patrick.net

dunnross,

repealing the 2/3 rule would be very welcome. It is a recipe for gridlock. But America's rulers love gridlock. That is why we have the god-forsaken 2-party system. But I digress.

>>Wow, this just in: Ca. needs to be bailed out by the fed.

Well, we just need to re-incorprate as a bank holding company, and we should be in business with the bailouts.

Geitnher is skeptical, the news says. Why? Only banks are good enough for him? Bah.

If prop 13 and the 2/3rd rule get booted as contingencies for fixing this mess, it is cause for celebration!

Prop 13 must be repealed. It has created way too many problems. In addition to adding to state revenue volatility, it encouraged people to vote for all kinds of perks that they weren't in fact paying for. To paper over things, the income tax rate was raised to the second highest in the country. Reducing the income tax rate in conjunction with reforming prop. 13 would go a long way towards making us more competitive and lowering revenue volatility.

I posted this over at Ben's blog earlier, but it really fits in this thread.

There’s one really interesting possibility vis-a-vis Prop. 13….

Next week the CA supreme court will issue a ruling on Prop. 8 (banning gay marriage). At heart is the issue of whether Prop. 8 contained more than one “issue” and therefore is an improper initiative measure.

If the CA supreme court tosses Prop. 8, that gives precidence to toss Prop. 13 too. Prop. 13 contained (a) a measure limiting property taxes AND (b) a measure requiring a 2/3 majority vote in the legislature to increase any taxes.

Can you imagine the storm if a court invalidated Prop. 13?

"Remember, you will be old someday too. I think the rage against the Boomer is misplaced. They are the ones that built this country into a world leader. Take a look at the infrastructure, the college system and the inventions and advancements. It was the Boomer that layed it all out."

Lies.

The strength of the US was built by the boomer's parents -- the people who fought and died during WWII. Our strength came from the fact that, post war, we were one of the only wealthy nations that didn't have to rebuild our infrastructure from the ground up.

In my giddiest dreams, DennisN!

Someone had said that California is one of the biggest spenders in public education. You could not be more wrong.

The statewide average per pupil expenditure hovers around $9000 per pupil and has been cut for next year. A few weeks ago it was also retroactively cut for this school year, and it is unclear how the schools will manage to handle that one gracefully. Um, you know that money we gave you for this school year? Well, um, I know there are only a few weeks left, and probably you allocated it all months ago, but we're going to need a chunk of that back.

By comparison, New York State was spending $14000+ per pupil in 2006. Now, as everyone knows, New York is expensive. Like California. So it may be more meaningful to say that Nebraska, Wyoming, North Dakota, West Virginia, and New Mexico also spend more per pupil than does California. We were about 33rd in 2006, before the recent cuts to California education. Most of the states spending more per pupil have a significantly lower cost of living, so in addition to actually giving schools more money, the money goes a lot further.

http://febp.newamerica.net/k12/rankings/ppexpend06

So, no, California schools are nothing like flush with cash. We are rapidly dropping from 33rd in a state where money does not go far in the first place.

It's said that California is one of the highest taxed states. Actually, it's true, but people who say that are despicable, because they only tell 1/2 the story. The only reason taxes are so high at the state level is that they've been shot in the kneecaps at the local level by Prop 13, and the state now funds local spending that cities are prohibited from raising.

Of course Prop 13 should go. 2% increase per year, below inflation??? What that really means is that property taxes to DOWN every year if you squat on your property, pass it to your kids through a trust, etc. What kind of logical tax policy has taxes required to go down every year?

If I bought the home I'm renting from my landlord, I'd have to pay 10X the taxes he pays.

People that support prop 13 are your political enemies if you are not a homeowner. Make no mistake about it.

That's not to say I'm for higher taxes, just fair taxes. Spending is way out of control. Just go to usgovernmentspending.com. How the hell does spending for pensions for state workers go from 8 to 22 billion, nearly *triple* in ten years, when the population has only gone up 15%? Simlar numbers for spending on prisons.

Oh, you want to see how much correctional officers make? Go to http://www.mercurynews.com/salaries, and enter a random common last name. $100K is very common, but there's quite a few pulling in $150K or $200K thanks to overtime pay, a badly abused system.

Oh, that doesn't include their defined benefit retirement plans, which essentially do not exist if you're unfortunate enough to work in the private sector.

But of course Sacramento won't talk about cutting salaries and entitlements. They talk about releasing prisoners instead. The unions are way, way too powerful to even mention pay cuts.

