Illinois Progressive Moves to California, Seeks to End Prop 13 Property Tax Cap

California wants higher property taxes. Illinois wants income taxes. Both may get their wishes.

This is a guest post from WirePoints founder Mark Glennon.

Coveting California? Beware Its Perverse Tax Envy

Many Illinois progressives openly favor California’s progressive income tax structure and Governor-elect Pritzker is committed to taking Illinois at least partially in that direction. Something like California’s approach is key to solving Illinois’ fiscal crisis and funding a wish list of new programs, we’re often told.

But guess what’s happening in California. Progressives are making headway steering their state a little more in Illinois’ direction on an additional revenue source. They want property tax increases made easier – something that’s been off limits in California for 40 years. That’s where Illinois has excelled, taking its property tax rates to about the worst in the nation – twice the national average.

The Tax Foundation ranks California second worst among states for income taxes. Its one-percenters pay almost half of all its income tax, with rates up to 13.3%. What more could Illinois progressives hope for?

California property owners have been protected, however. Proposition 13, passed in 1978, imposed tough restrictions on frequency of reassessments and maximum annual  tax increases for many properties. Since then, messing with Prop 13 has been a political third rail. Even California’s notoriously liberal lawmakers have been loath to touch it.

Not any longer

“Proposition 13 is no longer off-limits in California,” said a headline last week in the San Francisco Chronicle. Proponents of chopping Prop 13 down now claim to have enough signatures to get an initiative on the ballot in 2020 that would pave the way for an additional $14 billion in property tax revenue, according to the Chronicle.

And in the legislature, a constitutional amendment is pending that would takes aim at Proposition 58, part of Prop 13’s legacy, which voters approved in 1986. The amendment would eliminate Prop 58’s provisions insulating children from spikes in property taxes triggered by reassessments when parents die.

Perhaps not surprisingly, one of the primary activists behind the proposed changes to Prop 13 is a former Chicagoan, according to the Chronicle. That’s Catherine Bracy, executive director ofTechEquity Collaborative, who moved to California from Chicago six years ago. Says Bracy: “For newcomers (to California) like me, who were born after Prop. 13, we want to experience the California dream, too. But we don’t have the opportunity to, because all the goodies have been locked up by the older generations.”

Maybe Bracy has been inspired by developments back home. Illinois property tax rates often exceed 5 3%, 4% and 6% per year on homes, and often far higher on commercial property. With property values remaining exceptionally high in California, there’s a gold rush in waiting for tax collectors.

And since California, like Illinois, has more people moving out than moving in, maybe she’s keeping up on the rationale for taxing property in a shrinking state. Property can’t flee, so seize it. That the reasoning behind that idea for a statewide property tax in Illinois, detailed earlier this year by three economists from the Federal Reserve Bank of Chicago.

Also not surprisingly, the League of Women Voters is playing a major role in the attack on Prop 13. As in Illinois, the League in California apparently tossed its identity as nonpartisan and became a left-leaning activist operation.

Among the “ways that Prop 13 sucks,” as that outfit wanting higher California property taxes put it, is that keeping property taxes down forces California to raise taxes in other ways.

But is conditioning higher property taxes on cuts to other taxes part of the proposal?

Nah.

Isn’t that the lesson? Will anything ever be enough?

Mark Glennon

Mish Comments

  1. Our plans to escape Illinois are progressing. Either 2019 or 2020 is highly likely.
  2. Illinois will no doubt pass more tax hikes.
  3. All the money will go to Illinois pensions, and they will still be insolvent.

