patrick.net

There’s a fatal assumption there that people will get what it’s like to live in a place that’s affordable. If you can’t afford anything, you’re certainly not going to be able to afford to see what its like in Atlanta, Austin, Raleigh.

That said, from the people I do know who have been stationed in Atlanta, I’ve only heard “I’m so glad to be back” comments.

You can do all the research you need to do for free on craigslist or realtor.com. A lot of people in LA or SF were originally from some other part of the world or some other part of the country. They will not be loyal to CA (nor should they be) if they see better opportunities elsewhere.

The simple fact is that the price of admisssion to the best public school district in SF is 550k

That will give you a 1BR condo in Cupertino. Hey, where is the room for the kid?

I don’t see that happening. People have been saying that for years about Boston, California, New York - the great sucking sound has never happened. A mild fizz - yes, but that mass exodus will never happen.

Well I don't know about Boston or Cali, but in LI NY, it's been happening. and is picking up momentum; I will be leaving myself.

Peter P,

No need for condos, OO did the math for families with kids a month or so back. For the cost of that 1 bdrm condo mortgage, you can rent a 2 bdrm apartment in a good south bay school district.

For the cost of that 1 bdrm condo mortgage, you can rent a 2 bdrm apartment in a good south bay school district.

I think you can actually rent a 3-BR apartment in Cupertino for under $3000/month.

I don’t think such a thing could ever get passed. All the governors (except for states without income taxes) will cry bloody murder and it’ll be harder to get through than even a mortgage deduction.

A lot depends on the congressional elections. There could be a coalition of Republicans and red state democrats that could push it through. Or there could be a movement by Democrats and blue state Republicans to defeat it... But if the Republicans want it, they probably have the votes to get it.

Refusing to do anything about AMT will squeeze rich blue states much more than going after state taxes. I doubt taking out state tax deductions will have much traction outside of a tiny minority of starve the beast types.

One school of thought is that Republicans want the AMT to really start to bite first. Then they can repeal it, while enacting tougher to swallow reforms like the elimination of state income tax deductibility and take credit for a fairer, simpler tax system (with no AMT!). Something will need to be done in the next couple of years to raise revenues, IMO. The AMT actually is a flatter, fairer tax than the regular tax rules. So why not just scrap the regular system, expose everyone to AMT, then lower rates across the board? I know... it will never happen. Too many vested interests.

California has really appallingly high taxes, esp. given the poor conditions of its public schools and roads.

My guess is that this is more fallout from Prop 13. With most homeowners taxed at artificially low rates, the gov't needs to make up the lost revenue with higher income taxes.

We really should look at the jump in housing prices not as an additional strain on wages but a supplement to wages. So far unaffordable prices are only hitting young families, and even they are buffered by low interest rates, family loans (from their parents' home equity) and 0% down mortgages. Most home owners are still living it up complement of their homes. Even most buyers in the last five years have seen paper profits on their purchases and were able to borrow against that increase.

We haven't really seen the drag of housing prices to the cost of living yet. Once it comes, I believe the RE prices on the coast will drop like a stone. The BA may be wealthy, but it's not immune to its high price to income ratio.

Glen,

It's not just Prop 13, it's the whole proposition system of government. Something like 80 or 90% of the state budget is tied up by passed propositions. It doesn't leave much money for discretionary improvements or efficient expenditure.

Incidentally, it doesn't do much for making CA state legislature or the governor accountable for anything. The only way they can raise money for big projects is to borrow against the future with bonds.

Glen,

I'm fine with AMT for everybody. I'd like a graduated flat tax return that can be filled out in 15 minutes flat. The tax system is a rather wretched system for social engineering and works mostly as a permanent employment program for accountants and tax lawyers. Right now, it's really just the upper middle class getting pinched by the AMT...I'd like to see the wealthy and the uber-wealthy being forced to take income and pay their proper share of income taxes.

It’s not just Prop 13, it’s the whole proposition system of government. Something like 80 or 90% of the state budget is tied up by passed propositions. It doesn’t leave much money for discretionary improvements or efficient expenditure.

