Patterico's Pontifications

4/2/2024

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.

– JVW

39 Responses to “When Your Tax Plan Is Such a Failure That Even the LA Times Admits It”

  1. After Proposition 1 — naturally introduced on behalf of the homeless and veterans, so we were assured — very narrowly passed, word is that California Democrats are a bit spooked about their pro-tax agenda. Nevertheless, it appears that they will back a citizen-sponsored (yeah, I know, it’s really a special-interest-sponsored) statewide ballot initiative to lower the requirements on “local infrastructure” taxes from 2/3 (66.7%) voter approval to only 11/20 (55%) voter approval. It deserves a resounding defeat. Naturally “local infrastructure” is so loosely defined that it will come to encompass anything related to the progressive agenda, from public schools to parks to homeless shelters to new carpets for City Hall. It deserves to go down to an ignoble defeat.

    JVW (5e48d6)

  2. There will also be a couple of competing initiatives on the California ballot: one from anti-tax groups to require any legislative tax increase to reach a 2/3 majority in order to pass the legislature, and another from pro-tax groups which demands that any effort to require a supermajority to approve new taxes via initiative be itself approved by the same supermajority of voters.

    JVW (5e48d6)

  3. I don’t like propositions. For every good one, there are nine crazy ones. I’m so glad to have escaped from the annual proposition circus.

    norcal (9fa07d)

  4. I don’t like propositions. For every good one, there are nine crazy ones. I’m so glad to have escaped from the annual proposition circus.

    I see where you are coming from. I’ve always thought they were a necessary check on an out-of-touch legislature, but I can’t ignore the degree to which they have been co-opted by the political class and used for promoting stupid ideas which are intentionally packaged so as to be misleading and utterly wrong. I’ve made this point in the past, but I alway appreciated the rules that existed when I lived in Massachusetts where citizens were allowed to raise taxes by initiative but only the legislature was allowed to appropriate the money. I can imagine how the lust for ever more tax dollars might wane if progressive PACs and foundations weren’t allowed to designate where the money would go.

    JVW (5e48d6)

  5. in Massachusetts where citizens were allowed to raise taxes by initiative but only the legislature was allowed to appropriate the money

    That is a clever idea.

    I also lived in Massachusetts. Most of my two-year Mormon mission was there. The chapel, along with the mission office, was in Cambridge, right across the street from the Henry Wadsworth Longfellow house.

    norcal (9fa07d)

  6. Get use to higher taxes. The rich are complaining that floriduh and especially texas are becoming california. Arizona is just about their. Nearly half of texas is minority despite white migration their. In the 1990’s/2000’s republicans left california for arizona after 2010 democrats followed them here same is now happening in texas. 6 week abortion ban will bring out democrats to vote on abortion initiative in floriduh in 2024.

    asset (810c1c)

  7. Get used to lower spending. Even if Gavin Newsom and the Democrats fix the $78 billion dollar deficit this year, forecasts are that the various chicanery and gimmicks they will employ means that next year’s budget deficit will start at at least $40 billion, likely higher. Despite progressives’ belief that we can have single-payer health insurance, a bullet train, a robust welfare system for illegal immigrants, low-cost college, and lavish green subsidies, the reality is that the Golden State cannot tax its way out of this mess without resorting to jacking up taxes on middle-class and poor residents of the state, and doing so will likely accelerate the California exodous that we have seen since the return of Jerry Brown.

    And this doesn’t even begin to cover the utter trainwreck starting in about four years when the state is going to regularly have to use general funds to backfill the shortages in our retirement funds. If you thought that losing $32 billion through EDD fraud during COVID was rough, just wait until the legislature has to appropriate that much money each and every year for about 10-15 years in order to make good on pension obligations.

    JVW (b02843)

  8. Actually, tax and spend is a conservative idea. My father was an economist for the US Government, and he instilled in me a respect for what he called “the two pillars of good governance”: 1) We are all in this together, and 2) There is no free lunch.

