W. MICHAEL JOHNSON LETTER IS INNUMERATE ABOUT PROP 13

Preface: Some years ago mathematician John Allen Paulos wrote a book titled "Innumeracy" about how many people are illiterate about numbers.  The letter in today's Pasadena Star News below by W. Michael Johnson of San Marino strikes me as an example of "innumeracy."  He thinks our state tax problems can be easily fixed by merely allowing all properties to be reassessed at their current Fair Market Value instead of at value of their last sale; and by lowering the property tax rate from 2% to 1.5%, which on its face appears as an actual tax decrease of a half percent. 

Let's take a real world example of the property tax assessment on Mr. Johnson's home to see how this would work out. Johnson's home in San Marino is presently assessed at a value of $206,618, and a 2% tax on that works out to be $4,132 per year. If his home was reassessed at the current probable Market Value of somewhere between $1,800,000 to $1,900,000, his property taxes at a lower tax rate of 1.5% would increase to $27,000 to $28,500; an increase of 553% to 590%!!!

Now maybe as a lawyer Mr. Johnson can afford this $24,368 per year property tax increase, equating to a $2,030 per month tax increase!  But those on fixed incomes or who have loans on their small commercial businesses and properties secured by home equity loans cannot afford such a tax increase. Paradoxically, such a tax increase would result in a wave of forced fire sales and home loan defaults all across California and a DECREASING property tax base due to what is called "tax capitalization." But apparently Mr. Johnson is illiterate about the real consequences of raising property taxes.

Proposition 13 permits property tax reassessment only when you sell your property. This is like stocks. You only pay a capital gains tax when you realize a real monetary gain by selling the stock.  Apparently, Mr. Johnson wants your property taxed whether you sell your property or not. 

Read Mr. Johnson's illiterate or innumerate letter below:

A taxing answer

The artificial determination of the "value" of property over time under Prop. 13 causes the unequal allocation of the property tax burden among similarly situated taxpayers. The system has been very good for me. I pay far less property taxes than some of my neighbors. Moreover, I am entitled to pass this benefit on to my daughter, a privilege of the type reserved for royalty prior to the French revolution. To me it doesn't seem quite right.

On the other hand, the property tax limit has probably kept some people from being taxed out of their homes or businesses.

My suggestion is that we reduce the property tax rate to one-half of one-percent, but base the tax on the current market value of the property. This would raise propertytaxes for some, me included. It would lower property taxes for others. It would place a lid on the amount of property tax that is lower than the one percent limit under Prop. 13. This change would get rid of the Byzantine "change of ownership" rules that, among other things, permit large corporations to essentially never have their properties reappraised.

This certainly is not the whole answer to our budget problems, but it might be a part of it.

W. Michael Johnson

San Marino

Comments

[Liz]

In the current edition of DSM (IV) I think this condition is known as "Rich Person's Guilt-Reduction via Bad Public Policy Syndrome."
Recommended treatment: Give all guilt-producing assets to Liz in Pasadena.
Immediate relief from symptoms guaranteed.