparently tossed its identity as nonpartisan and became a left-leaning activist operation.
Among the “ways that Prop 13 sucks,” as that outfit wanting higher California property taxes put it, is that keeping property taxes down forces California to raise taxes in other ways.
But is conditioning higher property taxes on cuts to other taxes part of the proposal?
Nah.
Isn’t that the lesson? Will anything ever be enough?
Mark Glennon
Mish Comments
- Our plans to escape Illinois are progressing. Either 2019 or 2020 is highly likely.
- Illinois will no doubt pass more tax hikes.
- All the money will go to Illinois pensions, and they will still be insolvent.
Pertinent Notes
- Each Chicagoan Owes $140,000 to Bail Out Chicago Pensions
- Illinois Pension Benefits, Other Promises, and Insolvency
Mike “Mish” Shedlock
Prop 58 not only covers parents to children transfers but also brother to sister type property transfers. Prop.13 and 58 protect buyers of new property the same. How stupid can some people get?
I give it one or two more years before we walk. We moved to California in 2009. Recently due to layoff our household income has dropped by 33% and no equivalent paying jobs after 9 months out of work. There isnt much keeping us here as the partnership my spouse is in now exists in other states.
“For newcomers (to California) like me, who were born after Prop. 13, we want to experience the California dream, too. But we don’t have the opportunity to, because all the goodies have been locked up by the older generations.”
The greatest idiotic statement of all time. What goodies is she talking about? Can she define “goodies”.
The collectivist Marxist mentality in the state will drive more business out with this move. Where do they think the businesses higher costs go? It is either raise their prices or move out of state.
They cannot yet outright take your business like their dreamland Marxists hero’s in Venezuela but they can make life miserable for workers yet by driving the high paying jobs out of state. All that will be left is retail, food, and the tech industry that ruined the state in the first place.
The state is full of these handout orientated people. There is only one direction for the state in the next decade, the toilet of the third world.
these people are traitors to the country and need to be treated as such. no mercy!
I’m in California and one of the key drivers that made me buy a house was Prop 13. If it goes, I go.
‘… became a left-leaning activist operation…’ The League of Women Voters is an extraordinarily leftist organization. Only the MSM considers them ‘nonpartisan’ in the same way Planned Parenthood is a ‘healthcare organization’.
As someone who has lived in both Chicago and California, I’m gleefully sitting back watching them collapse under the weight of their idiocy. Three years ago when I paid the taxes on my 20 acres here in Rural Nowhere, I was laughing my ass off in the county collector’s office. He asked what could possibly be so funny. I told him that nobody in the world was going to believe that I paid my taxes by cleaning out the ashtray in my truck. I gave him $6.57 in coins and got my receipt. After getting my house and shop built, my taxes skyrocketed to $273/year. It was costing that much every TWO WEEKS in Chicago. Long live Rural Nowhere!
I was a Californian when prop 13 passed. I clearly remember why it passed: People were being dumped in the street due to forced sales of their homes being driven by runaway property tax increases, a function, in turn, of people trying to find something tangible to invest in that politicians couldn’t raid with taxes. Prop 13 passed in 1976 and locked the progressive piggy bank; The left went wild. They’re back because many of the current crop of progressives live in mom and dad’s basement and could care less about the obscure property tax thingy.
Nothing works in isolation. The piggy bank was only locked for a short while. Then other ways were found to transfer money to the government to spend wildly, including sales tax bumps, increased bridge tolls, a plethora of fees, regular bond issues, which generally get voter approved and much more.
So maybe real estate owners benefited nicely from Prop13 but EVERYONE in the state now pays much higher fees and rates for nearly everything, reducing the quality of life overall for everyone.
people should be revolting and we should refuse to pay these insane taxes…the last thing we need are people that blame other people for why taxes are as high as they are…it wouldn’t matter how high taxes are…they always want more.
Many in CA have had a 40 year tax holiday.
Its well overdue on reforming it!
The legslation is only asking commercial property owners pay their fair share. Instead of paying half with residential, they have slipped to 28% through tax loopholes.
“Many in CA have had a 40 year tax holiday. Its well overdue on reforming it! The legislation is only asking commercial property owners pay their fair share.”
The state has had a spending binge and spending reform is well over due. There is no such thing as paying a fair share of spending one didn’t vote for. Democrats want to create more and more benefits, which come out of the pockets of the working tax payers and lowers their standard of living. Eventually, the middle class will be virtually eliminated, due to the higher and higher taxes. At some point there will be a tax revolt, just as there was with Prop 13.
you are a complete f ing idiot…it is idiots like you that got us into this disgusting mess. taxation is theft…period!
“Something like California’s approach is key to solving Illinois’ fiscal crisis and funding a wish list of new programs, we’re often told.”
I see France, which just had a tax revolt. That will be the ultimate solution. The question is when it that point reached in Illinois? How many middle class income people want to live in near poverty, due to the taxes they will be paying? Frances tax rate reached 46%.
A good proportion of those California tax receipts from the 1% are on capital gains from stocks. With the poor performance in the markets this year, watch out for the next California budget crisis as that cash spigot gets shut off.