Prop 13 was a simple response to out of control gov't spending. The average citizen normally simply cannot fight the combined power of public sector unions, their clients, and other gov't hangers on.

what else could they do? All the public has left are the bluntest of instruments to express disapproval.

And now, CA has a 10% income tax and a 9% sales tax. And the state is out of money. How could that be, in the most successful state in the nation on so many levels?

Simple - illegals.

The CA politicians in DC have been, in general, some of the post pro-immigration and anti-border-enforcement politicos in the country. Well, now you have what you aksed for. Illegals driving up costs for government at every level - health care, education for their children, prisons, etc. And CA has more than any other state.

Yet still, there is no howl of protest from the state citizens. It is as if you all are living in a dream. Or simply cannot perform the most basic powers of observation and reasoning.

some of those citizens recently rejected all the tax hikes. They know that the problem cannot be solved by higher taxes. More and more illegals will absorb the benefit of higher taxes (although higher taxes will probably do more harm than good at this point, given how uncompetitive CA is and will continue to be compared to so many other locales). In any event, until illegals are kept out, and those that are here are sent home, the public has every right, and indeed obligation, to vote against raising taxes.

The CA and national press are silent on the issue. Damn you all! Your children and grandchildren are being robbed of their birthright by your narcistic-feel-good political correctness that substitutes short term feel good ness for the hard decisions that need to be made. And your greed.

CA has always been about 5-10 years ahead of the rest of the country on so many trends. The wave of government insolvency will be crashing to a town near you.

Don't say you weren't warned.

I'm not sure it's illegal aliens.

I would like to see the amount of money spent on pensions and benefits for retired state workers. I bet that's where a bigger chunk of the money is going.

Anyone know exactly where I can find a breakdown of the California budget in clear terms?

Patrick,

I think the Governor's budget page might be a good start for a breakdown of the budget:

http://www.ebudget.ca.gov/agencies.html

Not sure if that provides "clear" terms as I can't make sense of the breakdown.

cresty21 Says: "And now, CA has a 10% income tax"

Not exactly.

For a married couple, the first $87,000, which is well above the median, are taxed at ***2.7%***, then after that 9.3%. Yes, it taxes high earners the most by far, and that's part of the instability of the revenue that largely comes from stock and bonuses when times are good (for high income earners anyway). But calling it 10% is another 1/2 truth, 1/2 lie, which is pretty darn close to a lie in my book.

Simple - illegals.
The CA politicians in DC have been, in general, some of the post pro-immigration and anti-border-enforcement politicos in the country. Well, now you have what you aksed for. Illegals driving up costs for government at every level - health care, education for their children, prisons, etc. And CA has more than any other state. "</blockquote>

And...more lies!
Yes, there are quite a number of illegals, but there are a lot of illegals in arizona, new mexico, and texas as well. The problem is that we're spending too much money. If an illegal immigrant is getting government benefits, you need to be blaming the people that voted to have those benefits, not the poor migrant workers who are just trying to make a better life for their children.
More than 85% of california's taxes are direct taxes on income and expenditure. We place virtually none of the tax burden on corporations (less than 10% of the total) or wealth (less than 3%) In most states, around half of tax revenue comes from income and expenditure. In other words, we go out of our way to punish working people for the benefit of retirees, the unemployed, and the upper class.
This is because we ignored the good examples set by the rest of the country and don't have a real representative democracy. We let the people vote on everything, and unfortunately the people are too stupid to understand that you have to balance benefits with taxation. You can't have low taxes and still get all the benefits.
As a result, we now have terrible benefits and still pay outrageous taxes. Our cost of living in many areas has gotten so crazy that we have to pay police officers and bus drivers six figure salaries just so that they can live within the city limits. That, in turn, makes everything else more expensive, and drives our property prices through the roof.
The state is completely screwed, but it's not because of 'illegals'.

"The CA and national press are silent on the issue. Damn you all! Your children and grandchildren are being robbed of their birthright by your narcistic-feel-good political correctness that substitutes short term feel good ness for the hard decisions that need to be made. And your greed."

