California Proposition 13

1368 Words Jan 8th, 2013 6 Pages
California Proposition 13

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California Proposition 13
What is proposition 13?
Property taxes in California have been a controversial issue for very many years. In mid 1978, approximately ⅔ of voters in California passed proposition 13. Before it had been passed, property taxes increased almost annually according to the assessed value of the property. In the 1970s, there was a remarkable growth in the real estate market and the value of homes rapidly went up. Property values were escalating substantially since assessors had to keep assessed values current. On the other hand, increments in the evaluated value were not made annually. Therefore, this led to a huge tax shock for homeowners after every few years.
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However, this may change if the property changes hands.
The proposition has created an imbalance in the real estate market in California when compared to other states. For instance, in 2003, Warren Buffet claimed that he paid only 0.056% or $2,264 in property taxes for his $4 million home California, whereas he paid 2.9% or 14,410 for his $0.5 million home in Nebraska (Buffett, 2003). For investors, this means that California is a preferred location since they are likely to pay very low taxes on their property.
Advantages of Proposition 13
As much as Proposition 13 has received criticism, it still has its advantages. The proposition has increased stability in the community and allowed predictability for property owners. Progressive income tax has an impact on higher incomes, whereas property tax affects those in the lower income bracket. Therefore, high property taxes affect those that have highly valued property, but earn low incomes. Reducing property taxes for such people is a great advantage to them. Furthermore, the proposition has enabled Californian taxpayers to save billions of dollars over the years (Smith, 1998).
Those who support the proposition have suggested that the volatility of funding for municipalities has reduced as a result of capping tax increments for previously owned homes. Also, they assert that property tax revenue before the proposition was more volatile. The older generation perceives
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