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writing for godot

Proposition 13 and tax reform

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Written by Walter Hecht   
Wednesday, 05 December 2012 04:12
Proposition 13

Howard Jarvis led the effort to pass California's Proposition 13 in 1978 to slow the rapid rise in property taxes that was forcing people from their homes. When I moved to Santa Barbara in 1965, many of my co-workers purchased homes in the $20-25,000 price range. As property values increased and assessments rose at the same time that tax rates also increased, my co-workers were hit with a double whammy, often seeing their property taxes exceed mortgage payments. Finally in 1978, Proposition 13 was passed to force a halt to rapidly increasing property taxes. And what was the reaction of our elected officials? Some of them closed libraries and shortened hours at the Department of Motor Vehicles (DMV) causing longer lines to punish the voters for their action. The elected officials had forgotten who they were working for, just as some in Congress have now.

At the time, I thought that Proposition 13 was a temporary measure that would lead to a more sensible, permanent reform. Although somewhat modified over the years, Prop. 13 lives on after 34 years in effect. This has led to some glaring unfairness that the courts should have addressed by now. The properties that sold for between $20-25,000 in 1965 now sell for between $600,000-800,000. For purposes of this example, let us consider a property now valued at $650,000. If purchased in 1965, that house's property tax is about $900/annually. An identical house next door on the same street if purchased today has an annual property tax of $8,100. That is a 9:1 ratio for the same government services and blatantly unfair.

Tax reform

I favor progressive taxes in place of regressive ones, and that is why I favor the progressive,graduated income tax as the fairest tax of them all. Property taxes are somewhat regressive and sales taxes are the most regressive of them all. That is why I favor abolishing all regressive taxes and replacing them with progressive taxes based on income and net wealth. And while we are at it, let us tax corporations as people, as Mitt Romney and the US Supreme Court advocate. Corporations should pay at the same rate as individuals do, and dividends and capital gains should be taxed at ordinary income rates.

The progressive, graduated income tax is the fairest tax of them all, but I think that relying only on an income tax alone is probably not a good idea. Therefore, I advocate an annual wealth tax on a person's or corporation's net worth of 1/2 of 1% to 1% as some countries in Europe do. A 1% tax on a net worth of $1,000,000 would be $10,000. Let the Federal government take the lead in setting the rules for the progressive income tax and the wealth tax. Then each state could determine independently whether it wanted to adopt the progressive income and the wealth tax within its borders. For example, Illinois could decide to tax its citizens 35% of the Federal income tax and 20% of the federal wealth tax. Some states might adopt one tax or the other, but not both. Some states like Alaska and Nevada might decide to adopt neither. It would be easy for taxpayers to compute what they owe to states since state rates would be a percentage of what they owed on form 1040. Complicated state forms would be a thing of the past.

Regressive taxes like sales tax and property tax would be a thing of the past also. How would cities and schools and sanitary districts be financed in the future? It would be the responsibility of each state to allocate tax revenues within the state to those government entities losing tax revenues under my proposal. This would greatly change how revenues are raised and spent in the US in the future. I cannot predict all the effects of my proposal at this time. However, I will predict that my proposal will have a profound and beneficial effect on schools. Each state would be required to fund all schools within its borders equally. Under the present system, schools are financed mainly from local property taxes which leads some schools to be much better financed than others. This would end under my proposal.
 

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