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Yet another rich parasite goes begging

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October 20, 2008 – Comments (4)

California asking for a government handout is like Warren Buffett, Jr. signing up for public assistance.

Let's review the basics. California is one of the richest places in America and in the world. Its government should be collecting more money per capita than the governments of less affluent states like Lousiana and Arkansas. When your territory includes such cities as Malibu, Hollywood, Santa Barbara, Berkeley, or Silicon Valley, you can never run out of tax revenues.

You may hear that California has suffered from real estate market conditions. That's a lie. Prices are nowhere near 2001 levels. Not even close. California has enjoyed an unprecedented real estate boom, then retreated a little and held on to the lion's share of its gains. Property taxes should be producing enough revenue to meet all budget needs of California and to transfer some of the surpluses to the rest of us.

So what went wrong? Nothing, except the fact that Californians don't want to pay up. When the Terminator was elected, his advisor (none other than Warren Buffett) suggested that Proposition 13 be repealed. The Terminator responded with this famous line: "I told Warren that if he mentions Proposition 13 again he has to do 500 sit-ups". Californian homeowners got their $200,000-300,000 equity boost and continued to pay ridiculously low property taxes. When the treasury ran out of money, a solution presented itself: ask the federal government (i.e. the taxpayers of Illinois and Loisiana) to foot the bill. If you ask the Terminator whether or not he'd be inclined to go back to Buffett's suggestion, he'll say: "I tell you that if you mention Proposition 13 again you have to do 500 sit-ups".

Now, the best idea would be to refuse to pay the bills of rich people who have made up their mind to enjoy the best of the three worlds: high capital gains, low taxes, and free public assistance. As a second-best idea, I suggest you try to do the following: earn $200,000 on the stock market, get yourself a Porche, then go to the welfare office and request assistance with your car payments, citing your poor financial condition. If they ask you about your assets, explain to them that you don't feel like discussing it, and that you'll make them do 500 sit-ups if they broach the subject again. After all, why should you be less entitled than those poor Californians?

 

4 Comments – Post Your Own

#1) On October 20, 2008 at 5:13 AM, StockSpreadsheet (73.29) wrote:

zloj,

Not sure where you got your data on California home prices.  I didn't have my condo appraised in 2001, so i can't tell you if I am below that level.  I can say that I had my condo appraised in 2003 and according to Zillow and the prices listed on that site for condos on the market in my complex that people are trying to sell, I can tell you that my condo is down about 25% from the assessed value in 2003 and is about double what I paid for it in 1991.  From that standpoint, yes, real estate in California is hurting.

That said, I agree with you that California should not be needing to go to the government begging for money.  As I have stated in other blog here on MF, California went on a spending spree in the 1990's as tax reciepts went up hugely due to the dot.com boom.  Once that busted, the legislature didn't want to radically cut spending, (as the dot.com companies doubled California's tax reciepts during the 1990's if not more, which would have forced California to cut expenditures by at least 25% to offset the lost revenues), so California just sold bonds to make up for the lost revenue, hoping it would come back.  Add in the energy crisis, (partly due to the fault of the legislature passing stupid deregulation laws and partly due to fraud and manipulation by Enron and others), and California took a few more hits that hurt tax revenues.  In response, the state sold more bonds.

Add in the fact that California never set aside a rainy-day fund like many other states did, (and who are now doing better than average due to the ability for them to draw from their rainy-day fund), and you have the current problems California is experiencing.  California needs to cut its bloated beaurocracy and needs to cut spending.  Sadly, they don't seem to want to do so and some of the populace just seems ignorant of the whole problem.  There are four bond measures on my current ballot wanting to spend money on everything from building new choir and band classrooms and culinary arts training classrooms in our local high schools to giving credits to people to buy electric cars to more worthy applications like building more hospitals and giving extra benefits to veterans.  In my opinion, a state in a fiscal crisis should not be floating any bonds for new spending programs, but that is just my opinion.

By the way, I support Prop. 13.  It allows property tax assessments to climb about 5% per year, (about the rate of income growth), so that people don't get taxed out of their homes.  (The 5% limit does not apply if the assessments are catching up to a previous high.  For example, since my condo has fallen 25% in value, I can claim property taxes to be reassessed at the lower value.  However, if next year the property values climb back up to where they were in 2007, then my property tax assessment can climb immediately back to the 2007 assessment levels, regardless if that assessment increase is over the 5% limit.  Also, if my assessed value stays low for 5 years and then jumps up by 50%, the property can immediately be reassessed the 25% it dropped plus the other 25% it rose in that year since the five years of no growth can be added into the new number.)  This proposition has kept many Californians from being taxed out of their homes, which happened in the past when California's real estate market got crazy, (sometimes jumping 25% a year or more).  

Since the state knows that real estate can rise 5% per year in assessed value, the budgets should be based on that increase.  Most of the state's revenue comes from our sales tax, (one of the highest in the nation), as well as our state income tax, (ditto), not property values.  The problem is that the legislature increased spending at the maximum rate during the boom times and don't want to decrease it during the bust times.  If they had limited the budget growth to 5%, (like property tax revenues from existing homes), or 10% or so, (to take into account the increased property tax revenue from new homes or homes that have been sold, (since the assessment resets whenever you buy/sell the home), and the long-term increase in sales tax revenue), then we would not be in our current fiscal mess.  That is the real problem, (spending increasing faster than reasonable rates), not the property tax limitations due to Prop 13, (since the property taxes can be brought up to current market rates whenever a house is sold).

Just my two cents.  I agree that we should not need government loans to pay our bills.  I disagree with your opinion on why we are in the current fiscal problems affecting the state regarding the lack of our ability to pay our bills.

Craig 

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#2) On October 20, 2008 at 8:45 AM, Gemini846 (58.67) wrote:

Cities in Florida have similar issues to the ones Craig described and they are all crying to the state for money. Some more proactive cities like Tampa did set up a "rainy day" fund whereas cities in Pinellas are raising millage rates.

I understand property taxes, but I don't think that they should be the sole source of income in an urbanized society. A balanced Sales/Property (and income if necessary) is the right way to provide for necessary government services.  What is "necessary" of course is always up for grabs.

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#3) On October 20, 2008 at 9:36 AM, EScroogeJr (< 20) wrote:

"Most of the state's revenue comes from our sales tax, (one of the highest in the nation), as well as our state income tax, (ditto), not property values."

That reminds me of my my GRE exam, logic part. "Evaluate the following argument: "raising property taxes will not work because they make up only a small percentage of the total" - a) true, b) false because it takes a small increase to balance the budget, c) false because you're starting from a low base. The correct answer is c).   

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#4) On October 20, 2008 at 10:23 PM, StockSpreadsheet (73.29) wrote:

Scrooge,

I'm not saying that raising property taxes would not help our current fiscal problems.  I am saying that the problem California is having is due more to runaway spending then it is too low taxes.  Californians already pay more tax per citizen as a percentage of income that most states in the nation, (when you total up sales taxes, property taxes and income taxes on the state and local level).  The fact that we have these high taxes and still have budget problems is unconcionable.

As has been said in the past, our current budget deficit in my state and at the federal level is not due to the fact that we are taxed too little but due to the fact that our governments spend too much.   

Craig 

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