California's Sacred And Mad Property Tax System

Journalist Lee Greenwrites a mock letter to California Governor Arnold Schwarzenegger offering suggestions for how the Governor ought to take on fixing the state's illogical property tax system.

Tax economist Frederick C. Stocker once noted that property taxes resemble "a structure designed by a mad architect, erected on a shaky foundation by an incompetent builder, and made worse by the well-intentioned repair work of hordes of amateur tinkerers."

"...Forget politics for a moment and let's be honest. If Proposition 13 were one of your Hummers, you'd drive it straight to the shop for repairs because it's running rough and leaking oil. Worse, it's backfiring. Many of the best and the brightest in economics, law, public finance, public policy, planning and tax theory believe that Proposition 13—born out of homeowners' anger over rocketing property taxes and government indifference—has caused or contributed to some of [California's] most pressing problems.

In 2003, when Warren Buffett wanted to talk about Proposition 13 and you wanted him to zip it, the Nebraska billionaire tried to illustrate Proposition 13's inequities by comparing that year's property tax bills on two houses he owns in Laguna Beach. The tax on his $4 million house, purchased in the early 1970s, was $2,264, while the tax on his $2-million house, adjacent to the first and bought in the mid-1990s, totaled $12,002. In a published letter to the Wall Street Journal, Buffett pointed out that "the tax rate on the second house—same neighborhood, same owner, same ability to pay—is roughly 10 times the rate on the first house." He also noted that a hypothetical "non-billionaire" family buying a $300,000 house in Chico "faces real estate taxes materially higher than those borne by this nonresident billionaire on his $4 million house in Laguna. This family, because of Prop. 13, has been selected to subsidize me."

Thanks to Chris Steins