My children are being robbed of 'their birthright' by people who refuse to actually cut spending on crap that the state government has no business providing, but also refuse to pay for it. I'm dumping in excess of $15k a year into state taxes a year and my son is being educated by someone who isn't worth 15 cents. Meanwhile, I can't afford to buy a place because prop 13 has skewed property prices completely out of my reach, and yet this stupid government is spending $100 million to try to boost property prices.
California is going bankrupt and yet people just yell 'illegals!' as if that justifies refusing to cut spending. The only real area where legals clearly add cost to the system are the education of their children, who are citizens. Of course, if we have a decent educational system those children will grow up and become productive members of society and will yield a nice return on that small investment. Too bad people are more concerned with property taxes than they are with real reform.

Social Security has absolutely no impact on the problems that CA is facing. It has its own problems (namely that it isn't solvent in the current funding model), but it's relatively easy to fix it if we can get some rational legislators willing to make the tax / benefit tradeoffs necessary to stay solvent.

Of course, if we don't get competent people in office who are willing to make the politically sensitive decisions, we're all screwed. Sadly for those of us who are nowhere near retirement, the AARP is going to make sure that we get pulled into the 'pay more' bucket.

Krugman just wrote an interesting article on this:

http://www.nytimes.com/2009/05/25/opinion/25krugman.html?ref=patrick.net

MarkInSF,

Exactly. Exaggerating the amount of taxes that people pay has always been a favorite tactic of the anti-tax crowd. Apparently the truth is not good enough to prove their point.

Kevin,

>>This is because we ignored the good examples set by the rest of the country and don’t have a real representative democracy. We let the people vote on everything, and unfortunately the people are too stupid to understand that you have to balance benefits with taxation. You can’t have low taxes and still get all the benefits.

Amen to that, and to the rest of what you wrote as well.

California is chock full of people that think that the reason they are not fabulously wealthy is (a) all them damn illegals using up all the state's money (b) they would be, if only there were no taxes (c) the gubbermint is holding them down and preventing them from realizing their potential.

Yeah, right.

Prop 13 is the most unfair piece of legislation of which I am aware, state or federal.

If you don't like Prop 13 then vote for change. Stop squawking about it and do something. As for me, I don't have a problem with it. I'll vote in favor of it because I don't think it's fair to kick old people out of their houses. But that's just me, you should vote your conscience. If Prop 13 is repealed I can deal with that too. I don't really have a dog in this fight.

>> If you don’t like Prop 13 then vote for change. Stop squawking about it and do something.

If it came to a vote, I would. But, unfortunately, Prop 13 still has popular support. In the meantime, I do what I can to "educate" about the inequities of Prop 13.

>> As for me, I don’t have a problem with it. I’ll vote in favor of it because I don’t think it’s fair to kick old people out of their houses.

That is the justification given by many to keep Prop 13. But the problem is that the law is so overbroad, it does much more than just "keep old people in their houses." It also subsidizes (in increasing order of unfairness, IMO): (1) younger people who could afford to pay higher property taxes, (2) younger people who receive their homes via inheritance, (3) individuals who rent out their homes to tenants, and (4) commercial property owners.

Property taxes help pay for local services, like police, fire, schools, etc. When somebody in a $1 million house pays $1,000 a year in property taxes, while neighbors pay 10 or more times that, for the same services, that is grossly unfair.

And as to the "keep old people in their houses" argument, if you believe that to be a noble cause, then there are ways to repeal Prop 13 but help such people out. For example, you could charge them reduced taxes, but any accumulated tax shortfall must be paid at the time of sale, inheritance, etc., of the house.

NJ,

>>but any accumulated tax shortfall must be paid at the time of sale, inheritance, etc., of the house.

Exactly, It would be interesting to see how many seniors would suddenly decide a move would be more prudent once the taxes started accumulating.

http://finance.yahoo.com/news/Borrowers-with-good-credit-apf-15376981.html/print

"The mortgage crisis is spreading and hitting new heights:
Borrowers with good credit now make up the largest share of foreclosures as
job losses and pay cuts exact their toll.

A record 12 percent of homeowners with a mortgage were behind on their
payments in the first quarter, the Mortgage Bankers Association said
Thursday. And the trend is predicted to continue until the end of next year,
about six months after unemployment is expected to peak."

I am really not surprised. Propertyshark really opens my eyes to how these neighbors and people around me can afford $1.8M, $2M dollar homes on an average worker bee salary. Basically if you see someone carrying a mortgage larger than $1M, you can safely assume that he does not have that money, because you lose all tax advantages beyond the first $1M.