I agree. We have successfully tied the hands of our elected representatives with budget carve-outs and term limits. Too much democracy, IMO.

I don’t see that happening. People have been saying that for years about Boston, California, New York - the great sucking sound has never happened. A mild fizz - yes, but that mass exodus will never happen.

eburbed,

Can't speak for Boston or NY (allah has a good link above for LI), but this is flat out wrong for CA. The Great Exodus is already upon us and is bound to accelerate as the local RE-driven economy sputters and then founders:

http://www.usatoday.com/printedition/news/20051222/a_census22.art.htm
http://www.bizjournals.com/sanfrancisco/stories/2003/08/04/daily29.html
http://www.freerepublic.com/focus/f-news/1271057/posts

The ONLY thing keeping CA's population from going negative right now is massive amounts of illegal immigration (est. 1/2 million/year) and high birthrate among said immigrants, who are mostly abject poor and illiterate laborers.

"Only the little people pay taxes" * Leona Helmsley (The Queen of Mean)

-CA’s population from going negative
+CA’s population growth from going negative

astrid,

A graduated flat tax, or a threshold flat tax is definitely preferable to the current mess. But it is not panacea. Flat taxation of income is flawed by:

1. A truly flat tax which does not discriminate on income is "regressive" because the consumption curve is not linear, whereas the tax would be.

2. A threshold flat tax will over time cause price and wage inflation up to the threshold. This phenomenon is well studied for existing tax credits.

3. A progressive flat tax isn't flat, it's progressive. That is no different than the current system, just repackaged.

I support a total elimination of all income, property and arbitrary state taxation and a replacement with a nationally managed use-tax. It is the only philosophically fair system, and still allows the powers that be to "engineer" our society.

I support a total elimination of all income, property and arbitrary state taxation and a replacement with a nationally managed use-tax. It is the only philosophically fair system, and still allows the powers that be to “engineer” our society.

Please elaborate. Is this similar to a national sales tax or European-style VAT?

Randy,

I agree that a graduated progressive tax system (so that the results are not regressive) always has to face the problem of inflation. I think the solution would be to peg the thresholds to the income quintiles (maybe institute two additional brackets for 10%, 5%, and 1% top earners). I think the foundations of the current system is quite fair (though I'd like to characterize capital gain above inflation as regular income), it would just be nice to close ALL the stupid loopholes. Those loopholes distort normal efficient business transactions into bizarre forms just to avoid taxes - I'd be happy to see them gone.

We shouldn’t just trash prop 13 and raise property taxes to 3%. The shock of that would be devastating for CA. I think CA should do what the Fed does: adjust it in small increments over time.

Something like 80 or 90% of the state budget is tied up by passed propositions.

Hey guys, just to let you know - it wasn't evil inept politicians (who are voted for by people) who did this... it was the citizens of California.

We* chose to have this horror brought upon us - and poll after poll shows that we love. And... you can expect more states to have Prop 13 clones.

Prop 13 is the height of the typical taxpayer in America thinking. Lower taxes now! What could possibly go wrong?

I bet that if you poured a cup of water from short wide cup, to a tall skinny one, most people would also tell you that they have more water. :(

(*Not me. I came to california about 22 afterwards.)

The ONLY thing keeping CA’s population from going negative right now is massive amounts of illegal immigration (est. 1/2 million/year) and high birthrate among said immigrants, who are mostly abject poor and illiterate laborers.

I think that's mostly SoCal and inland. It doesn't strike me that the Peninsula has a giant illegal immigraiton problem.

We shouldn’t just trash prop 13 and raise property taxes to 3%. The shock of that would be devastating for CA. I think CA should do what the Fed does: adjust it in small increments over time.

If we bumped property taxes from 1% to 2% over, say, 10 years, I think CA could absorb that shock. Those who own their homes outright would have to learn to be content to be only worth $300K on paper instead of $700K. Other than forcing a bunch of people to stop being delusional, I don’t see a downside.

