Opinion: Proposition 19 And Buyer’s Remorse
By Neera Kuckreja Sohoni
SACRAMENTO, CA – While those who live in California are invariably envied by others for enjoying its year-round incredible weather, natural beauty, and historic (once treasured now fast decaying) cities, they and we are slowly recognizing the backbreaking burden of California’s high taxation rates and the state government’s insatiable appetite for ever more grounds for increasing taxes. In 2021, in terms of state tax collections per capita (per person), California ranked second highest in the nation at $6325 which is 65% higher than the national average for the US at $3831. Large states like Florida and Texas ranked 48th and 49th with $2262 and $2214.
True, as in most of the world’s economies, the burden is unevenly shared by earners. According to Google, 20% of California families with the lowest incomes pay 7.4% of their incomes in combined state and local sales and excise taxes, compared to 0.8% for the richest 1%. On the other hand, the wealthy account for the major part of tax payments. “The top 5 percent of income earners,” according to Robert Gutierrez, CEO of the California Taxpayers Association, “pay 70 percent of the personal income tax. And the personal income tax is California’s biggest source of revenue.”
Setting aside the inter-class chasms, it is worth noting that California’s state and local governments, according to Google, raise well over $200 billion annually in own-source revenues to provide public services, with roughly 60 percent coming from taxes paid by residents. In per capita income, on the other hand, California is hardly a topper ranking 6th in the nation.
Unlike tax rates, tax burden measures the proportion of total personal income that residents pay toward state and local taxes, which varies widely across the U.S. To determine the residents with the biggest tax burdens, WalletHub compared the 50 states across the three tax types of state tax burdens — property taxes, individual income taxes, and sales and excise taxes — as a share of total personal income in the state. Their findings revealed New York topping the list with its residents bearing the highest total tax burden. California came in at 12th, Texas at 29th, and Florida at 46th rank.
Experts credit California’s high taxes and cost of living as the main drivers for people moving out of state. Elon Musk, for instance, cited high taxes as an important factor that pushed him to move Tesla out of California.
In November 2020, following a year of devastating wildfires ravaging the state, Californians felt pressured and rushed to pass Proposition 19 which was narrowly approved with just 51% favoring it. In its wake came buyer’s remorse. As a critic noted, “The emotionally charged and complex bill touted perks for seniors, fire victims, veterans, the severely disabled, schools, fire departments, local governments and more. What was tucked in the fine print was a devastating blow to homeowners who desired to pass their family home to the next generation. It was a bad proposition, and became a bad law”.
Effective February 2021, as per Proposition 19, a family home transferred to the owner’s children by either sale or inheritance is reassessed and taxed at the higher level, unless the child actually lives in the home. These higher assessed values, as homeowners are bitterly discovering, have resulted in families across the state feeling pressured to sell their family home to outsiders because the children cannot afford the higher property taxes. Sadly, most homeowners and inheritors tend to be unaware of the impending tax burden until the actual moment of transfer occurs following the death of a parent.
Serious concerns have been voiced about the heavy economic cost to homeowners of the rushed passage of Proposition 19. According to Jon Coupal, “Proposition 19 was the largest property tax increase in California history.” The law “also has a devastating effect on renters who, as a result of a property’s reassessment and or sale, can face huge rent increases”.
In 2022, Howard Jarvis Taxpayers Association launched a referendum effort – “Repeal the Death Tax,” but COVID-related restrictions and lockdowns made it difficult to circulate petitions and mobilize the required signatures. In May, according to the Association, a bipartisan Constitutional Amendment – SCA 4 was proposed in the Senate Committee on Governance and Finance to correct the injustice perpetrated by the passage of Proposition 19. The amendment would have restored the ability of families to transfer their family home without increased tax liability and importantly, without affecting the beneficial parts of the current law. But the measure was narrowly defeated along party lines.
Among those opposing it were the American Federation of State, County and Municipal Employees, California Professional Firefighters (co-sponsors of Prop. 19), California Teachers Association, California Association of Realtors, and Common Ground California. They did so in the hope of receiving windfalls from the current law which has yet to materialize. As homeowners seeking insurance against fires, many of us are being openly and ruthlessly rejected by home insurance companies unwilling to risk their funds on ‘losing causes’. So homeowners are experiencing a double whammy – one from having to self-insure against fire and natural hazards, and the other from the escalation of property taxes.
A welcome, timely initiative is now underway to restore owners’ right to transfer their family home or farm to their children without unwarranted tax increases. The Howard Jarvis Taxpayer Association is leading the effort to “Fix Proposition 19” and “Repeal the Death Tax” through a 2024 ballot initiative that will restore the protections that Proposition 19 took away. The effort will succeed only if the petition is signed in sufficient numbers. The official legal petition including ‘how to fill and mail’ instructions can be downloaded from the Taxpayer Association’s website and the signed printed form mailed to the designated address.
It is hardly a cliché to suggest that democracy depends on people doing something for themselves. This is one occasion to step in.
(Sohoni is a resident of CA and a published author.)