THOMAS ELIAS'S ALIAS: SOCK PUPPET AGAINST CALIFORNIA PROP 13

by Wayne Lusvardi

California syndicated columnist Thomas Elias is out with a state-wide column in local newspapers which sounds a lot like boosterism for a revision of California Prop 13 for what is called a "split property tax roll."   This "change" would tax commercial properties at full current market value but leave residences exempt from any tax increases until they re-sold as presently provided under Prop 13.  According to Elias:

"This would be a change to the actual Proposition 13, but it would not affect residences, either. Rather, it would see higher taxes coming from large, money-making properties than from homes which are, after all, primarily intended for shelter, even if they can sometimes be profitable. One form of a split roll would be to tax business properties at their full market value while leaving residence alone....The upshot, then, is that there is absolutely no need for the kind of panic we now see in the State Capitol. Solutions are available, and not particularly painful ones, as they would still leave California's overall property taxes far below the per capital levels of almost every other state. All that's required is open eyes, and the ability to stand up to the business lobbies that have fought so hard to keep Proposition 13 what it is today -- a form of corporate and investor welfare subsidized by every individual property owner and renter in California."

Elias is an alias name for a tax hit man. He has no awareness or economic competency of the devastating impacts that lifting the tax exemptions on commercial properties will have on small business owners who comprise 99.99% of commercial properties across the state.

A split residential-commercial property tax roll:

1.  Would force many small commercial property owners across the state to fire sale their properties which would lead to collapsing commercial property values.  Predator buying would be in vogue in such a market. Commercial landowners would have no legal recourse for such regulatory takings.
2.  Would place at risk an uncountable number of home equity loans and Small Business Administration loans that small business owners have taken out to capitalize their small businesses.  In other words, this would add even more properties to the growing default list from sub-prime residential property loans.
3.  Houses and apartments on commercial-zoned land would be subject to the tax increase resulting in displacements and rent increases.
4.  There would be a mass breach in commercial and retail building and land leases as both landlords and tenants could not afford to pay for the huge tax increase. Passing the increased tax onto landlords would result in landlords seeking to void leases at the slightest breach of a commercial lease. Imagine the major commercial strip in your home town with 20% vacancies while this legal chaos is sorted out. 
5.  Would force many historical structures on commercial land to be demolished as they would no longer be economically viable. Such properties would quickly have to be put to  higher and better uses just to pay the property tax load. For example, in the City of Pasadena alone, the vacant former YWCA historic building across from City Hall, the highly popular and trendy Marston's restaurant, the Raymond Restaurant, the local hangout Pie 'N Burger, and many other historically important properties might have to be demolished as soon as possible and put to a higher economic use just to pay the tax on the land. A local brouhaha that lasted some five years in Pasadena over the condo conversion of the historic Crown Theater would never have occurred in the first place without Prop 13 protecting such properties from gigantic tax increases for decades.  
6. Would especially hit auto dealerships hard during an historic depression in the new car sales business as the land on which their dealerships sit would be taxed to the hilt. This would result in even more vacant and abandoned auto dealerships along Colorado Boulevard, the historic route of the Rose Parade.
7. Even in economically viable commercial properties the market would adjust property values downward immediately, a process called "tax capitalization." Although this hypothetically would compensate property owners for the higher taxes, the transition would wipe out many small businesses and family fortunes in the process. Many cities would secretly relish this creative destruction as such properties would be easier pickings for condemnation by eminent domain for redevelopment. Mom and pop businesses would be replaced with large chain stores with an employee base which would potentially offer more recruits for unionization. 
8. Many small businesspersons would end up having to let go hired employees and run a larger part the their daily business operations themselves to make up for the increased tax load.  Higher unemployment at the bottom end of the employment food chain would result.
9. Would take about 2 to 3 years to derive any revenue from such a commercial property tax increase as assessors would have to be hired and trained and reassessment appeals processed.  Today, California tax assessors mainly do not have to annually re-appraise commercial properties. The deployment of staff to accomplish this function would be costly and involve a lag time. Any such tax reassessments in a collapsing commercial real estate market would be problematic and politically risky, especially for newer mixed use developments on commercial-zoned land.  

Pseudodictionary.com defines a meat puppet or sock puppet as "a person who publishes on public venues about some phenomenon or product in order to generate public interest and buzz.  Using aliases, meat or sock puppets pretend to have experience with the subject and masquerade as an exceptionally satisfied and unbiased user of the merchandise" or public policy (e.g., a sock puppet for poor quality cars, pseudo-competency about bank insolvencies, the cause of financial crises, egalitarianism, political astroturfing, etc.).

Wikipedia defines "meat puppet" as synonymous with sock puppet and defines it as "an account created only for the illegitimate strengthening of another user's position in votes or discussions." 

As used here, the term sock puppet has a double meaning: (1) a sock puppet is a puppeteer for government taxation; and (2) and also connotes "socking" commercial property owners with higher property taxes. 

The name Thomas Elias is an alias for economic incompetence. Unfortunately, it is through the distorted worldview of such journalistic incompetents that the electorate is (mis) informed about tax policies. 

In the classic Italian children's story of Pinocchio, a cartoon character called The Talking Cricket who has lived in the puppet master Geppetto's house for over a century, tells Pinocchio that boys that do not obey their makers grow up to be donkeys.  Pinocchio retaliates by throwing a hammer at the cricket accidentally killing it.  Talking crickets, and tax protesting small business and land owners, are endangered species threatened by donkeys with extinction under any split roll property tax scheme that would circumvent the protections of Prop 13 in California (see http://www.redding-com/news/2008/nov/18/elias-budget-solution-staring-state-face/   

Comments

[Wayne Lusvardi]

Comment from 17th Miss Regt:

Another point arises. The current value of a building goes up and down as the market changes. As the value goes up, the reassessments would drive up the costs of taxes. The state gets used to the new amount of taxes and buys 10 widgets with the money. When the market goes down, the building value goes down and the owner gets another reassessment. The taxes decrease and the government no longer has the tax money to pay for 10 widgets. It can only buy 5 widgets. A ‘shortage’ of 5 widgets is created.

