SACRAMENTO, CA — The California Chamber of Commerce Board of Directors has taken positions on the following initiative proposals, which have not yet qualified for the ballot:
- People’s Initiative to Protect Proposition 13 Savings—SUPPORT
- California Care Act— OPPOSE
- California Schools and Local Communities Funding Act of 2018—OPPOSE
People’s Initiative to Protect Proposition 13 Savings—SUPPORT
The initiative allows homeowners over 55 years old to sell their homes, move, and transfer their property tax basis to the new residence.
Proposition 13, passed by California voters in 1978, generally limits ad valorem property taxes to 1% of the full cash value of the property plus a maximum increase of 2% per year. The full cash value is the value of the property in 1975–1976 or “the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment.” Selling a home and buying a different home creates a new tax basis. Since 1978, voters have twice tweaked the portability of the Proposition 13 tax basis:
- Proposition 60 (1988) allowed homeowners over the age of 55 to transfer the assessed value of their present home to a replacement home if the replacement home is located in the same county, is of equal or lesser value, and purchased within 2 years of sale.
- Proposition 90 (1988) extended that transfer to out of county purchases provided that the incoming county allowed the transfer.
The proposed initiative further extends the portability of Proposition 13 property tax basis by removing the geographic restrictions in Proposition 60 and Proposition 90.
California is facing a massive housing shortage and needs at least 100,000 additional new units a year to meet demand. The CalChamber Board voted to support this measure because it could help ease the shortage by freeing up modest-priced and move-up housing for young families.
The change is important because seniors, who often are on a fixed income, fear they will not be able to afford a big property tax increase if they sell their existing home and buy another one, discouraging them from ever moving. As a result of this “moving penalty,” almost three-quarters of homeowners 55 and older haven’t moved since 2000. In addition, a recent estimate from the Legislative Analyst’s Office found that this initiative would increase home sales in the tens of thousands per year.
California Care Act— OPPOSE
The California Care Act proposes a surcharge of 1% on all taxable income over $1 million to pay for various health care programs.
This tax is in addition to the top state personal income tax rate of 12.3% and the existing 1% surcharge on incomes over $1 million. The tax would apply to all taxpayers, regardless of filing status, and would not be indexed for inflation. The Legislative Analyst estimates the tax would raise between $1.5 billion and $2.5 billion annually, depending on economic conditions.
California’s personal income tax is notoriously the highest and most steeply progressive in the nation. Since 2004, voters have approved three income tax increases. Wealthy individuals pay a disproportionate share of personal income tax revenues. The Department of Finance estimates that the top 1% of income earners paid just under 48% of personal income taxes. Since the income tax today accounts for about 70% of General Fund revenues, relatively few taxpayers disproportionately influence state revenues. The state budget is therefore vulnerable to economic cycles and the behavior of these relatively few taxpayers.
The CalChamber Board voted to oppose this measure because increasing income taxes again is unnecessary and potentially risky to California’s economic health and budget stability.
Layering additional tax increases on just a few taxpayers may encourage these taxpayers to source their income in tax-friendlier states, which would reduce economic activity and tax revenues in California. Many small businesses are organized such that their owners pay state taxes through the personal income tax. Another large tax increase—especially in the absence of the federal tax deduction—will penalize small business owners and job creators.
California Schools and Local Communities Funding Act of 2018—OPPOSE
The California Schools and Local Communities Funding Act of 2018 proposes a split-roll property tax on commercial and industrial properties.
This measure requires that beginning with the 2020–21 lien date, all commercial and industrial properties, with some exceptions, be reassessed to full market value, and then reassessed every three years. Exempted from this requirement is any residential property, including rental housing, property used for production agriculture, and some small business property holdings. The measure also exempts from taxation tangible personal property up to $500,000 per taxpayer.
The CalChamber Board voted to oppose this measure because the higher taxes would likely be passed on to consumers, or would force businesses to reduce overhead costs, such as employee hours or positions. In the worst case, businesses may shut their doors or relocate to states with a less hostile tax environment.
A split roll that immediately reassesses business property would cost taxpayers $9 billion to $11 billion, according to a study from the University of Southern California. Annual reassessments to fair market value also would increase annual tax bills by billions more than under Proposition 13.
The CalChamber Board also was concerned that raising property taxes on commercial and industrial property increases the incentives that local governments have to approve commercial and retail development over badly needed new housing developments.
The California Chamber of Commerce (CalChamber) is the largest broad-based business advocate to government in California. Membership represents one-quarter of the private sector jobs in California and includes firms of all sizes and companies from every industry within the state. Leveraging our front-line knowledge of laws and regulations, we provide products and services to help businesses comply with both federal and state law. CalChamber, a not-for-profit organization with roots dating to 1890, promotes international trade and investment in order to stimulate California’s economy and create jobs. Please visit our website at www.calchamber.com
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