For example, there was a recent murder in Cupertino, the homeowner bought a $2M home (wife accountant, not partner, just accountant, husband hardware engineer with no prior IPO ticket), and tried to be cheap with the gardener, who popped and gave the wife a fatal stab. Why? Because the family took on far more loan than they could afford ($1.xM mortgage), and the wife was trying to pinch pennies in other areas. It turned out that the gardener was an illegal alien, and the wife tried to turn him in AFTER he did all these jobs so that she could skimp. Now I am pretty sure that home will go into foreclosure with the wife gone.

It is just amazing how these $200K, $250K income families suddenly thought they were all rich, and step up to the lifestyle of the rich and famous. Now we all know who are swimming naked.

OO,

Interesting to see if forclosures and sane credit standards will cause the formerly $2m homes to fall in price enough to actually affordable by a family with a $200k annual salary.

Willy: "I’ll vote in favor of it because I don’t think it’s fair to kick old people out of their houses."

Ug. Please.

First off, how does that justify a *corporation*, which never dies, having their property tax fade to 0 over time (does not keep up with inflation)? Or landlords for that matter. If I wanted to compete in the rental housing business, I'm put an extreme disadvantage to those that have held property for 30 years. Free market zealots *love* prop 13, but actually they are complete hypocrites, because what they really love is the the preferential tax treatment, and barriers to entry in their business.

And kicking old people out of their homes? ABSURD. We could just freeze property taxes for primary residences of those over 60. Problem solved. Or the tax difference could be assessed at the sale of the home.

Why are repeating complete nonsense? Or have you really never even thought about it?

>> If you don’t like Prop 13 then vote for change. Stop squawking about it and do something.

Uh, those of us opposed to it do vote that way. WTF are you talking about?

I voted against everything in the special election (except limiting pay for state employees) because I want to end the completely unfair burden of taxation that is placed on working people (raising income and sales taxes harm working people the most).

>> As for me, I don’t have a problem with it. I’ll vote in favor of it because I don’t think it’s fair to kick old people out of their houses.

Bullshit! Prop 13 doesn't benefit old people, because people don't live very long past retirement age anyway. Is it 'fair' for a 20 or 30 something to inherit a million dollar house and not pay any taxes on it? Is it 'fair' for multi billion dollar corporations to buy millions of dollars worth of land and never pay their fair share? In states that don't have such idiotic laws, old people don't lose their homes because their mortgages are paid off. If they didn't save anything, they downsize their huge houses and retire comfortably. There is NOTHING unfair or wrong about this.

OO,

I had not seen the details about the motives for the murder in the paper -- is this public information?

MarkInSF and Kevin,

Right on!

"Is it ‘fair’ for multi billion dollar corporations to buy millions of dollars worth of land and never pay their fair share?"

Reminds me of the dozen years and dozens of Property Tax filings I filed and payments not only for real property taxes but also personal property taxes to the state. For every computer, servers, cubicle and lease hold improvements, manufacturing equipment and automotive property your employer puchases each year it is taxed at historial cost until disposed of. Please never say Corporations do not pay property taxes... They bleed billions into California each year....

Great article OO, thats what is happening with SV on the whole. Think of not only layoffs but the surge in M&A.. cant have two CEO, CFE and VPs. They get the axe and have little chance of getting similar jobs due to declining number of new startups and public companies. Oracle itself put out thousands of high paying workers via M&A.

That Cupertino home I bet was really worth not more than 400K as many were, pre-tech bubble years.

"In the meantime, I do what I can to “educate” about the inequities of Prop 13."

There are no inequities! There were fools who overpaid by 200-300% compared to their next door neighbor. You call the inequities ?

" I can’t afford to buy a place because prop 13 has skewed property prices completely out of my reach"

Prop 13 came out in late 70s but did not influence or stop price declines in early 80s, early 90s and today.

"Nobody will admit it, but I believe that 90% of California’s troubles comes from Prop 13. There are other states which are just as profligate as California (New York, Illinois to name a few), but they still have lower taxes, and they are not insolvent. The main difference is Prop. 13."

Really now... 90% of the problems comes from liberal social programs which isnt being paid for.

Why is it all the complaints regarding Prop 13 come from migrants from other states.. mainly the liberal east coast ? Let me remind you back inthe late 70s when California was populated mainly by native born.. it passed by huge majority... 70% infavor with 80% participating.

Zetabeos,

>>For every computer, servers, cubicle and lease hold improvements, manufacturing equipment and automotive property your employer puchases each year it is taxed at historial cost until disposed of/.

