In California we have this absurd voter-approved law we call Proposition 13, which caps property rates. It effectively eliminates the only "wealth tax" we have, leaving our schools perineally underfunded and removing incentives to upzoning from both city governments and home-owners! It's a real piece of work.
So, the rate is capped, but what does that mean if the value of the property goes up? Let's say the tax assessment went from $200,000 to $1 million, how much would the yearly payment go up?
// it is a bit off-putting to down vote everyone not up on CA law.
The tax basis value can only increase 2% per year, except when certain qualifying events (transfers of ownership, mostly, but IIRC some improvements qualify, at least as to the value added by the improvement, as well.)
So, given the prop 13 maximum tax rate of 1% and maximum increase in tax basis value of 2% per annum, a property that was fully taxed at a basis value of $200,000 in 1985($2,000 annual tax) that increases in value to $1 million -- or even $10 million -- in 2015 would have a tax basis value of $362,272 and a total annual property tax bill of about $3,623.
Prop 13 causes all sorts of issues. Many people want to move (kids moved out, changed jobs, etc.) but they can't because they would not be able to afford the huge jump in property taxes.
It's just another thing that creates artificial scarcity.
The people who want to move but can't afford to are the exact same people who would be forced to move without prop 13. At least with prop 13, people are not forced out of the homes they have purchased.
The problem is not with Prop 13. It's with property taxes at all. I'm not fundamentally against a wealth tax of some kind, or against cities raising income, but if you base this on assessed values of real-estate, a highly illiquid asset for most people, you are guaranteed to generate these problems, not to mention undermining the very notion of property.
The problem is not prop 13. It is that something else should be taxed instead of property.
