Proposition 13: A tax law worthy of its own documentary
It's probably safe to say there's no other property tax law that has its own documentary on Amazon. That will immediately tell you something about how exceptional this is.
Every state in the US (that has a property tax) does it one way. California does it a different way.
How it works everywhere else: Your home is reassessed every so often -- usually 1-4 years. If it has gone up in value, congrats! You are now wealthier. But your taxes go up too to compensate.
How it works in California: Your home's assessed value is frozen at the moment of purchase. Even if it skyrockets in value, it will not get reassessed as long as you own it.
The upshot: The houses that have grown in value the most - making their owners millionaires just by the virtue of happening to buy a home in the right neighborhood - also get the largest subsidies. People trying to buy their first homes, laden with large mortgages, get no subsidy.
Paid for by your kid's education
Why does this matter? Property tax pays for one very important thing: K-12 education. In most jurisdictions a minimum of 40% goes toward education.
In other words: This subsidy, primarily benefiting wealthy homeowners, is paid for with lower teacher salaries, larger classroom sizes, and deteriorating facilities.
Reform is on its way
The good news is that after 4 decades momentum is building to overturn Proposition 13.
Prop 15 is an important first step to reforming property taxation in California. It essentially unravels the subsidies for large commercial properties. You should vote "Yes" on Prop 15.
But commercial property is only a fraction of the story. Most of the property wealth, and therefore most of the subsidies, sit on the residential side.
We must continue to fight for a more progressive California.
What does reform mean? will people lose their homes?
Californians are justifiably concerned that any Prop 13 reform will cause people to lose their homes. Not everyone can pay for a sudden increase in property taxes overnight, particularly elderly on fixed incomes.
Reform does not necessarily mean that taxes go up to market value immediately. There are a number of ways to reform Prop 13 that also keep people in their homes, while still ending large subsidies for the wealthiest individuals in the state. Potential approaches include the ability to defer tax until the natural sale of a home (which, for anyone with a large subsidy will also mean a large profit on sale). Other states have employed this approach successfully.
We will look at options and implications for reform in a future post. Sign up below to be notified when that comes.