On the other hand, with Prop 13, the current value of a building goes up by 2% annually as long as the owner does not change. The state buys 3 widgets with the money. (The amount gradually increases but is fairly constant.) When the market goes down, the building value goes down and the owner gets another reassessment. The taxes decrease and the government no longer has the tax money to pay for 3 widgets. It can only buy 2 widgets. A ‘shortage’ of 1 widget is created. This may be much more easily handled than a 5 widget ‘shortage’.

The difference is that in the first case the state government spent the higher amount and expected it. When the market downturn came around, there was a huge deficit. In the second case, the government does not experience a severe shortage. This second way is the way to more stable government funding, not raising taxes through the roof!

By and large, the California legislature has lost the ability to understand this simple concept.

[Wayne Lusvardi]

From Anonymous:

I can't IMAGINE a stronger column about the potential DEVASTATION of split property tax roll. Elias is obviously tapping into anti-corporate, anti-business hatred and may succeed because without a counter to it such as yours it could happen - seems to make sense on paper to voters, homeowners in this climate who have been encouraged to have blind resentment and lack of understanding about Evil Corporations et al. The concrete examples in your column are EXCELLENT to see the picture of what could happen with this ill-thought-out split tax roll proposal -- especially strong for the jerks in Pasadena is how the historical preservation crap would be NON-EXISTENT. Plus your usual WLisms of puppet definitions and Pinocchio, etc., VERY ENTERTAINING and informative.

[lvtfan]

Just end Prop 13 -- for everyone.

Treat every landholder just as if you honestly believed them to have been created equal... a novel notion for some people, I suppose, but I think it has some fine precedents.

Land value would not decrease. Land prices might. But the only ones hurt would be land speculators, and they create nothing (except havoc for those who need homes or work or other necessities).

Ignore anything that taxes long-time owners lightly and new owners heavily -- that is what Prop 13 is: no matter how you dress it up, it is still a pig, an injustice, a travesty in a country with our founding documents and ideals.

Tax land value. Stop taxing buildings. (By the way, buildings do not appreciate; they depreciate at 1.5% per year, unless there is some shortage of building materials or the labor to produce them. They're never worth more than what it would cost to build them today, and they become obsolete as new technologies come along and as the land value rises as a result of public spending, technological advances and population increases.)

Land value is the superior tax base for any kind of spending whose effect is to maintain land value. Not one acre leaves town when you tax it. Not one square foot can be hidden. Valuing land well is not hard to do. Put the valuations online, for all to see and judge. California will be on its way to a just and vibrant economy which rewards labor and productivity -- and doesn't reward land speculation. (You can't have both.)

And when you tax land, the best sites get used more intensively. Yes, some 1940s relics will get replaced, and instead of those choice sites serving one business, they will be a venue for many, and perhaps provide some housing above. Is that a bad thing? For whom?? Our cities are not museums. When we use our choice land well, we reduce urban sprawl. We serve human needs. We allow the land markets to work.

Proposition 13 prevents land markets from working well, by favoring old owners. Lousy policy. Fix it. You're smart people, aren't you? You're people of good will toward your fellow human beings, aren't you?

Aren't you??

[lvtfan]

I'm intrigued with your suggestion that 99.99% of California's commercial land value is owned by small businesses.

Maybe you have been paying too much attention to California's assessed values, and confused them with reality. "Small" businesses are mostly tenants. They pay rent to landlords, which are much bigger businesses. And most of what they are paying for is LOCATION -- land value. Old buildings aren't worth much.

LAND lords grow rich in their sleep, and California's Proposition 13 makes their sleep even more enriching than that of their counterparts in other states.

Genuine small businesses struggle because of Prop 13. LAND lords love it. But LAND lords didn't create the land; they are permitted to privatize its value just as if they had some role in creating it. Neat trick!

But who is getting tricked here?

Much better would be to get rid of sales taxes and wage taxes and building taxes, and simply tax land value. The transition could be made gradually, but once it was announced, a number of good things would start to occur in California's economy.

Large landholders, particularly those most subsidized by everyone else because of their "seniority," would scream. But then they'd have to find honest work to do, and apply their brilliance to something productive, instead of simply sucking up the productivity of others. And California's public spending would be funded honestly, from value created by all Californians FOR California.

How much is good land worth? I don't know about California, but NYC has an acre which is rumored to be worth $400 million to $1.2 billion -- as a teardown. Economic rent is about 5% of land value. Accepting the lower figure -- $400 million -- and taxing that at just 1% per year (which leaves the other 4% in the pocket of the landholder) would supply $4 million to meet community needs. That would permit the elimination of a lot of people's sales and wage taxes. And the owner of that choice acre is still getting 80% of the economic rent, which he did NOTHING to create. Wouldn't he be churlish to ask for 98% for himself?

[Better yet - just end property taxes]

Why does the government have a right to tax our property? The government is the real pig in all of this. Like all taxes, property taxes are a cancer that eats away at the pocketbooks of ordinary citizens. Worse yet, politicians in Sacramento and elsewhere determine how the money is to be spent. Their track record speaks for itself. It's time to allow the private sector to build and maintain our roads, educate our children, provide police and fire protection, and provide all of the other services we have traditionally given to government. The private sector will do a better job for less money.