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Comment by kcorbitt | Hacker News Reader

I'm not convinced that Prop 13 is the best or only solution to the "we don't want to kick senior citizens out of their communities" issue. Prop 13 only helps you if your property has appreciated in value anyway. So by definition, all of its beneficiaries are sitting on assets that have appreciated, sometimes enormously.

Currently, Prop 13 caps property taxes as a percent of the last sale price. What if instead we allowed property taxes to increase with home value, but deferred collection of the incremental tax increase until the sale of the home? The back taxes owed could even be capped as a percent of appreciation. Given that the property's price has by definition increased, even after paying the back taxes the seller still gets much of their money back, the government comes out whole, we don't force old people to sell prematurely and the tax burden is shared more equitably between old and new owners.

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In my opinion, Texas gets this right (as a left-winger who's lived in Texas for a number of years, I don't get to say this that frequently). If you're over 65, you can defer property taxes on the home you occupy as long as you continue to own and occupy the home. They aren't even just frozen, you can simply not pay the taxes at all. This means you can't lose your home due to inability to pay property taxes. But you don't get to play both sides and get a property-tax reduction while also passing on a big capital-gains windfall to your heirs. The taxes are deferred, and when the home is either sold, or transferred to heirs upon your death, the deferred taxes are assessed against the capital gains and/or the estate. (If the estate ends up being worth less than the deferred taxes, the state eats the difference, but deferred taxes are recovered from whatever value it does have.)

Cool, sounds very similar to what I was thinking! Glad to find out that someone has implemented it.

> as a left-winger who's lived in Texas for a number of years, I don't get to say this that frequently

Governance would be so much more productive if we were all willing to get behind ideas that have been proven to work, even if the "other side" thought of them first. Like you've done here. :)

Preferably there wouldn't be these sides at all. Just a bunch of different people that support different things.

I know how naive that all sounds. I'm just worried that these two sides are going to tear this nation apart in very disastrous ways.

That's actually really neat. If anyone else was interested in reading the details, here's the relevant statute: http://www.statutes.legis.state.tx.us/StatutesByDate.aspx?co...

The taxes deferred as a lien, but the lien accrues 8% interest. If there's any value in the house, it would be cheaper (at current rates) to refi and pay out of that.

Holy CrapOla this is a big asterisk

Why the over-65 requirement?

Why not just pay taxes on the purchase price, and defer all taxes on appreciated value until the sale?

And why not let the children defer the taxes further? It'd be tragic if your kids were forced to sell the family home immediately upon your death because they couldn't afford the taxes.

Seems like the important innovation here is defer-until-sale, not the pro-retiree, anti-inheritance values.

Letting people defer indefinitely may let them run up more deferred tax than the value of the property. Restricting it to over 65s limits how much of a bill people can run up.

I also think that the retirement-age might also be part of that.

At 65 your income is expected to drop significantly. By allowing deferred costs on property tax at the age of retirement, you reduce a pressure on tight resources.

Seniors in that case can spend on food / medical and the government doesn't get the bad press of evicting a grandmother who has to choose between feeding herself and paying property tax.

Especially if, assuming what's reported in this thread is true, they have an 8% lien on the property.

If the tax could add up to more than the value of the property, doesn't that mean the tax is way too high and should be capped?

No? Whatever rate you set it at, if you let people defer it indefinitely, it can eventually exceed the value of the property. That in itself doesn't imply the rate is too high.

What happens to someone who lets the taxes build up but needs to sell (medical bills, say)? This screams of unintended consequences where the state taxes a windfall from someone forced to sell.

I don't see how it's a windfall on the part of the state, it's just collecting what's owed to them in arrears. It's not required that you defer the taxes. You could pay them up front. It's simply an option, that if you lack liquidity (because your assets are tied up in your house), you can defer payment until a "liquidity event", as they say in the startup world. There isn't any kind of right to both not pay property taxes and turn your property into liquid cash in your bank account. The purpose of the deferral option is that even if you have no liquid cash with which to pay property taxes, you can never be forced out of your home for that reason. That's the stated purpose of Prop 13, too, though perhaps not its real purpose.

If the government didn't make them pay taxes it would be basically writing giant checks to home owners who own expensive houses, don't pay their tax bills, and rack up large amounts of medical bills. And the government would pay those people with money from renters, tax payers, and the insured.

unintented consequences... like what we're dealing with right now with the current california housing market...

Taking out an HELOC against the property might be one solution.

The property taxes take precedence over loan collections, so no one will give you a HELOC when you have a bunch of back taxes.

If your home becomes much more valuable in 2018 to 2028 but then falls sharply in 2029 to 2034 and you become ill in 2035, who will pay the high tax then due?

What you propose is basically an additional mortgage via the state. This means more leverage for home owners and increased risk for the state. When a broad downturn comes, the state will be shoved briskly toward bankruptcy.

There are various ways to set this up. What I would propose for California would have these properties:

() The annual tax bill would be capped according to the Prop. 13 formula (annual increase limited to 2%). The difference between the tax bill and the tax due gets added to the lien balance.

() The tax bill would increase at that rate even if the property value drops, until the lien balance is paid off.

With these rules in place, it's actually pretty hard for the lien balance to get very large compared to the amount by which the property has appreciated. It would take a catastrophically sudden and severe drop in property values for that to happen.

Why cap it? Removing caps allows the market to properly price property with regard to taxes and will give the market stability. Caps are a distortion and will hurt some and benefit others.

The modification to Prop. 13 that I am proposing will already be an extremely hard sell to California voters. Outright repeal is just not realistic.

I think this has the problem of trapping people into houses on declining property values. You've got some elements to mitigate that somewhat, but prop 13 really seems like a cleaner simpler way to do the accounting because there is no hysteresis effects. Anything else, and you really provide a disincentive for many people to sell just for the added headache.

How would people get trapped? If the property value is declining they can just get it reappraised and pay an even lower tax rate than what they were expecting when they bought it. From a tax perspective that should be a windfall for them.

You already have to pay capital gains tax when you sell. Adding on to the state's cut at sale with even more taxes would be exceedingly unpopular.

The first quarter million (half million for couples) dollars of profits are exempt from capital gains tax.

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