California’s Prop 5 – How a “No Brainer” Fails

I recall the story of a young salesperson attempting to make his case to the buyer of an 80 store grocery chain on why they should carry his product versus the competition.

He used facts, figures, independent data, charts and graphs to support his story in making a compelling argument. When he was finished presenting the Buyer looked at him and firmly said “NO”.

The salesman responded in a curious manner. He asked how they could continue to support such a product that seemed to hold less sales and profit opportunity for the Company than his product did? It just did not make sense, the facts certainly seemed to support his presentation.

The buyer casually responded, ” Don’t try and figure us out”.

That salesperson was me, and when something seems unexplainable, I refer back to this quip I received, ‘Don’t try and figure us out”. Some of the best advice I received.

However, there is one thing I still do not understand.

How Did Prop 5 Lose?

This seemed like a no-brainer, the Vegas odds were in its favor, but somehow it lost.

In case you were wondering what Prop 5 was – it basically allowed a California homeowner 55 or older to transfer their property tax base to their new residence, no matter the value of the new home or location.

On its face, this seems like a win-win for everyone involved. Take Pasadena for instance. Many of the homeowners who would take advantage of this new law have been in their house for 10, 20 or 30+ years. If you have been in your home this long your property taxes are much much less than your neighbors who purchased in the last few years thanks to Prop 13 which passed in 1978. If you have lived in your home since Moses, Prop 13 has been a godsend for you. On the other hand, if you are a newer homeowner, you should receive priority Parade seating since you are paying a disproportionate share of the tax burden.

The house in question was purchased in 1960 for $20,000, the taxes are not much more than $950 per year. Now that house sells today for $800,000 and the new taxes are now $7200 (approx). The new owner gets a property which otherwise would have never been available, the City gains an additional $6250 in tax revenue and the Sellers move to a new location. Win- Win – Win.

If that is the case why did Prop 5 fail?

1) Proponents and backers did a poor job of explaining the benefits of Prop 5. If you are 55 or older or approaching that age you are well aware of the benefit you are currently entitled to under Prop 90 and Prop 60. Prop 90 allows you to transfer your property tax base to another principal residence of equal or lesser value within certain counties that participate and Prop 60 allowed a property tax transfer within the same county again with equal or lesser value.

How many under 40 voters are aware this exists?

2) California voters never meet a tax they did not like especially if it affects someone else. Voters approved a tax on the wealthiest Californians a few years ago, under the “you make more you should pay more” rationale. Therefore why should older voters who have all of this equity in their home be awarded a tax break? They can afford to pay it. They already get a break at Denny’s.

3) Timing This election voters approved a sales tax increase to fund Pasadena City Schools, which by the way failed a few years back. California voters failed to rescind the gasoline tax under the purported guise of repairing the State’s roads and highways. We like to think we are doing a public service by increasing our tax burden for the intended good these additional funds will produce.

California has some of the most generous taxpayers you can find. Just don’t try and raise the rent.

Fool me once, shame on you, fool me twice, shame on me.

In the meantime, I guess the rest of us will just keep reading about how the state economies in Texas, Nevada, Oregon, and Tennessee just keep growing and growing thanks to so many Californians moving into their State.

I think I have this one figured out.

Also see;

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