No matter how high taxes are increased it’s never enough for public officials and bureaucrats who live off taxpayer funded paychecks. According to these people, there is always one more dollar that is needed to make government “whole” … and being made “whole” in California means maintaining the highest paid government employees in all 50 states.
So it should come as no surprise that the tax-and-spend interests have already begun banging the drum and shaking the tambourine on behalf of extending Proposition 30, the “temporary” tax increase approved by voters in 2012. Proposition 30 imposed the highest income tax rate in America. It also bumped up the sales tax – a tax that hits lower income families particularly hard — to tops in the nation.
The sales tax component of Proposition 30 is set to expire at the end of 2016 and the higher income tax rate will sunset in 2018, so those who feed off taxes are starting to panic.
During the last year, some lawmakers resisted putting Proposition 2 on the November ballot because it required the establishment of a rainy day fund to tide government over through lean times. These Sacramento politicians were concerned that if it passed, and the state had money in the bank, it would be more difficult to make the case that the Proposition 30 taxes should be made permanent.
State schools Chief Tom Torlakson came out for the extension of Proposition 30 long ago, and we are now seeing the head of one of the state’s two major teachers unions, the California Federation of Teachers, calling for its continuation while maintaining it is not enough.
Of course, it’s never enough.
Writing in the Sacramento Bee, Teachers Union President Joshua Pechthalt attempts to make the case that the temporary tax hike should be extended. He justifies his position by claiming California is thriving and upper income individuals, unfazed by the higher taxes, are happy to stay and pay.
Not so fast.
While Pechthalt believes things are fine now that our economy is supposedly in a “recovery,” working families aren’t seeing it. Our unemployment rate is the third highest in the nation and the US Census puts our supplemental poverty ranking at worst in the country.
Pechthalt’s evidence that Proposition 30 has not impacted high income individuals seems to be that wealthier communities, like Beverly Hills, have not become ghost towns.
Objective real estate reports from Nevada and other low or no income tax states make it clear that California has indeed lost many upper income taxpayers because of Proposition 30. The Wall Street Journal reported that “many Californians have arrived [in Nevada] in the wake of Proposition 30. Passed at the end of 2012, the measure hiked personal income and sales taxes.” The San Francisco Chronicle published a piece in January of this year entitled “State leaders closely watch migrating millionaires” noting that “whether you sympathize or not, millionaires’ migrating out of California has serious consequences to the state’s bottom line and is something state leaders are watching closely.”
The other problem with the union leader’s thesis is that we simply don’t know how many of California’s high earners decided to absorb the confiscatory tax rates for a couple of years knowing that they would eventually expire. If made permanent, the existing millionaire out-migration could very well turn into a torrent.
So, instead of asking whether we should make Proposition 30’s temporary tax hikes permanent, a better question would be whether those tax hikes were needed at all or, better yet, did they inflict more harm than good? There is compelling evidence that California would today be grabbing a bigger slice of the national economic recovery had it not passed Proposition 30 at all.
The Ever Shrinking Homeowners Exemption
Homeowners, who work hard to pay for and maintain a house, pay property taxes that often do not fund property related services. These revenues go into local government coffers and can be spent for any purpose. To pay for services to property, like sewer, water and refuse collection, the homeowner pays extra through fees, assessments and other charges added to the property tax bill. Additionally, homeowners throughout California are also hit hard with bonds. Virtually all bonds for schools that must be repaid by property owners pass due to Proposition 39 that reduced the two-thirds voter approval requirement to 55 percent.
Even now, there are law-maker Scrooges in Sacramento who want to make it even easier to load up your property tax bill even more. They argue that because of Proposition 13’s low property tax rate, they should be allowed to squeeze more from average homeowners by making it much easier to increase local taxes. They ignore the fact that while the property tax rate may be lower than in many states, because the median price of a California home now stands at about $450,000, while nationally it is at $208,000, what the homeowner actually pays is comparatively high. (California is in the top third of states in per capita property tax collections).
One of the few benefits to homeowners in California – besides Prop 13 – is the Homeowners Exemption. This exemption simply lowers the taxable value of a primary residence by $7,000, which translates into a paltry $70 reduction in a homeowner’s tax liability. Not only is the amount of tax savings negligible, the Homeowners Exemption hasn’t been adjusted since 1972. If the exemption had been allowed to keep up with inflation, today it would be way higher – at least $35,000 for a savings of $350. And if inflation were based on the increase in California housing costs, it would be even higher still.
The 1972 bill — SB 90 authored by Democratic Senator Ralph Dills and signed by Republican Governor Ronald Reagan — that established this homeowners exemption amount, also included a renters tax credit that allowed the renter to deduct from $25 to $45 from their income tax. Here, too, state government has been a piker. Today, the income tax credit sits at $60 for single renter or $120 for head of household or married couple filing jointly. While at least here there has been a modest increase, it does not come close to keeping up with inflation. Had it been indexed for the CPI, the $25 credit of 1972 would be $140 today.
It’s past time for our political elites to acknowledge the high cost of owning and maintaining a home as well as the sky high rents in many communities, by addressing these human concerns with an increase in the Homeowners Exemption and the Renters Tax Credit.
The tax-and-spend lobby in the Legislature and all those who receive a check from the taxpayers will say that they cannot afford any loss of revenue. They will confirm the old saying that taking a dollar from a bureaucrat is like taking a piece of raw meat from a hyena, a lot of shrieking ensues. But with the Sacramento politicians bragging about the increase in state revenues that is billions ahead of projections and has resulted in a surplus, they can afford to leave a few bucks in taxpayers’ and renters’ pockets, money that can improve the quality of life for average Californians, money that, when spent, will help to stimulate the economy.
It is long past time to provide some well-deserved relief to those who are struggling to keep a roof over their heads while trying to keep up with constant additions to their property tax bills, as well as to those straining to pay escalating rents.
Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.