Hacker News Reader

> But in the 70s, voters voted themselves a massive permanent tax break that's even bigger for corporations. When an individual buy a property the tax basis gets reset and recalculated. Not if the property is held in an LLC. So Disney's property tax rates have essentially been frozen since the 1960s.

Are people essentially selling the LLCs then, rather than the properties themselves?

Yes. The LLCs are even often simply named after the street address, so stuff like 6243 Abrego LLC. The idea is then just whether you are making enough money off the asset to justify the minimum LLC tax vs. the property tax increase on an expected sale (which might be a good trade-off for everyone, but is certainly a good trade-off for people renting their property out).

How does that work with the provision that if there is a change of control in the llc changes hands they need to reappraise? Do you just encapsulate the llc inside another one?

It's a gradual change of possession over time, and each individual change of ownership is small to not trigger reassessment.

Yes [1].

[1]: https://journal.firsttuesday.us/change-the-law-close-prop-13....

Wouldn’t a change in control of the LLC trickle down to a change in ownership of the property and thus trigger a reassessment?

In a sane system yes

It would in any sane system… which is to say, not in California.

Here’s something to really blow your mind: After Prop 13 was passed, some subsequent Propositions made property tax rate inheritable. That’s right, your kids and grandkids can inherit your below-market property tax rate.

We have come full circle and returned to the system of landed nobility (with special tax privileges) that a war was fought to leave.

There's been some movement to repeal those provisions, and let me tell you, the Nextdoor Karens are very very unhappy that their kids aren't going to be able to live in their childhood home because they won't be able to afford the taxes.

The funny thing is that they can keep the low tax rates if they live in the home!!

The just can't rent it out and continue the low tax rates.

It’s primary home to primary home only and only $1m worth is prevented from being reassessed. $2m homes (majority in the Bay Area) will end up with new $1m assessed and pay $12.5k / year. Median taxes across the US are more like $5k / year.

I'm not sure of the exact value of the median home in CA, but I think it may still be less than $1M (hopefully).

Whereas rent for that Bay Area home is how many thousands per year? Probably $60k-100k, and not subject to a 2% annual increase? $12.5k is an absolute steal.

Makes me think that we should have greater estate taxes. Maybe limit inheritance to 5x the median annual income in the area or something like that. Capitalism does not function well when wealth becomes a caste system.

> Here’s something to really blow your mind: After Prop 13 was passed, some subsequent Propositions made property tax rate inheritable.

This was mostly repealed a few years ago.

I've never understood the objection to prop 13 - your property taxes can and do go up every year by a reasonable amount (2%?). The only thing they don't track is the insane bubble prices that happen every decade or so but who cares? If people sell then, they either are taxed or buy inflated property prices as replacement. When prices crash, the gov't shouldn't depend on bubble prices for revenue.

2% is not a reasonable amount when housing prices are regularly going up by 3x-5x that percentage.

There has never been a bubble crash that brought housing prices anywhere down to the Prop 13 valuations, so it's pretty strong evidence that it's not a bubble.

I think that we need to start charging a huge capital gains tax on local property transaction, assessed by the local government, not the federal government. Maybe 25%-50% of the capital gains. Or maybe 2% per year if ownership, with a max of X%.

Long time property holders have been exploiting the economy of California, taking in unearned profits, and taking that money out of poorer, more productive, people.

Please don’t. This will drive millions out of California to more sane states.

In case you haven't been paying attention, millions have already been leaving California, due meret to being priced out. It's the lower income folks, not the rich folks.

It was a tongue in check comment.

And prices in my area have skyrocketed due to all the transplants.

IMHO you could say due to the transplants, or you could say due to not enough vacant homes to house them.

If you focus on "these people are the problem" then you get results like what's happening in California. If you focus on "we don't have enough vacant homes" then there's a chance of actually solving the problem.

As a Californian, I devote a huuuuge amount of unpaid time to trying to shift the conversation to housing the people that need housing, rather than shipping people to whereever it is you live. I have not been terribly successful, but if you also shape your conversation towards "we need to house people" rather than "these people are problems," then it will be faaaar easier to convince my neighbors to also accept people. Because Californians are hypocrites, but they hate being proven to be hypocrites when other states are more welcoming and accepting. But if, say, Austion or Boise folks are like "we don't want you either" then it just encourages our NIMBYs as feeling justified.

