Looking back at surprising 2020—2021 efforts in California to unravel existing middle class utilized Proposition 13 – commercial and residential property tax relief measures. Propaganda from various critics of property tax relief, and sectors of the realtor community, promoted unrealistic property tax measure Proposition 15 – and the attempted removal of tax breaks allowing exclusion from current tax rates for commercial property and business property owners; including middle as well as upper middle class apt building landlords throughout California. They, and Proposition 15, failed by a surprisingly small margin.
Had Proposition 15 not failed, a property tax hike like Prop 15 would have created a massive statewide increase in prices for all goods and services, all across California, for working families and middle class consumers. In other words, a tidal wave of statewide inflation.
Opponents of property tax relief still refuse to admit that higher taxes on commercial property owners and landlords would have forced all business property owners to raise rents on most merchant store tenants – companies leasing malls… on businesses renting gas stations, super markets, drug stores, liquor stores – a tax hike that would essentially impact all merchants renting space or storefronts, as well as umpteenth landlords with countless residential tenants and office building owners with countless business tenants.
Quite frankly, voters that bothered to read the fine print under this tax measure found the potential affects of Prop 15 to be unimaginable, hence it did not pass. It’s unlikely that Prop 19 would have passed had voters not been confused by the heavy promotion focused on “helping elderly homeowners” and “victims of wildfires” etc… or had voters simply not been lazy, avoiding the complicated fine print concerning inherited homes… it’s quite likely that Proposition 19 may not have been voted into law.
That, in fact, is what Proposition 15 or any commercial property tax hike would accomplish. So critics of property tax relief should take heed! Massive statewide inflation would occur… causing businesses and merchants to struggle with flagging sales, in response to higher prices, and related issues. Business bankruptcies would increase. And layoffs would most likely rise to excessive numbers.
When so much of your profit margin is going up in smoke, in property taxes, you’re not likely to start hiring more workers. In fact, sadly, you’re more likely to lay some people off. Not to mention the companies that would begin leaving the state altogether, moving to nearby states that offer lower property taxes, are more business friendly in terms of taxation overall, certain property taxes, hence you lose workers and in fact increase unemployment and lose tax revenue from all those folks that are not working.
On the other hand, another property tax measure, Proposition 19, was voted into law in California. Looking beyond the obvious fact that this tax measure somewhat limited the former Prop 58 parent-to-child exclusion (from paying current market rates)… the property tax transfer process, in other words the ability to transfer parents property taxes and keep parents property taxes without limitations, when inheriting property taxes, a parent to child property tax transfer… all became more limited in terms of what heirs of parents are actually able to exclude from current tax rates.
Basically, people now more or less have to work a little harder to be able to avoid property tax reassessment; and it unraveled a loophole which made it easy for the next generation to avoid being reassessed at current market value. Not only that, it’s no longer possible to use Proposition 13’s 2% tax cap when purchasing investment properties, often used as vacation rentals to generate some extra cash from tourists.
However, Prop 19 does make it possible for folks that are over age 55, that are residents with homes damaged or destroyed by natural disasters like floods, earthquakes or wildfires, as well as homeowners that are disabled, to receive excellent property tax breaks. Those Californians can keep their residential property basis when shifting to a new primary residence.
A lot of homeowners are encouraged by these changes to property taxation to downsize. However, many residents are looking to do this anyway, especially older middle class residents who tend to have a fixed, modest income from Social Security and/or lower income pensions. And there is always an exclusion from current tax rates to look to, the ever popular parent-to-child exclusion, with a full year to move in, as a primary residence, to inherited property.