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Jan. 15, 2021 - Epoch Times
24:55
Where California Taxes Are Headed And What You Can Do About It | Joel Fox
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The first thing they can do is understand what their measures are all about.
Because when someone sticks a petition in front of your nose and says, would you sign this?
It's going to benefit the schools, or benefit the firefighters, or benefit whatever.
Is that the bottom line or is it more?
How does it benefit?
Where is the money coming from?
What will it do to the economy of the state or to my personal finances?
So people shouldn't just have a knee-jerk reaction to the line they're given by someone who's asking for a signature on a petition.
they should try to understand how the government is working, how we're spending the money, because I can guarantee you government doesn't really want to educate them because then they may not get the results that they want to get. - Even though we have some of the highest taxes in the nation in California, we still have some other tax codes like Prop 13 that keep property taxes low and predictable.
My guest today, Joe Fox, is a California tax expert, and he will discuss with us what Prop 13 stands for.
He will also tell you all you need to know about the future of taxes in California.
My name is Siam Akorami, and welcome to California Insider.
Joel, you're the publisher of Fox and Hounds Daily, and you're an expert on tax.
Well, I've got a lot of years' experience with California taxation, let's put it that way.
It's great to have you on the show today.
Thank you.
And I want to learn about, you are a big supporter of Prop 13, and you have actually written multiple books on Prop 13.
I want to learn why Prop 13 is so important.
I think we should probably say what it is.
Sure.
It was a ballot measure passed by the people of California a little over 40 years ago, and it had to do with restricting the property tax in this state.
And what was happening prior to Prop 13 was that property was increasing in value so quickly.
That when it was assessed for the purposes of taxation, people couldn't keep up with paying their taxes because the value of the property had increased greatly.
In fact, I can give you a little anecdote of how it started out.
Because I work for a fellow by the name of Howard Jarvis.
He's the one who was a co-author and the chief proponent of Prop 13.
And he...
We had a small taxpayer group at the time in the 70s and actually starting in the 60s trying to argue that taxes were already too high and they were getting higher and higher.
And one day a lady said, you know, I need help.
My taxes are so high.
I don't know what to do.
So Mr.
Jarvis said, let me go down with you to the tax collector's office in Los Angeles and we'll talk to him about it.
And what year was this?
Oh, this was mid-70s, maybe early 70s.
And so they went down there, and the officials looked at her bill and said, look, we did it correctly.
This is what you owe.
And she said, I can't afford to pay what you say I owe.
And unfortunately, she had a heart attack right there in the office, and she died.
And Jarvis swore after that, he says, you know, There's an old American saying about death and taxes.
He says, but no one should be taxed to death, and I'm going to do something about that.
And he tried.
There were a couple of ballot measures that were unsuccessful to put a cap on property taxes, starting in the late 60s into the mid-70s.
Which were unsuccessful, but the situation continued to get worse.
And people were really losing their homes.
You can't pay your taxes, what do you do, right?
Yeah, you bought the home at a certain price.
And you've got to pay your taxes or the state will take it away, the local government will take it away, so you've got to sell it.
People were losing their homes.
So when Proposition 13 was qualified for the ballot, It said that there would be a cap on property taxes, 1%.
It could only go up 2% a year, the overall tax, unless the property is sold.
Then they could reset that 1% at the new selling price.
And that gave certainty to the taxpayer for the first time.
It was always certainty.
Government always had certainty on taxes, right?
We're going to tell you what to pay.
Well, now, under this law, there's certainty to the taxpayer.
And it passed with a two-thirds vote.
So you can budget for it when you buy a house.
Yes.
You know what it's going to be when you buy the house.
You know what it's going to be the next year, and the next year, and the next year.
So there are some initiatives to change Prop 13 that are coming up.
What are your thoughts on those?
Well, you know...
Obviously, I'm against them because I think that it has repercussions beyond what they're talking about.
I mean, if you hear about the initiative, what they'll say is, well, we need more money for schools.
Okay, we can debate that issue fair and square, I think.
Sure.
But what they're doing is they're adding to the cost of living of all Californians, you know, and they want to change the property tax formula for businesses.
And say the business property has to be reassessed every year.
And that means the taxes are going to jump up dramatically.
And how does that tax go to the...
So say somebody has a business property, how does that tax go to the consumer?
Well, what does a business owner do?
Really.
What does a business owner do when they have to pay the new tax?
They have a few options.
They pay the tax out of their profits.
That's what everyone says from the side who wants this.
They'll say, oh, they can do it.
They're all rich, right?
Yeah.
Which is not necessarily true.
They need money to run a business.
Or they add to the cost of the goods and services that they provide.
I see.
So if a retail shop, a shoe store, has to raise its taxes...