Pertinent Notes

Mike "Mish" Shedlock

Comments (42)
No. 1-21
truthseeker11785
truthseeker11785

End Prop 13? Hardly! Maybe author should read more about it before posting this misleading story. What actually has been proposed regarding Prop 13 are:

  • Changing it to allow reassessments of businesses with over 50 employees. Businesses with 50 or less employees and residential properties are not affected except:
  • Changing it so that inherited properties can be reassessed. Turns out many inherit properties (along with the low property tax rates) and turn around it and renting the properties for huge profits.
2banana
2banana

2banana's Rule:

Democrats in power + public unions + free sh*t army = misery, ruin and bankruptcy

It is too bad when liberals/progressives ruin states they are allowed to move to red states and vote for the same type of policies and politicians that they are "escaping" from...

Schaap60
Schaap60

At least California's population is increasing, although more Illinois transplants like this one may put an end to that. Of course, you're always welcome to join us in the People's Republic Mish.

gregggg
gregggg

Who calculated Chicago's official numbers? Fitch?

Stuki
Stuki

IF taxes are to be collected at all, property ones are far and away the most efficient, just and non distorting of the bunch. It is THE way to raise revenue for geographically constrained states. Anything else, with the possible exception of completely non discriminatory tariffs, are just arbitrary theft; inefficiently administered.

Of course, any time taxes, and spending, are already an order of magnitude higher than the maximum possibly sustainable by a civilized society, further increases simply cannot help but digging the hole even deeper.

Besides, any widespread "dream" ended once and for all with Nixon handing 100% complete unconstrained access to Americans' wallets to Goldman Sachs. Until that insult is fixed, "we" may as well sit back and enjoy a takeover by ISIS.

ReadyKilowatt
ReadyKilowatt

How much of these shortfalls on pension liabilities are due to the fed keeping interest rates too low for so long? I remember 5% interest on savings accounts back in my youth. And 16% mortgages, yet somehow people were able to buy homes. That assumption of 8% on your money isn't so far out of reach in that environment.

The miracle of compounding has been completely eliminated by Alan Greenspan and the modern fed. All to keep the stock market bubble inflating.

Realist
Realist

Hey ReadyKilowatt. With regard to pensions, interest rates are indeed important, but not in the way you imply. First; Low interest rates on bonds that pensions purchase for their investment portfolio do provide a lower rate of return on that bond. However, as interest rates have gone down over the years, it raises the value of all previously purchased bonds in their overall bond portfolio (hence the term “bond bull market”). So while interest on new bonds has dropped, the overall asset value of the bond portfolio has done very well. Second; most well run pensions invest roughly a third of their overall portfolio in bonds. The rest is in stocks, real estate, infrastructure, private capital, farmland, forests, utilities etc. Almost all of the other investments do much better when interest rates are low. So during this period of low interest rates, the investment returns on these other investment areas should have been very good. Third; As Mish likes to point out, raising interest rates might be the pin to burst the bubble on sky high stock, bond, real estate etc values. If that happens then the assets that pensions hold will drop in value. So be careful what you wish for. Fourth; there is one way that rising interest rates will help a pension fund, but it’s not with their current investment portfolio; it’s regarding their future investment return assumptions. Most pensions are required to look far into the future (typically 75 years) and perform actuarial calculations to ensure that they have enough assets now to meet their future liabilities. So they are required to take their current assets, add in their expected contributions for the next 75 years, and then estimate the “Discount Rate” (to over simplify – the rate of return they expect to earn on their investments over the next 75 years). Again, to over simplify things, the higher interest rates are, the higher the discount rate. So this is the one area where higher interest rates actually help pensions. It results in increased actuarial valuations (meaning are there enough assets today to meet the actuarial calculations). Fifth; well run pensions often are more than 100% funded, based on actuarial assumptions. However most US pensions are not well run and are funded at levels much less than 100%. So even if interest rates go up, the improvement in funding levels due to actuarial calculations is offset by the drop in actual asset values in the investment portfolio. You can’t have your cake and eat it..

Bus_Driver
Bus_Driver

My former business partners living in California, all of whom were in the highest sur-charge tax bracket, used to justify - partially at any rate - their willingness to pay the steep taxes because Cali offered them lifestyle and weather/climate advantages they could find nowhere else. Illinois will only see the exodus continue if /when they adopt a higher progressive income tax scheme. Illinois offers no lifestyle advantages that I can see. I'm speeking as a 50+ year FORMER Illinois resident who fled two years ago.