> 2% is not a reasonable amount when housing prices are regularly going up by 3x-5x that percentage.

Let's examine these numbers. If housing prices are regularly going up by 6% to 10% it means that a property purchased for $250K in 1995 is worth 1.2M to 3.3M today. While you can probably find such an example, that's not the norm by far.

I can say that all the houses in my neighborhood (outskirts of Silicon Valley) have gone up about 4% averaged over the last 30 years. Yes that's more than the 2% valuation increase, but way below 6-10%. It's one thing to criticize prop13, but let's keep the numbers factual, no need to exagerate.

> There has never been a bubble crash that brought housing prices anywhere down to the Prop 13 valuations

That's very much not true. The dot.com crash brought many houses (mine included) below the prop 13 valuation. The 2008 crash did the same for a very large amount of home owners.

There hasn't been a crash since 2008 so it might feel like prices can only ever go up, but there will be another crash. Perhaps soon.

> I think that we need to start charging a huge capital gains tax on local property transaction, assessed by the local government, not the federal government. Maybe 25%-50% of the capital gains.

What does this accomplish exactly? It is a huge incentive to never ever sell. Is that your preferred goal?

> If people sell then, they either are taxed or buy inflated property prices as replacement.

Oh, sweet summer child. In California, you can transfer your below-market rate to a new property. You can also create an LLC for each property so that it need never be sold (change of control of the LLC owning the property does not trigger reset of the tax rate). And your children can inherit your property tax rate, too.

> When prices crash, the gov't shouldn't depend on bubble prices for revenue.

Most rates are so far below the real value of a property that most people still saw (and complained about) the maximum 2% annual increase during massive housing crashes like 2008.

Afaik these transfers are not from prop 13, that's some separate thing handed out afterwards (to buy votes, etc).

Correct but it's an expansion of Prop 13 protections. There are a bunch of laws around rent control in California and "Prop 13" is just shorthand for "property tax control".

the objection is that, even after looking at longer timeframes to smooth bubbles, california real estate has appreciated by much more than 2%/yr over the last several decades. this is a policy that favors people who bought houses a long time ago over people who have bought more recently or are looking to buy for the first time. why/whether that's a problem depends on your perspective on what the purpose of a property tax is.

a simple way of looking at it is that property tax is just one of many ways that a city raises funds. it seems unfair that two people/families living in similar houses, consuming similar amounts of public services, might pay wildly different amounts of tax depending on how recently they bought their houses.

a more nuanced view is that taxes are not only about revenue collection, but also incentivizing or disincentivizing certain behaviors. high property taxes discourage people from living in highly demanded areas without having a strong reason to do so. a pair of empty nesters living in a detached 3/4BR home in SF is not an efficient use of the limited housing stock. if they really want to do that, they should be allowed to, but imo they should not be insulated from the economic consequences.

of course, this is all in conflict with the american ideal that you can lock in a fixed rate mortgage, pay it off, and have your heirs monopolize a particular plot of land in perpetuity. this has always seemed to me a promise that should never have been made, but at this point it would be very painful to unwind all the policy that props this up.

Californians voted themselves two massive boons in the 70s.

1. Prop 13. This was in response to rising inflation in the 70s that had a knock-on effect to property taxes. The argument of kicking old people out of their homes was used as a stalking horse for giving the likes of Disney a massive tax break.

But there have been periods of high inflation since and some massive growth in property values. So you have a house that might've sold for $60,000 in 1975 with tax set accordingly, now being worth $3,000,000 and being taxed at twice that rate (1-2% per year capped cumulatively). So someone who buys an identical house now might be paying 20x the property tax rate.

This was further expanded by allowing people to inherit their low tax rates so you really have a two-tier system where long-term residents and corporations aren't paying anywhere near their fair share of property taxes.