To cover the new, you know, raise its costs on the shoes to pay its new taxes.
That's one way to go.
What's another way to go?
I've got 12 employees.
If I only have 10 employees, I can afford this new tax.
So people get laid off.
So there has a ripple effect through the economy.
It dampens the economy.
California economy has been pretty good lately, but we've had a long run and it's bound to turn.
And this could add to the woes of California because, unfortunately, the way California has been going, a lot of the people in elected office decide the more we spend, the better off we are, and we have huge spending obligations.
And if the taxes start dropping off, we're not going to be able to meet those obligations.
But the obligations still exist.
So it becomes a real problem.
And they'll turn back maybe to taxpayers for more taxes.
And it won't just be the rich guys or the corporations this time.
It's going to affect everybody.
It's going to affect everybody.
Now, who's behind these initiatives?
Well, the initiative that we're talking about to change Prop 30 is supported mostly by public employee unions.
Both the school people, Who say they need more money for the schools.
And since some of the money, actually a larger portion of the money, is going to go to local government, so government employees are interested in that.
One of the things that is driving this, of course, is the cost of pensions for the public sector.
Because it's risen dramatically over the last number of years.
I know, for example, in the city of Los Angeles, Just a decade or so, maybe a little more than that ago, they would have to take 3% of their budget out to cover pensions.
It's gone up to 20% and more.
And so when you cut, when you have to spend money for that obligation, Then you have less money to provide services.
Or you have to go back to the taxpayer.
And it becomes a real burden on the taxpayer, one way or another.
Either they have fewer services or they're on more taxes.
Or they're going to have to get more taxes.
And that's what they're doing with this initiative.
I think that would be the result of this initiative.
I see.
And it's presented in a certain way that it's pushing for education?
Of course.
Well, the first thing you know, in California, the way you create an initiative is you write it, you submit it to the Attorney General.
Attorney General gives you a summary back, a title and a summary to put on the ballot petitions that are signed.
And it has an economic effect.
But the title is often what people read first.
And this title starts off funding for education, funding for schools.
Who would be against that?
Exactly.
Who's against that?
And then they say they're going to achieve that by raising the assessment on property.
So they're not even using the word taxes.
That's a clever way.
That's very bad.
Yeah, it's going to color things.
And so we'll see if that remains on the final product.
But that's what's going to be on the petitions when people go around to gather enough signatures.
They need a million signatures to qualify for the November 2020 ballot.
And they're just starting out now, so we'll see how they do.
Now, I should mention, if they fail, they already qualified a similar measure with some flaws, and they could fall back on that, but they've already admitted it had flaws because they went ahead and they filed a new one.
I think they'd be in a tough spot.
I see.
How about the income taxes?
We have some of the highest income taxes.
We have the highest income taxes in the country, and it could even go higher because there's another proposal floating out there.
People in a certain interest have a bottomless well of ideas on how to raise your taxes.
And this particular one also deals with education.
It actually comes from the School Boards Association.
Here in California.
I see.
And they say we need more money for schools.
And here's our formula for doing it.
We're going to raise the highest income taxes, even more, for people who make a million dollars or two million dollars.
They have a formula.
So it's a high net worth.
Yeah, it's a high net worth, folks.
And we're also going to raise corporation taxes.
By 5%.
So basically it's the same argument you hear quite often.
The rich have to pay more, they're not paying their fair share.
Even though the rich pay the largest portion of the California budget.
You know, the California tax system hits the middle class and the rich, the poorer folks.
Don't have tax burdens except for the sales tax, which is also pretty high in this state.
And then they say they're not paying enough.
They have to pay more.
So this tax would raise money for the schools.
Wouldn't have to share it with local governments.
It would be only for the schools.
They are talking about it.
They're ready to move ahead, they say, with a ballot measure, but they're not as far along as the Proposition 13 change.
I see.
And how is this going to affect the California businesses?
Well, again, businesses will have some of the same choices.
Do they leave the state?
Do they cut number of employees?
Do they raise the cost of goods and services?
That's how they respond.
It's not like they're sitting on a pile of cash.
Some of them may.
I mean, there's some rich companies, right?
In Silicon Valley.
Yeah, Silicon Valley.
And some of them may, but who knows if they're going to stay in place.
Some of the presidential candidates are talking about splitting up the tech companies in Silicon Valley.
Yeah.
But anyway, that's the typical reaction for most businesses, not the super wealthy businesses.
Most businesses will look at their bottom line and how to manage it, and that could require layoffs, it could require costs.
And what is the logic behind it when people in the government think of introducing these measures?
Do they think it's going to work?
Of course they do.
They think it's a redistribution of wealth, it'll help people.
They don't see that people leaving California or people leaving...
Well, they should see it.