+1
That’s the big elephant in the room. Just as it was in (remarkably similar to current USA) Argentina pre 2001: An enormous chunk of what counts as income, and hence spending/revenue, is simply “earned” by people receiving a cut of increasingly pumped up asset values. From stock and real estate brokers, to Jimmy Choo peddlers on Manhattan and Tesla salesmen in San Francisco. Such that price-to-earnings have virtually ceased to have any value at all, as a means to measure sustainability of current asset prices.
When/if the bubble goes into reverse, or even just the rate of growth of the bubble slows……. boom, there goes income, and spending, right alongside it. In Argentina, it took a 2/3 cut in real purchasing power to reach “sustainable” (loosely defined, Latin American standards….) incomes from a competitiveness perspective. And it is honestly hard to see where Americans anno now are living any closer to their means, than Argentinians did back then. Being less constrained wrt simply printing debt away, may allow the US government to keep up the pretense a bit longer, but that’s really about the only difference there is.
I lived in Argentina in the late 70’s when they were at the tail end of one of their hyperinflation fiascos. I had lunch one day with a little old Italian lady friend. She and her husband financed their retirement by buying a second house free and clear, then renting it out. When she was in her late 70’s, he passed away and she didn’t want to be bothered with the rental house any more. She figured she was close enough to the end of her days that she could sell the house, put the money in the bank and live off the interest. It sounded like a good plan to me. Then she leaned forward and on the verge of tears she asked me, “Do you know how much I sold the house for? One million pesos!” I thought to myself, “Holy shit!” In the few years after she sold the house, hyperinflation set in. As I listened to her story, my back pocket was loaded with lots of million-peso notes. They were worth $3 each and would buy lunch at any deli in town. I think of this story every time I think of the unsustainable debt path this country and so many states are on.
My former business partners living in California, all of whom were in the highest sur-charge tax bracket, used to justify – partially at any rate – their willingness to pay the steep taxes because Cali offered them lifestyle and weather/climate advantages they could find nowhere else. Illinois will only see the exodus continue if /when they adopt a higher progressive income tax scheme. Illinois offers no lifestyle advantages that I can see. I’m speeking as a 50+ year FORMER Illinois resident who fled two years ago.
How much of these shortfalls on pension liabilities are due to the fed keeping interest rates too low for so long? I remember 5% interest on savings accounts back in my youth. And 16% mortgages, yet somehow people were able to buy homes. That assumption of 8% on your money isn’t so far out of reach in that environment.
The miracle of compounding has been completely eliminated by Alan Greenspan and the modern fed. All to keep the stock market bubble inflating.
IF taxes are to be collected at all, property ones are far and away the most efficient, just and non distorting of the bunch. It is THE way to raise revenue for geographically constrained states. Anything else, with the possible exception of completely non discriminatory tariffs, are just arbitrary theft; inefficiently administered.
Of course, any time taxes, and spending, are already an order of magnitude higher than the maximum possibly sustainable by a civilized society, further increases simply cannot help but digging the hole even deeper.
Besides, any widespread “dream” ended once and for all with Nixon handing 100% complete unconstrained access to Americans’ wallets to Goldman Sachs. Until that insult is fixed, “we” may as well sit back and enjoy a takeover by ISIS.
The rule for taxation is “tax what you want less of”. Do you want less income? Less sales? The nice thing about property is that the amount is fixed, so you can’t have less of it, you an only have lower values for it.
Who calculated Chicago’s official numbers? Fitch?
Bernie Madoff.
🙂
At least California’s population is increasing, although more Illinois transplants like this one may put an end to that. Of course, you’re always welcome to join us in the People’s Republic Mish.
2banana’s Rule:
Democrats in power + public unions + free sh*t army = misery, ruin and bankruptcy
It is too bad when liberals/progressives ruin states they are allowed to move to red states and vote for the same type of policies and politicians that they are “escaping” from…
Absolutes are always wrong. I might say that Jojo’s rule is that all Republican’s suck but that wouldn’t be true. Just as you are wrong. For instance, consider Jerry Brown’s recent 8 year reign in California:
“Now 80, he’s still an idealist but one who during the last eight years championed fiscal moderation, a position that sometimes put him at odds with fellow Democrats who wanted more social program spending. Yet Brown’s popularity surged as he took the state from a deep budget deficit when he entered office to a surplus and $14.5 billion socked away in a rainy day fund.”
Deduct the amount of loot The Fed has handed Californians by way of unearned capital appreciation over the past decade, and those $14.5 billion, is little more than a pittance. Not a fault of Brown per se, but even the drunkest of sailors would have had a hard time burning every trillion the Fed has pumped into artificial, hence ultimately paid for by others, stock and real estate gains in Cali since Brown’s most recent reign commenced.
Combine that with the more general rule that Democrats and Republicans are no longer any different at all, and you’re just about starting to get somewhere.
End Prop 13? Hardly! Maybe author should read more about it before posting this misleading story. What actually has been proposed regarding Prop 13 are:
Both ideas have strong merit. There is no reason that businesses should have been included in Prop13 at all, IMO.
Just as there is no reason non businesses should.
What could be better than further incentivizing businesses to leave the state?
People renting out their property for “huge” profits in a perpetually expensive state?! Oh no!