2. Rent Control. This turned out to be another massive boon to incumbents. Inflation created issues with rents going up too fast. The solution? Cap the increases, just like Prop 13. And give tenants the right to stay. These too can be inherited.

So you might have someone in SF living in a $3,000,000 house that's paying $400/month in rent.

This hasn't really helped anyone since.

NYC had this too but steadily moved away from it. The last rent control lease was created in the early 1970s. There's a greater (but shrinking) pool of rent stabilized units that tend to have more reasonable rents.

Anyway, as you can imagine this creates a bunch of bad incentives. Under the table payments for leases. Illegal subletting. Properties remaining vacant because rather than be rented (I saw one estimate that 1 in 8 units in SF was vacant). The only recourse for evicting a rent controlled tenant was really an Ellis Act eviction.

Price caps only work in the very short term. They are not a long term solution.

Higher property taxes would actually help with the housing crisis in California because it's too cheap to park money in Californian property plus you could do something useful with those funds, not the least of which should be reducing state income taxes at the lower brackets.

> The standard counterargument is "what about the old people getting kicked out of their homes?"

Deferring the taxes, as you mention later in your comment, would be most equitable way of handling this.

I remember there was a huge discussion on HN years ago on Prop 13, and someone mentioned that Prop 13 was proposed because the democratic party then double taxed people. Somehow I couldn't find the reference anymore. As for the Prop 13, it makes sense to me to keep it for the primary residence, as an ordinary person shouldn't be forced to give up their house just because the property appreciates. Prop 13 for non-primary and commercial property should be repealed. That said, I don't think Prop 13 will fundamentally solve California's problem before we fix our government. For instance, why would it cost more than 100K to house a homeless? How many people can earn that much, post tax, in the nation? Or why couldn't Bay Area schools afford even school bus or better school buildings or more teachers (CUSD teachers ask parents to grade students' homework)?

>Prop 13 for non-primary and commercial property should be repealed.

Agreed. The Democrat legislature could do anytime without a single Republican vote. All it takes then is a simple majority of voters in the next statewide election. Ask yourself why that has never even been attempted.

It has been attempted and failed as of 2020[0]. Voters are mostly uninformed. CA voters voted against commercial properties at market rate but further increased family home reassessments.

https://ballotpedia.org/California_Proposition_15,_Tax_on_Co...

No, that was an Initiative, not a Legislative, measure. Again, the Legislature could do so anytime without the burden of seeking ballot signatures or encountering any other such friction.

> The standard counterargument is "what about the old people getting kicked out of their homes?" It's an appeal to emotion that doesn't make any sense.

It makes sense as it was a very real problem for lots of older people who had built the neighborhood just to be displaced by rich newcomers.

What didn't and doesn't make any sense is applying the same protection to corporate-owned properties. Prop13 protection should only apply to a property owned by a named individual who lives in the property. Not corporations, not investment properties.

are there enough of us that are not beneficiaries of Prop 13 to repeal Prop 13?

are there comprehensive stats of which properties are under that system and how many residents that applies to?

I don't care about the LLC part, its stupid for types of property (house, cars) to have separate transfer tariffs on them to begin with, so therefore it would be stupid for me to care that an LLC gets around them

I'm just wondering about the numbers of people, helps me determine if this is a useful area to spend energy at the moment

  are there enough of us that are not beneficiaries of Prop 13 to repeal Prop 13?

No. Repealing Prop 13 is a third rail, ask our last republican governor. A common suggestion is to implement a so-called "split roll" system where non-residential property gets no Prop 13 protections and residential (ideally only the primary residence) maintains the limits. Unfortunately I doubt that'll ever pass within my lifetime.

2020 Proposition 15 was to require commercial and industrial properties, except those zoned as commercial agriculture, to be taxed based on their market value, rather than their purchase price. it failed 52 / 48.

> is a third rail, ask our last republican governor

what does that mean?

and propositions are citizen initiated amendments that citizens vote on

It's a train metaphor. Electric trains, like any other trains, have 2 rails the wheels go on. But there's a 3rd rail from which the train draws power. Touching it is death.

