Two years ago, the California Realtors Assn. put a costly, unfair and blatantly self-serving initiative on the ballot. Their measure would have offered older homeowners — who already benefit from Proposition 13, the state's property-tax relief initiative — another huge and permanent tax break to spur more home sales. Wisely, voters rejected the initiative.
The Realtors went back to the drawing board. They retooled their original property tax change, combined it with a proposal to eliminate a generous tax break for inherited property, threw in a funding promise for firefighters and convinced the Legislature to put the package before voters.
The result is Proposition 19, a cynical and unwelcome melding of good and bad tax proposals. Voters should reject it.
Of all the unintended consequences of Proposition 13, perhaps the worst is that it fostered inequity and helped widen the generational wealth gap. The measure caps most property tax rates at 1% of a home’s sale price and holds annual increases in assessed value to 2% or less. Older folks who purchased their home a few decades ago pay significantly less property tax than, say, their younger neighbors who bought more recently.
Current law allows homeowners who are over 55, severely disabled or whose property is destroyed by a disaster to apply the artificially low valuation of their old homes to newly purchased ones, provided that the new home costs no more than the selling price of their old home. Homeowners may take advantage of that portability provision just once, and only in the county where they live or in a limited number of participating counties around the state.
Realtors and other critics argue that Proposition 13 discourages longtime property owners from moving, even when they'd like to find a home that's smaller or closer to family members, because they could end up paying a lot more in property tax. That creates inefficiencies in the real estate market, with empty nesters sitting in big houses that could be sold to young families.
Proposition 19 would allow more homeowners to take their property tax breaks with them when they sell their home. The initiative would allow homeowners older than 55 and other qualified groups to move anywhere in the state, up to three times, and take the tax break they've built up with them. They could even apply that break — the reduction in their home's assessment below its current market value — to a more expensive property.
Yes, this change would probably lead to more homes being sold each year. That’s why the Realtors like it. And the increase in sales might generate some additional tax revenue as a result of long-held homes being reassessed and taxed at their actual market value; some of that funding would be dedicated to fire protection. That’s why the state firefighters union likes it.
But Proposition 19 would just expand the inequities in California’s property tax system. It would grossly benefit those who were lucky enough to buy a home years ago and hold onto it as values skyrocketed. It would give them a huge tax break and greater buying power in an already expensive real estate market. It would skew tax breaks further away from people who don’t own a home or who may be struggling to buy one.
Here’s what we do like in Proposition 19: The initiative would narrow a property tax break for people who inherit their parents’ home. Under current law, parents can pass their primary residence to their offspring without triggering a reassessment, as a sale would. The heirs get the tax break whether they live in or rent the home. Parents can also transfer their businesses, second homes and rentals if the total assessed value is less than $1 million.
A 2018 Times article detailed how nearly two-thirds of homes inherited in L.A. County were being used as second homes or rental properties. The inheritance tax break allowed hundreds of thousands of Californians to avoid paying the higher taxes owed by newer homeowners, even as they raked in rental income. California is the only state in the country to provide such a tax break.
Under Proposition 19, heirs must use the home as their primary residence within a year or the property will be reassessed at market value. Proposition 19 also would eliminate the property tax break on all other inherited property, except for farms.
The inheritance tax break is yet another way Proposition 13 ingrains inequity into the tax code. Longtime property owners can enjoy years of low taxes and then pass along their tax breaks to their heirs, who then profit from their parents’ good fortune. And for what? There’s no compelling public purpose or societal good in passing tax breaks through generations to even the wealthiest taxpayers.
That needs to be fixed through a constitutional amendment someday, but not in exchange for giving homeowners a more enduring and market-distorting tax break. Vote no on Proposition 19.
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