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Jon Coupal- Columnist

Jon Coupal is an attorney and president of the Howard Jarvis Taxpayers Association -- California's largest taxpayer organization with offices in Los Angeles and Sacramento. [go to website] [go to Coupal index]

Prop. 13 -- A One-Edged Sword
Saving taxpayers from government money grabs...

[Jon Coupal] 4/15/05

As if we needed another reminder why Proposition 13 is so loved by California homeowners, the Wall Street Journal last week reported that many states are abandoning property tax relief programs for seniors. With one notable exception discussed below, the property tax system in California continues to provide across-the-board tax relief for all property owners -- thanks to Proposition 13, overwhelmingly enacted by 66% of the voters in 1978.

As reported by the venerable WSJ, real estate values throughout America continue to rise. Relatively cheap borrowing costs -- notwithstanding recent upticks by Chairman Greenspan -- coupled with a resurgent economy have put upward pressures on property values. Other factors behind the rise in values include population increases in many regions in the U.S. and, of course, limited supply. As my father used to say, "God quit making land a long time ago."

For residents of other states, rapidly rising home values are a two-edged sword -- meaning that any advantages are associated with equally powerful disadvantages. The advantage, clearly enough, is a marked increase in the paper value of one's home. In other words, a $100,000 increase in property value is a $100,000 addition to one's net worth. The problem is that a $100,000 increase in value -- for most homeowners -- has no positive impact on cash flow. Sure, homeowners can "cash out" equity by borrowing against it, but many citizens, especially senior citizens, are rightfully opposed to taking on new debt when they have worked their whole lives to pay off their mortgages.

The impact of rising values to a homeowner's cash flow is, regrettably, a negative one. With higher values come higher property taxes because, under "traditional" property tax systems, tax liability is pegged to current value.

Other states, pursuing policies well short of the tax relief provided by Proposition 13, have implemented a variety of programs to give senior homeowners some modest protection. But according to the Wall Street Journal, even these limited programs are being fazed out because of the voracious appetite for tax dollars by local and state officials: "Local tax-relief programs have been stalled, scaled back or rejected in states from New Hampshire and Rhode Island to Iowa and Texas. Earlier this month, New Jersey's acting governor, Richard J. Codey, proposed slashing property-tax rebates for elderly and disabled homeowners to $800 from $1,200 to help close a $4 billion budget gap."

Thankfully, here in California, the granddaddy of all tax relief programs -- Proposition 13 -- is not subject to the vagaries of the elected politicians and bureaucrats wholly co-opted by the spending lobby. The wisdom of voters in 1978 has created a property tax system that is a one-edged sword: A system in which one's most important investment -- one's home -- increases in value and helps to ensure security in one's senior years while preventing rapidly escalating property tax liability that would otherwise vitiate all the benefits of the higher value.

That doesn't mean Californians are completely safe. The tax-and-spend politicians and special interests continue to attack Proposition 13 with proposals to eliminate the two-thirds vote requirement and by new schemes to impose "parcel taxes" above and beyond the regular property tax. Moreover, the additional tax relief reflected by the "Homeowners Exemption" has remained static since the 1970s. Its $70 worth of tax relief was modest back then. Now, because of inflation, it is next to worthless.

The barbarians will always be at the gates wanting to take Californians down the road to higher property taxes as they have in other states. Most Californians are wise enough to decline the invitation. CRO

Jon Coupal is an attorney and President of the Howard Jarvis Taxpayers Association.

copyright 2005 Howard Jarvis Taxpayers association

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