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My biggest concern for California is that out of all the states I have lived in, I've never lived in one that bad-mouthes itself as much as this one does. I'm one of them, and have the overall expense as my one major beef to chew. But it seems that people here seem to be on a constant state of self defense. Everyone is out there to make sure they get as much as they can, whenever they can right away before anyone else.
California's biggest problem isn't the taxes, the schools, or real estate. Their problem is population. It has the most people even given the size, and few if any kinds of legislation that takes this into account. The result is pressures on the system that nobody ever accounted for. There are only 2 solutions: enact new legislation that more evenly distributes the expense, which will NEVER happen, or the state will simply lose a lot of it's population to other states as the backpressure builds.

While there is always room for improvement, neither California’s state nor local governments seem especially corrupt to me.

Jimbo, three words: Belmont Learning Center.

Google it and weep. While I doubt even the LAUSD approaches the monumental levels of corruption we read about in historic accounts of Tammany Hall & gangster-era Chicago, it ain't pretty.

WW2,

California’s biggest problem isn’t the taxes, the schools, or real estate. Their problem is population. It has the most people even given the size, and few if any kinds of legislation that takes this into account. The result is pressures on the system that nobody ever accounted.

Yes and no. IMHO, what's really killing affordability and overwhelming infrastructure here (Fed/GSE induced credit bubble ignored for the sake of argument) is the rate of population growth, and the fact that most immigrants are poor, undecated laborers from third world countries. Japan and Europe's population density is higher even than CA's and yet they don't have anywhere near the same problems associated with rapid population growth we do (France, with it's large unassimilated Arab population being the notable exception).

About 20 years ago the Cato Institute took a typical couple and added up ALL the taxes they pay and it was way over 50% of their income.

Sorry, just don't believe it. I don't think anyone pays 50% of their income in taxes.

Let's look at a single guy making $1M/yr in salary. He is probably going to be in the highest overall tax bracket possible. He pays $5850 in Social Security taxes. He pays $93k in state tax and gets a deduction for that from his federal taxes. Let's say he somehow owns a $5M house with no mortgage, which he then pays $50k in property tax on. So he then pays 33% of the rest, which is 282k. That adds up to 425k. I guess if he spent every single cent and invested none of it and paid 8% sales tax on it, that adds 46k, which puts him at 471k or 47%.

And the average Joe? Not even close... Here are Federal overall tax burdens as calculated by the CBO:

http://tinyurl.com/28nh9

Middle quintile is 15% overall Federal burden and this includes Social Security for both the taxpayer and his employer. Add 9.3% state and 8.5% sales and you are at 35%.

I know the marginal rate exceeds 50% sometimes, especially where AMT starts to kick in, but that is a different story.

The Cato Institute here calculated that the average taxpayer pays 38% overall:

http://www.cato.org/pubs/pas/pa-302.html

Belmont Learning Center seems more like an example of government incompetence than corruption, but perhaps there is more to this story that I am unaware of.

Actually, in the link Randy posted, we are something like the 9th state in total tax burden. (my link was for property tax burden only) If you go by those numbers, it means that 80% of the states have lower total tax burdens than we do.

Yes, 9th is total tax burden (including federal taxes) and 15th in state tax burden.

http://www.taxfoundation.org/taxdata/show/443.html

California sends quite a bit more to the Federal government than we get back and has been doing so for a while. I don't know what to do about that, other than overthrow the government 0:-)

Actually, it was not as bad during the Clinton years and presumably a Nancy Pelosi Speaker of the House would take care of her home district.

http://www.ppic.org/content/pubs/jtf/JTF_TaxBurdenJTF.pdf

"California's burden as state and local taxes, fees and other charges ranked twenty-second in the nation"

Sorry, this is just not enough. All of the other urban, densely settled states are at a higher rate.

I see a more likely resolution is to have a drop dead date for Prop 13. They can fix the rate at purchase until a certain date and then go to float rate. RE prices will drop significantly after the drop dead date and eventually things will even out. The trick is to do the right slight of hand and fool the home owning masses.

