STOP STEALING LEGACY – RECOUNT California PROPOSITION 19 (2020) REFRESH PROP 58
Amid the chaos over the Presidential race of 2020 and California lawmakers planning to travel to Maui for “business” amidst a myriad of COVID restrictions, here in California is Proposition 19, a tragedy in the process of being passed that is, in my humble opinion, a shiny coin with the dark side.
It would seem most of the people who are supportive of this measure are owners of only a single piece of non-income producing real estate (a primary residence) or those who are encouraging people to switch properties to increase the number of commissioned real estate transfers. The problem is, there’s a wicked subtext to this that should not be there.
In this age of American society where family legacies are seemingly held in lesser esteem and the ability to generate short term cash seems to prevail, the ability to hold a property, whether as a primary residence or an investment property is one of the most valuable possessions a parent can pass along to their children or grandchildren, thanks to the provisions of California Proposition 13, the Jarvis Gann Initiative of 1978 and Proposition 58 (1986).
Many people believe, including myself, that property taxes are un-Constitutional to begin with, they can be used as a means through which a government can put pressure on property owners, forcing them to give up their privately held possessions through exorbitant taxes.
THE VALUE OF INVESTMENT PROPERTY
As an American citizen, understand the opportunities private ownership of real estate affords you, it’s one of life’s important lessons. Investing in real estate, learning to be or work with a property manager, how to take care of an investment property, to improve the community by offering a safe place to live for those who cannot afford or choose not to buy a house on their own, are all part of a an essential holistic education.
On top of all of this, and this does require the qualities of discipline, measured risk, and work, having an investment property allows you and your family to earn what is known as “passive” income. Passive income is something you do not learn about in public school as most are trained to become a good worker, a good employee, rather than an investor.
THE DARK SIDE OF PROP 19
Because of the insane increases in property values over the last 10 years, a 1 million dollar or less investment is ideally suited for first time investors and long term investments of lower income families. The last decade especially has proven that protecting their investments from future taxation based on market values is crucial and the passage of this kind of taxation will infringe on the child’s ability and their right to maintain ownership of family investment property.
It is interesting to note that campaign contributions as of November 1st , 2020 for Prop 19 were totaled at $47.0 million coming almost exclusively from the California and National Association of Realtors and opponents only raised only $45,000! (Source: Wikipedia).
Another interesting note is that this Prop 19 was sponsored by the California Democratic Party. Yet this Proposition 19 was opposed by a California chapter of the ACLU, Family Business Association of California, the Howard Jarvis Tax Payers Association and the League of Women Voters of California, that’s an interesting combination and I can only imagine that they are against it for differing reasons, but I can add myself into the sum total of this seemingly disparate group. It just goes to show you that there are times when collaboration brings together uncommon allies – the so-called Right Wing and Left Wing are part of the same bird.
I voted NO on Proposition 19, not because I do not agree with Californians over 55 who can save their retirement by not getting hammered with crazy property taxes, but for the hard working and disciplined lower income investors, who chose to plan long term in effort to provide a legacy of a better life for their children. Having looked closer at the Proposition, it clearly pits one property owner against another when neither should suffer as a consequence.
Who gets hurt the most from losing responsibly-held investment properties? Again, this cannot benefit lower income California descendants because they are the ones who will likely lose their birthright of inherited properties because of the stiff tax rates linked to skyrocketing real estate values (another issue). This increased taxation will have an effect on pushing future generations back into the viscous dependence on salaried or hourly labor, even welfare.
In my quick estimation, the people who benefit are short term property flippers whose exposure to property tax is limited or “richer” people (at least richer than the ones who had to sell). The hefty tax burdens resulting from infringing on the right of owners transferring property from parent to child, or grandparent or grandchild are antithetical to family legacy planning. It is another attack on the family as a self-sustaining unit in society.
RESTORE AND REFRESH PROPOSITION 58
Short of abolishing property taxes, this is what should have been the highlight. The proper treatment of Proposition 58 would have been to increase the exemption of 1 MIllion dollars based on an average increase of market value properties since 1986. Roughly estimating, if a property in California was in 1986 valued at $50,000 and in 2020 is valued at $1,000,000, then a 20x increase to the exemption limit should have been proposed. A compromise would be a 10x or even 5x increase, so let’s say, the exclusion should be increased to $5 million to $10 million for investment properties transferred to children or grandchildren.
Instead, Prop 58 was scuttled like a sacrificial lamb in order to promote the sale of principle residential property during the life of non-investment holding owners and the sale of investment property after the death of the investment holding owners.
WHAT IS THE SOLUTION?
The solution to the tax revenue problem can come from some liberty promoting methods that support law-abiding citizens.
It is better that government control spending through budget reductions and/or generate tax revenue in a way that does not infringe on the private citizen ownership of real estate for private ownership across the income spectrum.
Tax foreign owners, private or corporate. They should not qualify for the same rights as a U.S. citizen. Tax to compensate for the increase in market values caused by dramatic influxes of foreign investment capital.
If you can think of any other logical means to resolve this issue and reinstitute Prop 58 and/or abolish property taxes in California, or explain some of the hurdles involved, let me know in the comments.
STOP STEALING LEGACY – RECOUNT PROP 19 – REFRESH PROP 58
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