I mean, I don't know when you're going to be out on the air with this, but today, as you and I are talking, there's a front page story in the Los Angeles Times about people leaving California.
For greener pastures.
Yeah.
And part of it is driven by the taxes and the politics of the state and the housing costs.
You know, you can buy the same house in Texas that you spend almost a million dollars for in California for $350,000.
Why is that?
Is it the regulations or is it taxes?
Yeah, it's a combination of that.
It's a combination of the regulations, some of the environmental laws which make it tougher to build, and the lure of supply and demand.
There's only a certain supply and more and more people move to the state.
We have a population of almost 40 million now.
And more and more people move to the state, there's only certain supply, and with restrictions on building, then there are fewer places to move into, and that creates the price increase.
And so that's part of the discussion you're hearing all the time about the rent control and cost of renting and all that, too.
I mean, renters are greatly affected by the situation as well.
Sure.
Now, what do you see the future for us when it comes to taxes in California?
What's the...
Well, there's two ways to look at that.
I mean, right now, the dominant political ideology in California is that we don't have enough taxes, despite the fact that we have the highest income tax, the highest sales tax, one of the highest gas taxes, that we just don't have enough and we need more.
And that's driven by some of the interests we've talked about.
It's driven by some of the politicians who, you know, more money they control, more power they have.
And so that conversation is ongoing, and as we just talked about earlier, we got some ballot measures to prove that people feel we need more, some people feel we need more taxes.
Could that lead to another tax revolt?
Because what Proposition 13 was, was a tax revolt.
A tax revolt that affected the entire country, recognized all around the country, brought other tax reforms Back in those days.
Helped Ronald Reagan, he used the Prop 13 tax revolt as part of his platform to get elected President of the United States.
So it had a major effect back in the late 70s, early 80s.
Could that happen again if California taxes continue to rise and get unchecked?
One of the things that He's perhaps against that notion immediately is that a lot of these taxes are voted in by the voters.
So they're not going to turn around.
But there's a lot of people who are maybe getting to that breaking point.
Threshold.
Yeah.
And so, you know, I would think that while I don't see it immediately on the horizon, I think history often repeats itself, and there's a possibility that if we continue to pile more and more taxes on and more and more middle-class taxpayers leave the state, that there'll be some kind of a revolution on the tax front.
What you see now is similar to the 70s in terms of...
Yeah, I mean, it's a different kind of circumstance because people's residential property is protected by Prop 13.
That's why every time folks who want to change poll on it, they find that it's got two-thirds support because people understand that those tax protections are working for them.
So on the property tax front, except on this business tax that we've talked about, the business property tax...
It's pretty well controlled and people are pretty satisfied with the way the property taxes work.
So when the income taxes hit a certain point, are they going to drop down?
Are we going to hit more of the middle class?
Do we have all these extra fees added on?
Do we have all of the sales taxes?
We've got 10% sales taxes now in California.
I think it was 5% when I moved here.
I can't remember.
But it's just, you know, there's only so many places they can go.
And that could bring out objections and revolts and how the money is being used and how it's being spent.
People can change their mind about taxes at some point.
Sure.
Absolutely.
Absolutely.
It's happened before.
It's happened in history.
Is there any other taxes that we should have or we should be on the lookout for?
Well, I mean, we've talked about the main ones, you know, the sales tax.
There's something called a parcel tax, which is a property tax on all properties, but the voters have to approve that.
Now, there have been attempts, because of Prop 13, these parcel taxes, which means every side-by-side property pays the same tax, no matter what the value of the property is.
And so you'll see a lot of those locally to support education, things like that.
Maybe support firefighters.
And they need a two-thirds vote to pass because of Prop 13.
That's a requirement.
Now, a lot of them do pass.
And if the voters by two-thirds want to pass a tax, God bless them.
That's what the whole system is about.
They have a right to do that.
And they have done that.
They have done that.
But there have been efforts in the legislature to reduce that two-thirds vote to 55% or 50% to make it easier to pay taxes.
And so there's been a pushback against that.
There was a bill in the last legislative session It went a long way, but ultimately did not become law that would have lowered the percentage of votes to pass some of these taxes.
And who is standing up for these bills?
So it looks like there is a supermajority in the legislature.
Yeah, supermajority, and that's what it takes to pass.
You know, Prop 13 said you needed a two-thirds vote to pass a tax on the legislature.
Well, the Democrats have almost 75% now, so they have the two-thirds vote.
But they also are aware that the tax issue is sensitive.
Recall when the legislature passed the gas tax a couple of years back, one of the legislators was recalled by his constituents.
Right here in Orange County, actually.
And so the legislators are sensitive.
They understand that they could go too far.
And because California has been fortunate over the last decade and built up increased spending, you know, we've increased over the last decade, we've increased spending for schools, for example, 50%.