    If the government is going to spend money on something, it must be prepared to tax its citizenry (all of us) to obtain the money. If it lacks the will to do this, the value of money will be degraded and the lack of discipline will corrode trust between the governed and the governors.

    The accounting shell games that have been become a staple of any economic discussion in the press are the symptoms of a serious political disease. It’s hard to tell if it’s at stage 3 or stage 4, but the prognosis is grim. A healthy dose of conservative governance might help, but such doses have become small and sporadic.

    Over dinner this evening, my wife asked, “What kind of world will our grandchildren live in?” It’s a question that every voter should ask before they cast their ballot.

    John Boddie (dcf99c)

  9. @8 They will live in a world run by young AOC’s not young mtg’s or boeberts. Gavin newsome is a corporate establishment appeaser.

    asset (810c1c)

  10. Your young AOC’s are very quickly going to run up against Margaret Thatcher’s famous dictum that eventually you run out of other people’s money to spend. No matter how much you think the left are going to finally turn us into a larger version of Cuba, the reality is that a generation which can’t even sit through a lecture from a member of the Federalist Society without needing to spend time working on coloring books in a room full of kittens isn’t going to be the revolutionary force that you think it is. Let me refer you back to a post of mine from last week as evidence. You want to believe these young Robespierres and Chés are fierce, when the reality is that they are no better than insipid.

    JVW (b02843)

  11. when the reality is that they are no better than insipid

    Hear, hear!

    These are not your grandfather’s revolutionaries.

    norcal (864a4a)

  12. asset (810c1c) — 4/2/2024 @ 6:34 pm

    I think you are mistaken to assume that race/ethnicity equals ideology. That erstwhile ground is shifting underneath you.

    norcal (864a4a)

  13. @10 thatcher ran out of votes and tories turned to majors. Long before they run out of “other peoples” money other things will happen. Venezuela is the perfect example (as a non-exploitive capitalist and not a economic socialist I can use it) what happens when the wealthy keep “other peoples money. Hugo Chavez was the last not the first to deal with “other peoples” money. JFK “those who make peaceful change impossible make violent revolution inevitable. As I have posted here otto von bismarck a very conservative politician came up with the social welfare state to stop his rich friends from being killed in the incessant revolutions taking place evidently he had read thomas malthus iron law of wages. At one time here capitalism worked so well it had to shoot down strikers with machine guns. (social history of the machine gun) Also bombed them with airplanes coal miners. We once had the highest incarceration rate in the world and were lucky not to be shot first by the police if you were a minority. The supreme court is now taking up the case of the tulsa massacre survivors who were competitive capitalists. Socialism and communism are christianity applied to economics. Which is why it doesn’t work very well. As for killings look up the inquisition and witch burning and anti-semitism. Capitalism is the theory of evolution applied to economic .but workers are not dinosaurs.

    asset (810c1c)

  14. @12 Minorities in this case mostly males like the authoritarianism of trump. Also economics democrat party turns poor people into middle class republicans as with the irish and italians. Republican party turns poor people into communist guerrillas! Trump being a populist is changing that a little bit. Until trump a poor person voting republican was like a chicken voting for col. sanders.

    asset (810c1c)

  15. I don’t fault the good intentions of many people who support these propositions but after a while have to wonder if their real objectives, at least subconsciously, are not what they tell us. The bullet train, which JVW mentions, is a great example. I voted against it, not because of opposition to high speed rail — seems like a good thing, if you can build it — but because it seemed likely that the project would be plagued by massive cost overruns and lengthy delays and result in little benefit. The overruns and delays turned out to be even worse than I imagined and there’s still no train for anyone to ride. Perhaps the real goal was to enrich contractors and consultants and make Jerry Brown feel good? If it were still the era of Pat Brown, the train would at least have been built and we could debate how well it was working out, but in modern California billions are raised and spent and little accomplished. So too with the efforts to date to help the homeless, who don’t seem to be getting much benefit from all the billions.

