🚀 go-pugleaf

Yesterday the creditors that dropped the bond rating put the fiscal mess
squarely on proposition 13. The reason is obvious. While in most states
the property tax revenue rose as property values rose, this did not
happen in CA.

What's the solution? First, recognize that prop 13 is a sacred cow. It will
not be repealed. We must find a way to increase tax collections without
repealing prop 13, without increasing taxes on property owners that are
paying their fair share (and renters).

We need to raise selected taxes for EVERYONE, but simultaneously
providing offsetting deductions to the renters and property owners that are 
subsidising the prop 13 beneficiaries.

Right now, the state tax code allows property owners to deduct 1X their
property tax from their gross income. There would be nothing illegal with
increasing the multiple of this deduction from 1 to something else.

Say property owners could deduct 5X times their property tax from
their income tax. Say one homeowner pays $500/year property tax, and his
neighbor is paying $3000/year for a similar property. Now say the state
income tax code says that you multiply your property tax by 5 and deduct that
from your income. So the first homeowner now can deduct $2500 while the second
deducts $15000. If they're both paying 10% in state income tax, the first guy
now is paying $200 less in tax ($250-50) then he paid before and the second guy
is paying $1200 less ($1500-300).

Now the homeowner paying the higher property tax is getting a big break and the 
moocher a smaller break. The moocher is still out ahead of course but his property
tax advantage is now offset by his income tax being reduced less.

Now we just gotta replace that revenue evenly, bring the homeowner with the big
deduction back to where he was in terms of net taxes, but sock it to the moocher.
We also gotta restore the renters credit in an amount that the renters net tax
is not going up.

Which tax to raise is the dilemna now. Either the income tax rate or the sales tax,
or applying the sales tax to items such as food. Even though a sales tax on food
would probably be fairer, and even the poor would not have their net tax increase,
this would be politically impractical. So raising the income tax rate would probably
be the most palatable, since at least people would see the benefit of the deduction
and the penalty of the higher rate balance out at the same time.

If both homeowners had a taxable income of 50K, now one has a taxable income of
47.5K and one has an income of 35K. If they were paying 5K in state tax at a 10%
rate, now we raise the income tax to 14%, the first guy now pays $7125, while the
second guy now pays $5250. The moocher now pays $2125 more and the second guy pays
$250 more, the net increase to the state is ($2125+$250)-($1200+200)=$975.

In total income+property tax, the moocher is paying $7125+500=$7625, while the
second guy is paying $5250+3000=$8250. The differential was $2500, now it has
been reduced to $625--still not fair, but a lot better than before.

Of course these numbers will need to be tweaked, safeguards against loopholes
added, and a hefty renters credit to offset the tax increase for renters will
need to be introduced. But it is one way around the prop 13 mess that increases
taxes on those not paying their fair share.

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Knowing everything about everything is                  Steve Scharf
an awesome burden, but I accept it humbly           FAX 408/746-3096
in service of the common people.               scharf@mirage.nsc.com
                                 SMS
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All Opinions Expressed are My Own
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