Among rational-minded folks, California receives an extreme amount of criticism, but by no means is it inordinate. After all, the Golden State promotes some of the most outlandish laws you can imagine, such as the controversial Assembly Bill 5, better known as the gig worker’s law. However, thanks to a rather strange legal oasis called Prop 13, millions of Californians enjoy surprisingly low property taxes.
According to San Francisco Chronicle writer Alexei Koseff, California voters passed Prop 13 in 1978. Koseff writes:
[Prop 13]…capped state taxes for all types of property at 1% of the purchase price, with annual increases of no more than 2%. Critics have long complained that California is losing out on billions of dollars in revenue each year from valuable business properties that have never changed hands and thus never had their taxes reassessed.
Honestly, Prop 13 has made life in California bearable and livable for most everyday homeowners. And that’s especially the case for the lucky ones that bought real estate during the lows of the Great Recession. If those folks had to pay market value for their property taxes, their tax burden could easily increase two-fold.
Sure enough, one of the hot topics among leading Democratic candidates for President is the Prop 13 repeal. Underlining this issue is the concept that California is giving up billions of tax dollars due to the property tax cap. Remove the cap and those billions could go toward state education costs and labor unions.
Contrary to a popular social media post, the current Prop 13 repeal will not impact residential property owners. That’s the good news. But the bad news is that if the repeal passes, it will impact commercial and business properties.
A Commercial Prop 13 Repeal Is Still Awful
Generally speaking, one of the positive aspects of the U.S. business tax code is that it’s based on incentives. If you promote actions that lead to money velocity – hiring employees, purchase company assets – you can take legitimate tax deductions. If not, you pay a higher portion of the statutory tax rate, up to the maximum level.
Naturally, many businesses take advantage of the deduction incentives. To them, it’s like getting a discount for actions and procurements that they would already make as corporate entities.
But the problem with Prop 13 is that it’s a direct tax penalty. Rather than giving commercial property owners a choice, they all have to pay market value on their taxes.
While this frees up “billions” for education and labor unions, who do the Democrats think that it will hurt? Surely not the “billionaires” that own these lucrative properties – they’ll just pass the burden onto their leases!
So, in the name of bolstering labor unions, California decides hurting small businesses is the answer. Thanks California!