For anybody interested in the constitutionality of Prop 13, a case against it went all the way to the Supreme Court and lost. It DOES NOT violate the 14th Amendment according to the decision handed down. "The court ruled that an acquisition-value system does not violate the Equal Protection Clause of the U.S. Constitution because it "rationally" furthers a legitimate state interest. " from http://www.hjta.org/content/ARC000024C_Prop13.htm

Personally, I hate Prop 13, but at least the Santa Clara County Assessor will lower my property taxes as my equity tanks to match the "real" value of my $850K piece of CA. :-|

Personally, I hate Prop 13, but at least the Santa Clara County Assessor will lower my property taxes as my equity tanks to match the “real” value of my $850K piece of CA.

I wouldn't count on that, it isn't automatic and they will be in real hurry to do so. In my opinion, it isn't going to happen. Just as your neighbors house that is now worth 900K, didn't get their taxes raised from the 70K they paid for it. To have one you have to have the other. Why exactly do you think the assessor will lower your taxes to match the "new" value, they didn't raise them to match the new value did they? I am totally fine with prop 13 provided the McDebtors have their property taxes raised each time they refi.

randyh:
I agree with a consumption tax (as I outlined the basics of earlier in this thread). You should know, however, that taxes on things like cigarettes are extremely regressive. Socioeconomic level is one of the best predictors of smoking rates.

yes, correct. and so are consumption taxes, cos they're a 'flat tax' on consumption, rather than a progressive tax such as income tax as it's levied in most countries. however, you often find that when consumption taxes are brought in they end up being waived on 'necessities' such as uncooked or unprepared groceries, razors, sanitation items, health products, etc to give people at the bottom a break with subsistence needs... this is effectively 'unflattening' the tax or making it progressive, i.e. a 2-tier system of 'all' or 'none'.

gambling, drinking and smoking are vices disproportionately engaged in by low SES all taxed pretty heavily ;) altho moet et chandon is not cheap...

there seems to be an uneasy truce between so-called 'direct and indirect' taxes and 'progressive and flat' tax aproaches in most modern industrialised countries, with some mixture of all... plucking the goose to obtain the most feathers with the least squawking... good post tho...

For such taxes to be non-regressive, cig tax in this case, they would have to be ideally matched to costs. This is not practical and prohibitively costly to administer. That is, to be non-regressive the state would need to only tax an amount necessary to cover societal costs directly attributable to smoking; using overruns and funding under-runs purely out of the same tax revenue pool.

Other highly regressive taxes include Lotteries, alcohol taxes (which exempt or treat differently wines–the drug of choice for higher socioecon classes), cost-basis property taxes (like 13), junk-food taxes, fast-food taxes, big-box store “impact” taxes and fees, …

A consumption tax extracts taxes from each person in proportion to the affluence of the lifestyle they enjoy. Last time I checked, the rich were buying and consuming far more than the poor. So how is it that a consumption tax is regressive?

BTW, while a consumption tax would be better for the economy (encourages savings and investment), a change to such a tax would be worse for anyone who has been saving money for the future. They have already been taxed on that money as income, and would then be taxed again when the money is spent.

The good feature in Prop 13 was putting a cap on the tax rate. Government spending was ballooning out of control and people were literally being taxed out of their homes at the time that prop 13 was passed. It put an end to those unbridled tax increases.

The bad feature was putting a cap on the assessed value. This cap on value (subject to 2% inflation) is what has long-time owners paying ridiculously low taxes compared to new owners. This is not equitable, and it leaves local governments underfunded.

Like many extreme problems, this one was overcorrected by prop 13.

It should be noted that prior to prop 13 the taxes were also not equitably distributed as well. This was because the assessment process was a combination of random assessments and rotational assements. Your home could get reassessed while your neighbors stayed at a lower assessment. So uneven taxation existed in the pre-prop 13 world.

To be equitable, assessments should be done on all homes in the same year, so that everyone is assessed under the same market conditions and relative value levels. Many communities do it precisely this way.

Surfer-X:

I am pretty sure that Larry Stone will lower the property tax as the value declines. Check out this article from 2003: http://tinyurl.com/fzc9x

Property values dropped a few years ago and it was hardly noticed. I was just like most of you renters for over 13 years here in BA. My income finally rose to the point where I could afford a traditional 30-yr fixed with 10% down. I'm in it for the long haul. It is not without risk, but I got what I wanted and I'm not hurting. This whole blog just shows me that there is still plenty of pent up demand in RE. You have to accept that our parents struggled to buy a house. It isn't easy. The current market is out of control, but it won't go down as much as many here hope.

very nice blog.

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