As a practical matter, any proposed change to Prop 13 is a nonstarter.

My solution is to impose a state-based inheritance tax. This way, anyone who inherits CA property will pay the taxman when their parents die leaving a house with a low Prop 13 basis. Sure, people would move all of their non-real estate assets outside of California, but they won't be able to move their RE.

This will result in a de facto automatic sale of appreciated RE on death, which should loosen up the housing supply. Also, more elderly people would choose to sell their appreciated houses and move to Florida before they die as the result of such a system (in order to avoid the tax). Good riddance. They are a drain on social services anyways. This solution also eliminates Prop 13 dynasties, which I find particularly odious.

And needless to say, average incomes are a LOT higher in the BA than in LA.

I think you're mixing apples and oranges here. You compared San Marino to Cupertino for housing prices, but then you compared the greater LA area to the greater Bay Area.

San Marino may have higher housing prices than Cupertino for equivalent properties (I suspect they're in better shape though)... but look at the incomes:

http://www.muninetguide.com/states/california/municipality/San_Marino.php
San Marino $139,455

http://www.muninetguide.com/states/california/municipality/Cupertino.php
Cupertino $119,391

From what I've gathered, San Marino is the creme de le creme. Maybe San Marino vs Palo Alto (gunn) would be a better comparison.

Well I don’t know about Boston or Cali, but in LI NY, it’s been happening. and is picking up momentum; I will be leaving myself.

They've been saying that since 1992. It's a meme that comes up every few years.

-Recession! Everything sucks, everyone's leaving!
-Boom! Everything is too expensive, everyone's leaving!

It's the nice thing about LI - they beat themselves up with reality. In California:

-Recession! Buyer's market! Quick move in!
-Boom! This time it's different. The rules have changed. Get in while you still can!

Kevin,

Getting any change to Prop 13 or any other part of the Proposition system is pretty much impossible. Even a gradual transition over 20 years will still have people screaming bloody murder. The best we can hope for is to end Prop 13 after a drop dead date, but I wouldn't be hopeful about even that.

SFWoman,

Here's the wikipedia entry:

http://en.wikipedia.org/wiki/Alternative_Minimum_Tax

Basically, it restricts tax deductions for people making above a certain income level and ensures that they pay at least a proportion of income in taxes. The AMT was originally designed for the very rich during a period of high marginal taxes. But inflation has eaten away the value of the original threshold, so many upper-middle class (the BA "middle class) people are getting hit with it as well.

There's a few conspiracy theories about why AMT hasn't been increased. I personally think it's just a combination of neglect and the minimal voting/donation powers of the people hit with AMT. Maybe these people should get together and form a PAC.

This will result in a de facto automatic sale of appreciated RE on death, which should loosen up the housing supply. Also, more elderly people would choose to sell their appreciated houses and move to Florida before they die as the result of such a system (in order to avoid the tax). Good riddance.

Unfortunately your proposal would be shot down by the #1 voting block - the elderly.

It's not surprising that retirement homes and assisted care facilities are often voting stations during election times. :(

If we bumped property taxes from 1% to 2% over, say, 10 years, I think CA could absorb that shock. Those who own their homes outright would have to learn to be content to be only worth $300K on paper instead of $700K. Other than forcing a bunch of people to stop being delusional, I don’t see a downside.

Kevin,

Although I am in complete agreement with this from a rational, economic and philosophical "fairness" POV, I just don't see any way this could possibly happen, given the current mindset of the voting public. Even while the state homedebtorship rate in CA is much lower than the 70% nationally (approx 55%), homedebtors as a group tend to vote a whole lot more than renters. And they tend to vote overwhelmingly against anything --or anyONE-- that would raise their taxes.

IMHO, the only realistic way for Californians to ever be rid of Prop. 13 would be to abolish property taxes altogether. Of course such a proposal would be opposed by the privileged elites that most benefit from it: rich, long-time Boomer landlords and large land-owning corporations. They of course, would not want to share their privileged quasi-tax-free status with the rest of the common rabble, anymore than your rich neighbor likes to see YOU driving up with a brand-new Lexus that looks just like his.