It was a common metaphor to describe Social Security reform years ago as people realized the system was headed for "bankruptcy". At least that's what they called it. In reality it was just that outgoings would exceed receipts by the 2030s, which means funding it from general revenue or reducing benefits.

But anyone who suggested "reforming" Social Security, such as private retirement accounts replacing it, tended to die a horrible political death and thus the third rail.

The other third rail I can think of is eliminating free street parking in NYC.

thanks for elaborating on that for them, California propositions are citizen initiated amendments that citizens vote on

so it doesn't need a politician to run on that sacred platform

To clarify Prop 13 is an initiative, a normal law passed by ballot box tyranny, not a constitutional amendment.

The same people who would shout down a politician for trying to reform Prop 13 would vote against any effort to reform it via initiative. Besides, as a result of Prop 13, tax "increases" require a ⅔ majority to pass. Try getting ⅔ of California to agree on anything.

Modifications to Prop 13 get to the ballot box periodically and the only ones that seem to pass expand its scope. Attempts to pare it back are met with fierce resistance from the anti-government folks. In general initiatives are a scourge and not a remedy to anything.

https://en.wikipedia.org/wiki/1978_California_Proposition_13

https://www.indiebound.org/book/9781565843578

> a normal law

No, Prop 13 was an Initiative Constitutional Amendment.

>not a constitutional amendment.

You're flat wrong.

>California propositions are citizen initiated amendments

Propositions are anything going on the ballot for voter confirmation. They encompass Legislative statutes, Legislative Consitutional Amendments, Initiative Statutes, and Initiative Constitutional Amendments.

>propositions are citizen initiated amendments that citizens vote on

But those statutes and Constitutional elements can be changed and put back on the ballot for confirmation by the legislative process alone. Then all it takes is a simple majority on the next statewide ballot.

Yeah, that was a brain fart. Prop 13 is a constitutional amendment.

Prop 13 can be changed by the legislature but won't because change is wildly unpopular (OMG they're gunna raize our taxez) and there's zero chance you'll get the 2/3 majority required to pass it through the legislature.

Prop 13 can be modified by an initiative, but the only related initiatives that pass expand Prop 13's scope. And without legislative action the 2/3 majority stands for any sort of tax increase.

Legislating by sound bite is pretty much how things have been done in California for decades. No matter how much sense reigning in Prop 13 might make, there's always going to be some Jarvisite that is going to scream about kicking granny out of her home because of high property taxes.

>the 2/3 majority stands for any sort of tax increase.

Propositions pass with a simply majority of voters; a 2/3 vote isn't necessary.

Yea, let's repeal Prop 13, our state needs to collect more money. As if they high gas prices and income taxes aren't enough... let's get the taxpayers once more, through their property. Does anybody actually think raising property taxes will make homes more accessible? It will create a further divide and will get passed through to renters anyways.

There is no limit to the amount they will spend. Could be 100% still wouldn’t be enough.

Different methods of taxation create different incentives and have different side effects.

For example taxing income is basically a tax on giving people jobs or being economically productive , two things we probably don't want to discourage, so I rate income taxes pretty poorly.

Taxing gasoline discourages people from using gasoline, which might have the side effect of encouraging adoption of other methods of creating and storing energy. So that's not all bad.

Property taxes have the wonderful side effect of making it more expensive to own property, which discourages speculation and other non-productive use of land.

I'm sympathetic that the tax burden in CA is already too high, but we can repeal prop 13 and maintain (or even reduce) total tax revenue by simultaneously reducing income taxes. IMHO, replacing some or all income taxes with more property taxes would be a massive improvement.

Many proponents of repealing prop 13 openly support cutting other taxes or would be open to such a compromise.

The Democrats would have put a Prop 13 repeal -or- a split-roll property tax system on the ballot almost anytime in the past two decades without a single Republican vote. All it takes then is a simple majority of voters in the next statewide election. Ask yourself why that has never even been attempted.

If 50% of voters are ever non-homeowners, prop 13 will probably get repealed. I'm not sure if that will ever happen.

The heavy income tax is not disappearing if Prop 13 is repealed. They'll just raise the property taxes and distribute that money for themselves.

Who is "themselves"?

Bureaucrats who run California.