A Higher Tax on All Your Houses
An amazing thing happened on the way to the California recall: Someone spoke the truth about the state's financial predicament. Billionaire investor Warren Buffett, ballyhooed as a top economic advisor to Arnold Schwarzenegger, told the Wall Street Journal that property taxes in California are ridiculously low.
He's right. Thanks to Proposition 13 in 1978 -- an initiative no less stupid than the current recall and also put on the ballot by Republican conservatives -- the state lost its most reliable tax base. Voters capped annual property assessment increases at no more than 2%. The property is reassessed at market value when it is sold. This gutted the core funding source upon which every other state relies to provide public services.
To make his point, Buffett compared the taxes he pays on his Omaha residence with those on his home in the ritzy California coast city of Laguna Beach. The tax on his $500,000 Omaha home rose $1,920 this year, compared with a mere $23 on his $4-million California residence.
Schwarzenegger, who is assiduously avoiding talking about any issues lest it upset his anointment as a celebrity governor, let his campaign belatedly announce that he had rejected Buffett's advice and affirmed his support for Proposition 13.
Of course he did, because for Republicans and many other Californians, Proposition 13 has become sacred text. His rivals to the center and left were even quicker to rebuff Buffett's common-sense talk: Gov. Gray Davis issued a firm endorsement of the crippling law, and independent recall candidate Arianna Huffington promised "to reverse the trend that has seen an increase in the property tax burden placed on homeowners."
Huh? What increased burden? California homeowners have again experienced a housing price boom. This has allowed them to take out the untaxed increased equity in their homes through low-interest refinancing and second-mortgage loans that have fueled most of the robust consumer spending that has kept the state from falling back into a recession. The mortgage tax deduction and the $500,000-per-couple gift in tax-free capital gains when the house is sold remain tax boondoggles, resulting in a sharp class division between renters and property owners.