Proponents of abolishing CA property tax could co-opt the Jarvis "anti-tax crusader" theme to great advantage. By appealing to people's self-interest and greed, you might actually stand a chance of getting it on the ballot. Of course course, the aforementioned rich Boomers and corporations will try to flip this populistic theme on its ear and co-opt the traditionally ANTI-Prop. 13 message: eliminating all property taxes will "hurt the children", bankrupt schools, "it's unfair", etc.

Personally, I'd say history has proven that arguments appealing to voters' natural greed and selfishness are far more potent than those appealing to their sense of fair play/altruism, so this should win out in the end --if it's framed and promoted correctly.

I think the good news out of this inheritance tax stuff is that the elderly are living longer and spending more of their money - so there won't be as much inheritance tax avoidance as people are currently predicting.

The bad news is that many of the elderly will become destitute before they're dead and expect us to pay for their meds/orthopedic shoes.

HARM,

The run around that is to float tax rates after a certain drop dead date. It might just be possible to get support for that, once the home prices drop by 1/2.

But overall, CA is messed up. I've said it before and will say again - I'm not gonna buy here until they make some fairly unlikely changes. I still think Canada or Australia are places to go, if you can, while you're young and employable.

SFWoman,

When exactly does the AMT come in and why are so many people are hit by it?

You can find a short-version explanation on Wiki:
http://en.wikipedia.org/wiki/Alternative_minimum_tax

AMT is triggered by income, depending upon and adjusted by an insanely complex set of rules. 15% of households with incomes from 75K-100K pay some AMT.

We were first assaulted by unexpected AMT the year my wife exercised a large number of stock options. Although the net income from these was modest, the amount taxable under AMT was considerable. Many people got stung by this during the dot-com. (We only came out well because we knew enough to retain good but expensive tax advice).

AMT also mainly hammers the near-rich, whereas the true-rich are able to largely avoid (evade in many cases) paying much or any AMT.

AMT can also eat into qualifying home mortgage interest deductions, which many people don't discover until their income has risen after a few years of occupying their multi-million McMansion.

Finally, taxes paid in AMT can get "trapped" there and not offset in later years if the taxpayer falls out of AMT later. AMT income/losses must offset AMT taxes/refunds.

**disclaimer: I am not a taxpert, and most of my info is circa 1999-2002.

Here's a fun thread about Prop 13

http://mb25.scout.com/fuscfansfrm14.showMessage?topicID=718.topic

Subject: OT: God Bless Proposition 13
Example Quote:
God Bless Proposition 13.

God Bless California.

Enjoy!

astrid,

What do you mean by "drop dead date"? Do you mean let tax rates float after you've owned the place for X number of years, or literally after you die (as in, no more Prop. 13 "Dynasty" generational transfers)?

Mass. has lost something like 3% (!) of its native-born populaton since 2000. I did the math yesterday. The state's population growth is due entirely to immigrants.

Some percentage of the Mass. exodus is undoubtedly due to retirees cashing out and moving to warmer climes, but I'm sure a lot of it is due to young families bailing on the state. Some are moving to NH, but I'm sure others are just moving out of the state.

It'll be really interesting to see what happens to public school enrollment in the most overpriced areas in 2007/8/9. The bubble didn't really take off until 2002, so the children born during that time aren't in school yet. But i am guessing that we will see HUGE enrollment declines in the best public school districts at that time.

People without kids have a real incentive to emigrate. When your kids will be heading to school next year, and the only choices you have are between buying a place in a horrific, dangerous ghetto and renting, moving looks extremely attractive.

No, drop dead date was just to characterize the date on which a new tax regime would be instituted. So anything bought before that date would be under the old Prop 13, and anything bought after would be under the less favorable float rate.