I have never heard of any such tax, Are you sure you are not thinking about something else, namely the rule that capital good purchases cannot be charged fully as a pre-tax expense in the year of purchase, but rather that the expense has to be divided (amortized is the technical term) across the useful lifetime of the item?

Zetabeos,

>>Prop 13 came out in late 70s but did not influence or stop price declines in early 80s, early 90s and today.

That is rather a bold statement. A large number of people would say instead that prop 13 caused contraction in supply of homes for sale because homeowners had a very strong economic incentive to stay put.

At the very least, that would be a factor in driving the prices up before the declines, and likely also in reducing the declines

justme,

the paper published that the victim was having monetary dispute with the gardener over payment on his job. The details were obtained from the grapevine. The job and financial situation of the victim couple is all over the Chinese media which I am not sure is translated into English.

The victim's friends were trying to raise fund for the family because now they become one-income. But the proposal was met with doubt and distrust because many people questioned why a homeowner of $2M "mansion" need to raise fund from people who live in far inferior homes.

zetabeos,

it is a newly constructed home, the builder sold the lot (8000 sq ft) for about $1.1M, and built a McMansion on top for another $1M or so. Of course nowadays you can build the same home for 2/3 the cost, and buy a tear-down in Los Altos Hills on an acre for $1.3M.

What amazed me is not the fact that someone would buy such a house at such an inflated value. What amazed me is why an accountant and a mediocre engineer believe that they can afford the ongoing tax burden of $24K after tax on their house? Do they think they are CEOs? That is about 1/6 of their after tax income, and I personally am much more concerned about ongoing tax liability than just the upfront cost. I know quite a few people who have won IPO lottos that didn't get into multi-million-dollar homes which they could easily buy with cash, precisely because of the ongoing tax burden.

"There are no inequities! There were fools who overpaid by 200-300% compared to their next door neighbor. You call the inequities ?"

Hilarious. Have you heard of inflation? Prop 13 limits property tax increases to *BELOW* historic inflation. So even if housing were to do nothing more than keep up with historic inflation, long-time owners would still get an unfair tax break over time.

In other words, while "overpaying" for a house could net you higher taxes, even getting a "good deal" today could leave you paying 10x the taxes of your next door neighbor who has lived in the home for 30 years.

Basically, as time goes on, Prop 13 becomes more and more unfair.

First of all, prop 13 is a very powerful political instrument, so you do not just hammer at it head on. I don't know the split of homeowners, but there are tons of business interests behind it who can afford big $$$ lobbying.

How to attack the problem? Start with attacking the smaller, individual homeowners first. The easiest one to start is, attack the inheritance of tax base under prop 13, because it is simply morally WRONG. The inheritance of tax base, as far as I understand it, is only between direct descendants, but not applicable to corporations if a transaction takes place.

People can argue that grandparents need to be kept in their old homes yada yada, but nobody can argue morally that the grandsons need to be kept in grandparents' old homes. There is no moral argument for this, it was just a loophole that got exploited. So closing this loophole is the first step.

Once the tax base cannot be passed on, you immediately free up a bunch of homes, because a lot of these asset-rich cash poor elderly are financially supported by their kids who in return will get the property at a next-to-nothing tax base. Such an amendment will take away incentives from both sides to stay in the old house.

Homeowners will always vote for prop 13, period. In order to win support, you don't attack homeowners as a whole. You attack SOME of the homeowners, uniting the other. For example, if you propose to bring all the old homeowners to a more recently valued property base, say, using neighbor's 1990 valuation as the base instead of 1970's base, that will get a ton more support from newer homeowners like myself who is very envious of the next door neighbor who only pays 1/10 of what I pay. Divide and conquer is the only way of repealing prop 13. Broad repeal will just not happen politically.

In order to win support, you don’t attack homeowners as a whole. You attack SOME of the homeowners, uniting the other.

I agree. Someone once said that the best way to repeal Prop 13 is just to publish everyone's property tax in an easily accessible place.

When the recent buyers see how much more they're paying than their neighbors (10x is quite common) they will definitely have a motive to change things.

BTW, I just added a "quote" link next to every comment to facilitate quoting. In some browsers, including Firefox, you can even select part of the quote and just that piece will get quoted.

BTW, I just added a “quote” link next to every comment to facilitate quoting. In some browsers, including Firefox, you can even select part of the quote and just that piece will get quoted.

It works, just like magic. Cool.