    RL formerly in Glendale (7a2d64)

  16. The bar for helping the homeless got lowered to “raising awareness”

    steveg (7a07b9)

  17. The moment someone finds a new way to challenge Prop 13, the state will refuse to defend.

    Kevin M (8676e4)

  18. The bar for helping the homeless got lowered to “raising awareness”

    Oh, everyone is “aware” already. God help those poor fools who rely on mass transit in LA (aka homeless housing).

    Kevin M (8676e4)

  19. As I pointed out several times, the most optimistic ridership numbers (and highest possible fares) on the LA-SF train, were it to be finished, would not cover the interest on the debt incurred to build it.

    Kevin M (8676e4)

  20. The way to attack these fools is to show how they actively harm the interests of their base. The problem though is that the opposition party in CA is a Trumpist nightmare that is anti-Hispanic (40% of the population) and anti-choice (here, of all places).

    A party that ran on fixing traffic, lowering gas prices, allowing apartment building and offering sane and effective government would have a good chance at defeating these concern trolls. Caruso tried to do this, but was slimed by proximity to Trump. Maybe after Trump is dead.

    Kevin M (8676e4)

  21. John Boddie (dcf99c) — 4/2/2024 @ 8:22 pm

    Over dinner this evening, my wife asked, “What kind of world will our grandchildren live in?” It’s a question that every voter should ask before they cast their ballot.

    I can speculate as follows about a closer time than that:

    If Trump is elected, he will be succeeded by a “progressive” Democrat.

    If Biden is elected, he will be succeeded by a close to mainstream Republican.

    But you really can’t say.

    Sammy Finkelman (1d215a)

  22. The sponsors of these taxes know they are wrong because, for one thing, they are told. But they want the proposition to pass and to to spend (ad get) some money. They know that not using dynamic scoring gives you wrong results. And that when the government is spending money is not efficient.

    And that profits from a lottery do not go to “education” – in New York State at least the money from the lottery is subtracted from money that would otherwise go to education

    Sammy Finkelman (1d215a)

  23. And that profits from a lottery do not go to “education” – in New York State at least the money from the lottery is subtracted from money that would otherwise go to education.

    Another great example of this is every time some community has a bond issue floated to do renovations or repairs at local school buildings. The taxpayer is always assured that this money will go to the buildings only, that none of it will end up going to teacher salaries or hiring more administrators or shoring up pension obligations.

    But that’s not what really happens. Let’s say that prior to the bond passage, the school district had been budgeting $1.5 million per year for building and facility repairs. When the $100 million bond issue passes, the district is then free to move that $1.5 million budget item for the next decade over to budget items such as — you guessed it! — teacher salaries or hiring more administrators or shoring up pension obligations. So many people are conned into believing that public budgets aren’t truly fungible.

    JVW (b02843)

  24. @23 Vouchers and private school funding slush fund has caused huge deficit in arizona despite legislature run by republicans. Its so bad that rep. state superintendent hit and run horny had to stop talking about transgenders and say don’t blame republicans for the voucher system they installed.

    asset (5aa565)

  25. As I read it, Arizona has a $1 billion deficit in an $18 billion budget. That’s not ideal, but please don’t try to tell me it is anything close to California’s $73 billion deficit on a $292 billion budget. It’s pretty obvious that a deficit representing 25% of your state’s budget is a way worse than on representing 5.5% of the budget.

    Remind me, asset, which of those two states is thoroughly dominated by progressive principles.

    JVW (b02843)

  26. Remind me, asset, which of those two states is thoroughly dominated by progressive principles.

    You can’t run out of other people’s money if you borrow it. At least not directly.

