During Arnold Schwarzenegger’s first campaign for governor, one of his biggest backers, super wealthy Warren Buffet, famously said his property taxes on his Laguna Beach home were not high enough. The comment caused California homeowners to question Arnold’s bona fides as a conservative so he threatened to make Buffet do 500 sit-ups for his transgression. While the controversy blew over, there seems to be no record of Buffet making a voluntary additional payment to the county tax collector to assuage his conscious.
Most California homeowners don’t have Buffet’s wealth and rightfully believe they are already paying enough to finance local services. But still, the question of just how California property taxes measure up against other states is the source of a lot of angst and disinformation. (Rumors have it that some on the far left are preoccupied with this subject as they look for opportunities to force the “evil landowning elite” to pay their “fair share.”)
For years, the curious could consult information made available by the Tax Foundation, a Washington, D.C.-based think tank whose mission is to educate taxpayers about sound tax policy and the size of the tax burden borne by Americans at all levels of government.
If one consulted the Foundation earlier this year they would have been informed that California ranks 19th out of all 50 states in property tax burden. However, if one were to check today, they would find that our state now ranks 34th.
Have California property taxes suddenly been reduced or is it possible that more than a dozen states have recently increased their tax rates? No, none of the above. Looking more closely, the explanation is simple. The ranking of 19 is based on the per capita property tax burden, while the 34 rank is based on taxes as a percentage of property value.
This is like the ancient story about the six blind men who examine an elephant, and each comes to a different conclusion about its appearance. The first touches a leg and says that it is like a pillar, the second the tail and says it is like rope, and so on. None of the blind gentlemen are wrong, but then none are correct; their views must be integrated to understand the whole elephant.
In fact, measuring tax burden based on taxes as a percentage of value is probably the least informative. The reason is that, according the California Legislative Analyst, an average California home costs $440,000, about two–and–a–half times the average national home price of $180,000. Only homes in Hawaii are more expensive.
So does this mean that all California homeowners are rich? Absolutely not. It means that they are paying much more for homes and as a result, the taxes they pay to government are much higher than what residents in many other states are paying for similar homes. For example, $250,000 doesn’t even buy closet space in San Francisco but, in many parts of the country, that kind of money buys a very nice house.
This, of course, brings up the importance of Proposition 13, which limits the increase in a property’s taxable value to no more than two percent annually. Proposition 13 assures property owners they will not be taxed out of their homes by the mercurial and unpredictable housing market in which double digit increases in home values are not unusual. And even when housing values decline, because of Proposition 13, local government receives a reliable and stable source of tax revenue. For both property owners and government it is a win, win situation.