Kirk J. Stark (UCLA) presents Retrofitting Prop 13 Via the Private Revenue Tax at Duke in the present day as a part of its Tax Coverage Seminar hosted by Lawrence Zelenak:
Beneath constitutional limitations on California’s native property tax launched through Proposition 13 in June 1978, householders are typically taxed not on the honest market worth of their properties however somewhat the property’s historic price. As residence costs rise over time, this “acquisition worth” characteristic has two predictable results: (1) it ends in vital property tax disparities, favoring longtime householders relative to newer purchasers, and (2) it discourages householders from transferring due to the elevated property tax burdens related to buying a brand new residence. Much less well known is the offsetting impact of a longstanding characteristic of California’s revenue tax: the deduction for native property taxes. By directing a bigger subsidy to these with increased property taxes, this provision favors latest homebuyers going through market-value property taxes relative to longtime house owners with constitutionally restricted assessed valuations. It additionally mitigates to some extent Prop 13’s lock-in impact by decreasing the efficient property tax charge for individuals who buy new properties.
As a thought experiment, this text considers how this characteristic of California’s revenue tax may be expanded to additional scale back or eradicate the differential advantage of Prop 13 for longtime householders. The article posits a hypothetical surtax on adjusted gross revenue (AGI) above a sure threshold, coupled with a credit score for property taxes paid. By advantage of the credit score, the surtax would function a de facto ground for property tax burdens, outlined by reference to a share of AGI. Beneath sure assumptions concerning the relationship between revenue and residential values, such a tax might function as a presumptive market-value property tax, thereby decreasing the disparities in property tax burdens caused by reliance on the acquisition worth rule, whereas additionally moderating the rule’s lock-in impact. Considerably, it could not be essential to amend the state structure to implement this regime.