    Kevin M (a9545f)

  27. California will be bankrupt in my lifetime.

    Kevin M (a9545f)

  28. Az republican legislature doesn’t do much for poor people so its not over spending except voucher boondoggle. They tax the poor a higher percentage of their income then the rich. Some years ago the az. republic paper reported if you ad up all the taxes and fees a person pays in az. it would come out to 6% for a millionaire and 17% for a poor person. Low income and prperty tax for rich and fees take up small percentage of their income. Az has high sales tax and some municipalities charge sales tax on food. All tax fast food. Also their is a 6 1/2% on apartment rentals and higher % property tax then a millionaire on his mansion. We were the last state to accept medicade until poor children needing operations came on tv news begging for their lives. We have access not medicade which covers less. @27 no it wont unless you play games like they do with social security to fool people into thinking they will get nothing instead of the 90% they will get if nothing is done and things will be done.

    asset (559c0d)

  29. Az republican legislature doesn’t do much for poor people so its not over spending except voucher boondoggle.

    Vouchers only work for people in poor areas with crappy schools. Rich people in rich neighborhoods have great schools and don’t need vouchers, or they send their kids to private schools that won’t take them. Places like Washington DC need vouchers desperately, but the local government won’t allow them.

    The biggest proponents of vouchers are black parents. But “progressives” like you want to keep them poor and voting for your side.

    Kevin M (a9545f)

  30. @29 Its progressives who have brought poor and minorities out of poverty by ending discrimination. It was conservatives who demanded that men had to abandon their family to be eligible for welfare (single parent) destroying the family unit. Conservatives continually sabotage welfare, public education even the postal service. They want to drown government in a bathtub. The donor class and liberal establishment of the democrat party is to busy fending off the progressives to do much about conservative sabotage. Until recently unlike public schools private schools didn’t have to check for sex offenders to fill out their staffs.

    asset (559c0d)

  31. As the old saying goes, asset, progressives and Democrats sure must love the poor, because their policies do nothing but create more and more of them.

    JVW (b02843)

  32. Conservatives continually sabotage welfare. . .

    Yeah, those horrible California conservatives who mismanaged the state’s EDD office and pissed away $32 billion on fraudulent COVID unemployment claims.

    Oh wait, my mistake. Naturally that was the state’s progressive Democrats.

    JVW (b02843)

  33. @31 the poorest state is mississippi run by republicans. They used to call arizona mississippi west. 9 of the top ten poverty states are republican states. (USCB) They believe social problems are more cheaply dealt with law enforcement. The top 8 states incarceration rates are republican states. (quora) Democrats would rather over spend then under spend this is so.

    asset (559c0d)

  34. @31 the poorest state is mississippi run by republicans.

    asset, you have several times tried to use this as an argument. Yes, it’s true that Mississippi has the lowest median income, with the average at about 55% of those of California and New York. Yet that overlooks the fact that California is a vastly more expensive place to live, with the purchasing power of a dollar around 30% less than in Mississippi. And of course, Californians have about a 30% higher tax burden than Mississippians do. Most importantly of all, the median home price in Mississippi is 33% of the median home price in California, and 72% of Mississippians own their own home as opposed to just 54% of Californians. You lefties like to yammer on about “generational wealth.” Well, in Mississippi it is much easier to build generational wealth than it is in California.

    And it’s long been pointed out that when “poverty” is defined as unable to afford basic needs such as food, clothing, housing, etc., California has a higher poverty level than Mississippi does; in fact, the Golden State has the highest poverty rate in the nation. Quite the progressive paradise the Democrats have created here.

    JVW (b02843)

  35. My last comment just disappeared.

    Kevin M (a9545f)

  36. To illustrate the costs of housing in Los Angeles, here is an 1100 sf house for sale in Watts. It’s a pretty typical price for the area.

    I think the reason this initially went into the spam folder is because it contained the Zillow link, and the system flagged it as being an advertisement from a realtor. – JVW

    Kevin M (a9545f)

  37. Here’s a decent house in Jackson, MS for far less

    Kevin M (a9545f)

  38. If Biden is elected, he will be succeeded by a close to mainstream Republican.

    IF Biden is elected, he will be succeeded by a MAGA guy. Just won’t be Trump.

    Kevin M (a9545f)

  39. @34 If its so easy to build wealth in mississippi how come they are the poorest state? You can’t drink the water and they say (jackson) is to poor to replace it.

    asset (3136e9)

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