We're sitting on a budget surplus of $20 billion.
So it's kind of hard to justify a tax increase in that situation.
And so the legislature itself has...
held off on raising taxes even though they've discussed some and that's why the interests who think they should be raising taxes Go the ballot route and the initiative route.
Because it can't go through the legislature.
Although you won't be surprised to know that a number of legislators endorse these ballot measures.
I see.
So we've been talking about tax all along and you've been telling us what's going on there now.
Where is this money going and is there a reason for us to...
Well, you know, obviously it does fund services.
Let's not forget that.
It does fund services.
It does fund administration.
Is there too much administration?
We could probably debate that on a number of issues.
And it does have to fund pensions and health care for employees, which has a huge liability.
There's a big debt for that because the The pension system in California is not keeping up with the demand, and that's being exposed lately.
We talked about that earlier.
That's costing.
There's always new ideas, new programs to start up.
We're taking care of more people.
They've passed laws, for instance, now certain immigrants to this country can receive benefits from the state of California.
It goes to the prisons as well.
It's an interesting fact that a lot of people don't understand where the funding goes through.
There's a group called the Public Policy Institute of California, and they do a number of polls in the course of the year.
And they always ask this question, not every poll, but they ask this question yearly.
And it says, where does the most money go in the state of California?
What do we spend it on the most?
And the answer, invariably number one answer, is prisons.
But that's not the truth.
The number one answer is schools.
And welfare is well before prisons.
They give them four options.
Prisons is fourth, but people say it's first.
So if people don't understand how the government is working, how we're spending the money, then when they hear these arguments for tax increases, Then can they fairly judge that these taxes should go up or not?
And I think what we need to do, because you're going to hear arguments that schools need more money, right?
Yeah.
And if people think schools are way down the list instead of first on the list, they'll want to give them more.
And that's a natural reaction.
And so I think what we have to do is do a better job of educating people.
The voters, that's the responsibility of the press, because I can guarantee you the government doesn't really want to educate them, because then they may not get the results that they want to get.
People don't know how the government functions, where the money is going.
California is such a huge place.
There's the local governments, the county governments, the state governments.
Government agencies, the water agency, the mosquito district agency.
It's kind of tough to follow all that stuff.
And they're all connected somehow.
Some are state banks.
They're all connected right through the taxpayer.
That's how they're connected.
So Joel, you mentioned the changes to Prop 13 and all these changes that are happening that people are bringing these initiatives on the ballot.
What our audience, what are the California residents and citizens, what can they do when it comes to these measures?
Well, first thing they can do, Understand what their measures are all about.
Because when someone sticks a petition in front of your nose and says, would you sign this?
It's going to benefit the schools, or benefit the firefighters, or benefit whatever.
Is that the bottom line or is it more?
How does it benefit?
Where is the money coming from?
What will it do to the economy of the state or to my personal finances?
So people shouldn't just have a knee-jerk reaction to the line they're given by someone who's asking for a signature on a petition.
They should try to understand.
They can always tell the person, look, they can demand to read it, number one, even though the petition gatherer won't want them to do that because the more they sign up, the better off they are.
Do they have a paragraph or something?
Yeah, well, there's the summaries on the petition.
But the summary, you could even get deeper than that.
You could say, look, I'm going to go home, I'm going to look this up, I'm going to read about it.
If I like what it's going to do, I'll find somebody to sign.
I'll find a petition and I'll sign it.
So they should be wary and skeptical about what they hear from the petition gatherers.
Because then they become an educated voter and not only can I think they make a good decision on whether to sign a ballot petition, but they could probably make better decisions at the polls and what people are telling them, what candidates are telling them, and what some of the measures that they have to vote on are telling them.
And so, you know, I really urge people to really try to take a little time.
I know they have busy schedules and busy lives.
Take a little time to understand this because it's going to affect you in the long run.
Yeah, their family, everybody here.
That's right.
So if it's this party or that party, then they are...
This organization, that organization, you say, well, taxpayer group endorsed it.
I believe we're paying too many taxes.
I'm going to do that.
I'm going to go for what they say to do.
Or, you know, the teachers union endorsed it.
I think the teachers are...
So we kind of have this herd mentality, right?
I don't know if it's a herd mentality as much as it goes back to people not having the time to study these things themselves.
And so they look for what is called, in the political world, cues.
What's the cue?
The cue is...
That this group is for it.
I'm for this group.
I'm going to vote for it.
It is a shortcut, and they really need, I think, to spend a little bit more time than that.
It doesn't have to be a lot more time, but a little bit more time.
But we have to get somebody involved to make these decisions in a wise way.
Thank you so much, Joel, for coming on the show.
It's great to talk to you, and we look forward to having you again in the future.
Thanks for inviting me.
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