As we all struggle to find our way through this mind-boggling economic calamity and the $12.5 billion tax increase we were hit with earlier this year, there are some politicians and “activists” who are pushing a scheme in California that will only make matters worse.
Some so-called “tax reformers” who continually blame the passage of Proposition 13 for all of our budget problems are leveraging the current economic crisis to try to overturn provisions of the popular tax protection law. Instead of trying to curb the out-of-control spending that created California’s massive budget chasm, they want to seize more from our shrinking wallets by raising taxes on rental and business properties.
Their proposal, known as a “split roll” tax, would tax rental and business properties at a higher rate, assesses them more often or both. Proponents try to claim “big business” can simply absorb higher property taxes and the great windfall the state will get from these taxes will help solve its budget ills. Those of us involved in real estate investment know that nothing could be further from the truth.
Raising property taxes will have a devastating impact on all Californians. This tax increase will cost Californians between $3.5 billion and $7 billion each year. Rental property owners, who have already been devastated by the economy and historically operate on very thin margins, will have no choice but to pass along these billions in new costs. The 35 percent of Californians who live in rental housing will be burdened by increased rents as will most neighborhood merchants who rent space for their grocery stores, restaurants, auto shops – you name it. Consumers will also take a hit as neighborhood merchants and service providers are forced to pass on the price of higher property tax rates.
Devastating impacts
And the devastating impacts don’t stop there. A study by former state Legislative Analyst William Hamm demonstrates that increasing taxes on business property owners would have far-reaching impacts for our devastated economy. The study, “The Economic Effects of California Adopting a Split Roll Property Tax,” found that increasing business property taxes by even 1 percent could lead to the loss of 43,000 jobs and reduced wages as business are forced to divert resources to higher property taxes, and it would lead to increased consumer prices and a decline in the value of financial assets held by public retirement funds.
It also found that increased business property taxes would burden low-income and minority citizens as they will have to pick up the tab for the new taxes through higher rents and increased costs of consumer goods.
Another study, by the Center for Government Analysis, found that businesses owned by women, minorities and Hispanics would be disproportionately harmed by property tax increases.
Tax increase proponents will continue to claim that rental and business property owners do not pay their fair share, but they are wrong here, too. The state Board of Equalization shows that in 2006-07 alone tax assessments on nonhomeowner property subject to Proposition 13 were $626 billion higher than those on homeowner properties. And, business properties already account for 60 percent of local property taxes.
Instead of using our current economic crisis to try to increase our taxes yet again, politicians and “activists” should focus their energies on creating jobs and encouraging the economic growth that creates revenues to fund critical programs.
Carl Lambert is the founder of Lambert Investments Inc., a real estate investment firm in Santa Monica, and he is a member of the California Apartment Association.
