13 Just a Prop in Villaraigosa’s Act

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Think of the job Antonio Villaraigosa has done as mayor of Los Angeles. Businesses have cut back or move out, so much so that L.A.’s unemployment rate is well over 13 percent, worse even than Los Angeles County’s or the state’s. Thanks to the lack of economic activity, the city’s budget is in a hole deeper than Ezri Namvar’s reputation.

So now he wants to export Villaraigosa-inspired policies so the whole state can be similarly screwed up.

You may have seen that last week he traveled to Sacramento and delivered a speech in which he exhorted the governor to push businesses out from under the umbrella of Proposition 13 protections. That way, the state could soak them with higher property taxes.

At the same time, Villaraigosa made other proposals, including a suggestion that the corporate tax be eliminated.

If you haven’t already, take a moment to think that through. Such an arrangement would be a direct assault on the state’s smaller businesses, which are the engine of growth.

As a group, small businesses don’t pay much in the way of corporate taxes but absolutely do pay property taxes. If they own their building, they pay property taxes directly. If they have a triple-net lease, they still pay property taxes directly. If they have most any other kind of lease, they’ll eventually pay higher property taxes indirectly through higher rents.

Bigger businesses would be relatively better off and might actually benefit from Villaraigosa’s arrangement. For many, property taxes are not as big a burden to them as corporate taxes. (Of course, bigger businesses are more likely to be big contributors to political types and more likely to hire union workers, who are big supporters of his. But that’s probably just coincidence, no?)

Villaraigosa is proposing this because, he claims, Prop. 13 has become “a big corporate tax giveaway.”

Huh? Under Prop. 13, corporate and residential properties are assessed the same way and at the same rate. (By the way, that’s good because it encourages owners to put their property to its highest and best use, undistorted by the tax code.)

He might have an argument if commercial properties consistently ended up benefiting somehow. But one study three years ago showed the opposite had happened. Residential property owners in the test period paid taxes equal to 53 percent of the then-market value, but commercial and industrial property owners paid taxes close to 60 percent. In other words, businesses were paying relatively more than homeowners.

That same study pointed out that if businesses were kicked out of Prop. 13, and small businesses in particular had to pay higher taxes and rents, it would result in higher prices passed on to consumers, less investment, lower wages and fewer jobs. The kinds of results the city of Los Angeles specializes in achieving.

Villaraigosa says his proposals, bottom line, would raise taxes by billions of dollars and create jobs. How taking money from small businesses will encourage them to hire people is a mystery to me; that’s the kind of Villaraigosa-like magical thinking that’s got Los Angeles stuck in the box it’s in.

But as one wag wrote last week on the Fox & Hounds blog, if his plan were approved, it actually would create lots of new jobs.

In Texas.

Charles Crumpley is editor of the Business Journal. He can be reached at [email protected].

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