Ending the dynasty generational transfers might serve fairness, but it's largely an unnecessary battle. Very few people will actually end up assuming their parents' homes. The temptation to cash out is too great, and the arrangment would only make sense for people who want their parent's homes and if the home has extremely low basis.

I'd be more concerned about fixed corporate owned properties. Corporations are immortal, so they could essentially keep their ridiculously low rates forever. That's probably why you see so many vacant buildings in the BA, the operating costs for a long held property is so low that the owners can tolerate really high vacancy rates.

They’ve been saying that since 1992. It’s a meme that comes up every few years.

It’s the nice thing about LI - they beat themselves up with reality.

I don't know where you are from, but I'm guessing you are either not from LI or you are a hermit that doesn't know anybody.

More than half of my friends have already left to buy in states such as NC, PA, GA, TX, IN even FLA, some are in the process of moving and many of the others who bought are starting to regret it.

The only reason I haven't left yet is because even though some of those other states are cheaper, there is still too much dust in the air and I'm waiting for it to settle. I will wait for the coming recession to bring the fundamentals back where they should be. Until then, I can rent and stay mobile for a while and when I feel the time is right, I'll drop anchor.

eburbed Says:

I don’t see that happening. People have been saying that for years about Boston, California, New York - the great sucking sound has never happened. A mild fizz - yes, but that mass exodus will never happen.

Actually, your statement is not entirely true:

http://www.boston.com/news/local/articles/2006/04/20/bay_state_exodus_2d_only_to_ny/

From the article:

Frey said metropolitan Boston has been losing people since 1990, but in recent years the loss has been occurring at greater rates than at any time since the recession of 1990 and 1991. Today's report found that among large metropolitan areas, Greater Boston trailed only San Francisco and New York City in its rate of loss.

I guess you could say it's somewhere between a mild fizz and a great sucking sound - maybe a slow leaking, hissing sound?

Mr. Vincent,

Personal benefit does not equate to good tax policy. Prop 13 discourages new housing and artificially inflates the value of existing housing stock. It's also oppressive on young families, precisely the sort of people this state should do more to keep. It decreases school funding to an extent. Finally, it encourages the housing market to be illiquid, as would be buyers are barred from entry due to high prices and would be sellers are reluctant to sell because they got such a low tax basis.

If Prop 13 does not exist, houses would be cheaper and more plentiful, and in the long run that good for everybody. A house is a place to live, it's not a lottery ticket for some early buyers to get rich from.

PROP 13 DID NOT CAUSE THIS HOUSING BUBBLE! When prices revert to trend, you renters will love prop 13 after buying your house.

Mr Vincent,

Given that I was (a) not born early enough to have my "tax basis" arbitrarily frozen in time in 1978, and (b) even after prices revert to the mean, I would STILL be paying far more than my birth-Lottery neighbors, I seriously doubt that I will ever grow to love Prop. 13.

The only good thing about Prop. 13 is the tax RATE cap (1.25%), which --it's true-- does apply to all homedebtors. What makes Prop. 13 so horrendously distorting, though, is the "frozen in 1978" price BASIS for the house. This is what results in the infamous "I pay $10,000 for a tract home identical to my neighbor, who only pays only $500" scenarios.

(I am not an economist, but I do seem to have better real estate sense than David Lereah)

He knows what's reallyhappening in real estate, he just chooses to lie.

Many of the BA under 40 crowd are renting or bought marginal property with help from mom and dad. So they still don't have to worry about carrying the full cost of BA ownership. Many haven't started procreating and worrying about schools/childcare. They will give cheaper cities like Austin and Raleigh a closer look once they seriously look into buying to settle down. Something's gotta give, the ineffable BA aura will come off once the young people have to worry about mundane things like good schools and paying for car insurance.

When prices revert to trend, you renters will love prop 13 after buying your house.

Ahhh, "you renters"

How about we refer to you as Mr. Asshole?

Small correction:

-A house is a place to live, it’s not a lottery ticket for some early buyers to get rich from.
+A house should be a place to live, it should not be a lottery ticket for some early buyers to get rich from as things stand today.