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THREAD: Proposition 15 failed and that's a huge bummer. We should try it again very soon. In the meantime, I also think we should pursue the following as a partial solution to the problems of Prop 13 on the residential side:
The heart of the proposal is real estate transfer taxes. Cities in the Bay Area, as well as Washington state and Culver City, have all recently adopted progressive taxes on the sale of property. They raise a lot of money and are assessed when it's easiest to pay: at sale.
Transfer taxes of just 1-2% can raise billions of dollars per year for the state. In the city of LA alone they could raise $1 billion per year. I wrote about the potential and the selling points of transfer taxes for the @UCLALewisCenter, here: https://www.lewis.ucla.edu/research/transfer-tax-reform/
Adopting something like this statewide could be challenging because you wouldn't want to double-tax cities that had local transfer taxes. There's a limit to how high the taxes can be before they start to cause problems, with e.g. household mobility. I have a solution for that.
The state could adopt a statewide base transfer tax, but all the money would go directly to cities and/or counties. This way you don't double-tax, and local governments wouldn't be penalized for already having their own taxes in place.
On top of the base tax would be a multiplier. This multiplier would increase as the seller's effective property rate fell. I explain the multiplier idea in some detail here: http://www.betterinstitutions.com/blog/2020/7/28/building-more-equitable-california-transfer-tax-reform
If their effective rate was 0.9% or higher, the multiplier is 1.0. At 0.8-0.89%, it might be 1.2, and so on. This is how we recapture some Prop 13 subsidies. All the multiplier revenue would go to the state.
Take the city of LA with its low 0.45% transfer tax rate, and say the state passes a 1% base rate. Now the city is bringing in more than double its previous transfer tax revenue, and the state gets the multiplier revenue.
Example: A property is sold for $1 million, and due to Prop 13 is paying an effective property tax rate of 0.61% at time of sale—this qualifies for a 1.6 multiplier. It pays $10,000 ($1 million * 1%) to the city and $6,000 ($1 million * 1% * 1.6 - city share) to the state.
Now take Berkeley, which has an existing transfer tax rate of 1.5%, above the theoretical state base of 1%. In this case the city would collect $15,000 on the million dollar property, but the state would still collect $6,000—the multiplier only applies to the state's base rate.
If adopted, this would significantly bolster both state and local government revenues on the backs of those most able to pay: California's property owners, and most especially those who've received the deepest subsidies thanks to Prop 13.
I also think this could win approval politically. Transfer taxes have proven super popular in California, and targeting higher rates at Prop 13's biggest beneficiaries—and only when they choose to sell—seems like a potential political winner too.
If anyone's interested in picking this up and moving forward with it, let me know—I'd love to be involved and work out details further. I originally proposed transfer taxes because Prop 13 reform seemed unrealistic, but now I think this could be an effective end-run around it!