AWC
AWC

Higher property taxes. What an efficient way to add to the homeless population.

Vitos
Vitos

A good proportion of those California tax receipts from the 1% are on capital gains from stocks. With the poor performance in the markets this year, watch out for the next California budget crisis as that cash spigot gets shut off.

AWC
AWC

OT, but speaking of inversions,

RonJ
RonJ

"Something like California’s approach is key to solving Illinois’ fiscal crisis and funding a wish list of new programs, we’re often told."

I see France, which just had a tax revolt. That will be the ultimate solution. The question is when it that point reached in Illinois? How many middle class income people want to live in near poverty, due to the taxes they will be paying? Frances tax rate reached 46%.

One Nurse
One Nurse

Many in CA have had a 40 year tax holiday. Its well overdue on reforming it!

The legslation is only asking commercial property owners pay their fair share. Instead of paying half with residential, they have slipped to 28% through tax loopholes.

abend237-04
abend237-04

I was a Californian when prop 13 passed. I clearly remember why it passed: People were being dumped in the street due to forced sales of their homes being driven by runaway property tax increases, a function, in turn, of people trying to find something tangible to invest in that politicians couldn't raid with taxes. Prop 13 passed in 1976 and locked the progressive piggy bank; The left went wild. They're back because many of the current crop of progressives live in mom and dad's basement and could care less about the obscure property tax thingy.

St. Funogas
St. Funogas

As someone who has lived in both Chicago and California, I’m gleefully sitting back watching them collapse under the weight of their idiocy. Three years ago when I paid the taxes on my 20 acres here in Rural Nowhere, I was laughing my ass off in the county collector’s office. He asked what could possibly be so funny. I told him that nobody in the world was going to believe that I paid my taxes by cleaning out the ashtray in my truck. I gave him $6.57 in coins and got my receipt. After getting my house and shop built, my taxes skyrocketed to $273/year. It was costing that much every TWO WEEKS in Chicago. Long live Rural Nowhere!

ipso_facto
ipso_facto

'... became a left-leaning activist operation...' The League of Women Voters is an extraordinarily leftist organization. Only the MSM considers them 'nonpartisan' in the same way Planned Parenthood is a 'healthcare organization'.

WCVarones
WCVarones

I'm in California and one of the key drivers that made me buy a house was Prop 13. If it goes, I go.

dltravers
dltravers

“For newcomers (to California) like me, who were born after Prop. 13, we want to experience the California dream, too. But we don’t have the opportunity to, because all the goodies have been locked up by the older generations.”

The greatest idiotic statement of all time. What goodies is she talking about? Can she define "goodies".

The collectivist Marxist mentality in the state will drive more business out with this move. Where do they think the businesses higher costs go? It is either raise their prices or move out of state.

They cannot yet outright take your business like their dreamland Marxists hero's in Venezuela but they can make life miserable for workers yet by driving the high paying jobs out of state. All that will be left is retail, food, and the tech industry that ruined the state in the first place.

The state is full of these handout orientated people. There is only one direction for the state in the next decade, the toilet of the third world.

Casual_Observer
Casual_Observer

I give it one or two more years before we walk. We moved to California in 2009. Recently due to layoff our household income has dropped by 33% and no equivalent paying jobs after 9 months out of work. There isnt much keeping us here as the partnership my spouse is in now exists in other states.

Brother
Brother

Prop 58 not only covers parents to children transfers but also brother to sister type property transfers. Prop.13 and 58 protect buyers of new property the same. How stupid can some people get?

Sechel
Sechel

capping taxes is one thing , but it doesn't work very well if states don't attacking pensions and spending in general. Seems more municipalities are facing ratings downgrades and not upgrades