California’s Proposition 13 (1978) is the anti-Land Value Tax. Instead of taxing away the land rent and encouraging improvements, it does the opposite by protecting private land rent and taxing turnover and improvements.
• Under Proposition 13, the statutory tax rate is only about 1.2% (1%, plus voter supermajority-approved bonds). Ideally, a land value tax would be higher.
• You’re taxed according to acquisition value plus an inflation adjustment (instead of current fair market value), so the average effective tax rate is only about 0.7%. What this means is that property investors (instead of the community) pocket 100% of the unearned value increase until they sell.
• But it also causes reassessment when you renovate or rebuild. So if you construct an addition, the effective tax rate on the addition is actually greater than the effective tax rate on the land. (Contrast to land value tax, in which the tax rate on improvements is 0%.)
That proposition exists as a protection from homeowners being screwed by the government being unfair about the value of their land. Yes I agree many homeowners are paying less taxes than what the land is actually worth, but hey, does property tax really even make sense? This person PURCHASED the land but still has to owe the government taxes even though they own it?
Secondly, it is really important to think of real estate as an investment more than a physical asset. These people got in the market early and their investment is giving them great returns. I think that is fair. They purchased these homes maybe 40 years ago when SF was full of crime and property was worthless. Their "penny stock" or whatever you'd like to call it popped off because tech decided to be in the bay area. I think it is right that they are rewarded greatly for picking a great investment.
yonran|8 years ago
• Under Proposition 13, the statutory tax rate is only about 1.2% (1%, plus voter supermajority-approved bonds). Ideally, a land value tax would be higher.
• You’re taxed according to acquisition value plus an inflation adjustment (instead of current fair market value), so the average effective tax rate is only about 0.7%. What this means is that property investors (instead of the community) pocket 100% of the unearned value increase until they sell.
• But it also causes reassessment when you renovate or rebuild. So if you construct an addition, the effective tax rate on the addition is actually greater than the effective tax rate on the land. (Contrast to land value tax, in which the tax rate on improvements is 0%.)
kevinliang|8 years ago
Secondly, it is really important to think of real estate as an investment more than a physical asset. These people got in the market early and their investment is giving them great returns. I think that is fair. They purchased these homes maybe 40 years ago when SF was full of crime and property was worthless. Their "penny stock" or whatever you'd like to call it popped off because tech decided to be in the bay area. I think it is right that they are rewarded greatly for picking a great investment.