Patterico's Pontifications


When Your Tax Plan Is Such a Failure That Even the LA Times Admits It

Filed under: General — JVW @ 4:03 pm

[guest post by JVW]

Back in November 2022, the voters of the City of Los Angeles briefly diverted their ballot attention away from endorsing the continued rancid leadership of Governor Gavin Newsom and welcoming the rancid leadership of Mayor Karen Bass, and voted to raise taxes on the rich. Specifically, city voters approved Proposition ULA which imposed a 4% tax (“surtax” would be a more apt description, but I’ll use the language that the proposition’s framers used) on sales or transfers of properties valued $5 million and above, and a 5.5% tax on sales or transfers of properties valued above $10 million. It will come as no surprise that this proposition was sold to voters as a “soak the rich” scheme which would raise all sorts of money ($915 million annually, Angelenos were promised) that could be used for affordable housing and — yes, that old progressive favorite! — helping the homeless. Because we are generally an intellectually frivolous people living in utterly shallow times, the tax measure passed with 57% of the vote and went into effect on April 1, 2023, some 367 days ago.

In the least surprising development, the tax has not worked the way that proponents planned, the revenue raised by the tax has fallen way short of expectations, and the tax has put a huge chill on luxury home development and sales in the City of the Angels. All of this was forecast by the opponents of the measure, yet like true lemmings progressive Angelenos charged ahead anyway. Even the Los Angeles Times has taken notice of the gulf between what was promised and what has been delivered, and reporter Jack Flemming lays out the details:

When the tax first took effect on April 1, 2023, it all but froze L.A.’s luxury real estate market, with many sellers pulling their homes off the market at the prospect of paying an extra few hundred thousand in taxes if they sold.

A year later, the market is still just as icy.

The striking slowdown is partly due to chilled buying across Southern California, as soaring interest rates keep many prospective buyers out of the house hunt altogether. But in L.A. — the only city affected by the tax — home sales above $5 million have plummeted at twice the rate of other affluent cities, as buyers opt for homes in neighboring areas that aren’t subject to the tax.

From April 2022 to March 2023, the year before Measure ULA hit, L.A. had 366 single-family home sales of $5 million or more. In the 12 months since, there were just 166 — a drop of roughly 68%.

The tax-and-spend crowd which orbits City Hall counters that the whole state and country are struggling with high interest rates which is putting a damper on home sales. This is indeed true (please, nobody tell the Biden/Harris campaign this since it runs counter to their obnoxious “the recovery is here” narrative), though it is painfully obvious that Los Angeles is suffering far more in high-end real estate than neighboring cities. The 68% drop in luxury home sales mentioned in the article is compared unfavorably to corresponding drops of 24% in Beverly Hills, 28% in Malibu, and 29% in Santa Monica, and luxury realtors have plenty of stories of clients who consider buying homes in Bel-Air, Hancock Park, and other tony Los Angeles neighborhoods only to eventually decide to instead locate in Pasadena, Manhattan Beach, or the aforementioned other twee communities, specifically citing the tax as a reason. And it’s not just the extra 4% or 5.5% which is driving them away; it’s the realization that Los Angeles voters are happy to use the ultra-wealthy as whipping boys and girls (and nonbinaries) and will likely raise those taxes again on a whim whenever they feel that they could use a few more bucks in the city treasury.

But hey, at least this measure poured hundreds of millions of dollars into city coffers to help with Los Angeles’s various housing issues, right? Yeah, hardly. When proposed to the voters, the measure’s proponents anticipated $915 million in annual revenue from the so-called Mansion Tax. But last March, just one month before the tax would come into effect, the City Administrative Office lowered that estimate to $672 million. This is far from the first time that tax proponents have grossly overinflated the amount of revenue which can be expected from their plundering ways as the taxers consistently and aggressively ignore unintended consequences, especially when it is a very localized tax. Still, $672 million will go a long way towards helping the housing and homeless issue here, right?

The new tax rates raised a total of $215 million dollars in the first year.

Ruminate on that for a moment. The tax ended up raising less than one-quarter of the revenue that was promised by its sponsors. I know places in our great country where over-inflating value to this degree would subject you to criminal penalties for fraud. In a desperate bid to put a happy face on this obviously massive failure, the taxers now insist that the measure raised a paltry $5 million in each of its first three months, but has since averaged close to $25 million per month. Be that as it may, that $25 million per month figure which they confidently now forecast going forward works out to $300 million per year, one-third of the original promise and less than half of the revised estimate. Naturally the LA Times article quotes some mush-minded city bureaucrat who gives us the “every dollar is valuable in our fight against poverty” spiel which is as obnoxious as it is disingenuous. This is a massive failure by the rapacious city bureaucracy, and it is yet more proof that progressive governments are out to lunch in terms of understanding how markets work.

This past October, a local judge quickly dismissed a lawsuit challenging the legality Proposition ULA. Opponents of the tax, including the Howard Jarvis Association, believe that the tax runs counter to taxpayer protections secured by Proposition 13 as well as limits on the initiative process outlined in the City of Los Angeles Charter. At the heart of their objections is the contention that this sort of tax cannot be passed with a simple majority of voters, it requires the Prop 13 mandated supermajority of 2/3 assent. The lawsuit is currently on appeal.

Whether it is the stupid bullet train, single-payer health care, luxury taxes, or so many other progressive goals, the people should not let themselves be fooled by fatuous promises which ignore unintended consequences and bear no relation to the real world. The ultimate Holy Grail of the tax-and-spend crowd is naturally a repeal of Proposition 13, so that governments will be unencumbered in their desire to raise endless funds from property owners and anybody who has to interact with property owners. Their latest attempt to repeal the part of the measure which pertains to commercial properties fortunately failed, but rest assured they will be back time and time again, forever promising that we are just a few million (billion) dollars away from solving all of society’s ills. Don’t let them sucker you or the people you know into this nonsense.


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