Between Boardwalk and Park Place: luxury tax of $6,000
When is a ballot measure a cartoon? When is it so outlandish that you can appreciate it for its entertainment value?
Way back in May, Councilman Richard Alarcon's motion for a luxury tax - no, come back, I'm being serious - Alarcon's motion to put a luxury tax on the March 3, 2009 city ballot was set for the budget committee. Well, the panel had a hearing Monday but couldn't muster a quorum, so couldn't vote, and it was pretty clear that even if it could, the members were a little, shall we say, skeptical of the plan to impose an annual $6,000 tax on Really Big Houses to reimburse the city for.... Well, not to reimburse the city for anything, but just because.
So the committee sent the motion to the full council, which has until Wednesday (item 63 on the agenda) to approve anything that's going to voters in March. It's a given that Alarcon's proposal isn't going anywhere, at least in its present form; not only couldn't it get a vote in the budget committee, it couldn't even get a hearing in the rules committee.
Alarcon is working on some fine-tuning to make the proposed law enforceable. As written, it would almost certainly violate the state Constitution's restriction on ad valorem property taxes; that is, it would tax property in ways not permitted by Proposition 13, which limits annual increases in those taxes despite increases in value. The asserted distinction here (taxing size instead of value) is unlikely to fly in court since there's an obvious connection between square footage and value.
In case you were wondering (and of course you were), L.A. has 6,336 single family homes of more than 5,000 square feet and 534 of more than 10,000. Who knew all those houses would fit on Boardwalk and Park Place?
At the committee hearing, city staff agreed to come back with some rather hefty changes, such as morphing the proposal into a new utility tax on water and electricity. That makes the whole thing a lot less fun and a lot more legal, but not necessarily more politically viable. Remember, voters in February already changed the utility tax to extend the portion on telephones to cell phones and other "new" communication devices.
Alarcon said his plan was based on a tax in Aspen, Colo. But there's a significant difference between the Aspen tax, geared toward conserving energy and power plant emissions and applicable to new construction, and this proposal, which Alarcon said was designed to raise cash (about $10 million, by his estimate) for the city. The motion's language goes further, as it's couched in the kind of language that conservatives cite for their "class warfare" claims.
Here's part:
While a portion of our residents live luxurious lifestyles, the vast majority of Angelenos are bracing for a worsening economy.... In addition to paying increasing rents, working families are being asked to pay higher utility fees, thereby further increasing the economic divide.
OK, hang on a sec. Who is asking working families to pay higher utility fees? Wasn't that you, City Council? Back to the motion:
Fortunately many Angelinos have been incredibly blessed in the City of Los Angeles -- and now they will have the opportunity to pay their fair share of the services that are provided to them.
Opportunity! If there is anything people want, it's opportunity, and this is the city of opportunity. At least, a certain kind of opportunity. A side note: the motion cuts through the question of how to spell Angeleno/Angelino by trying it once each way. So there’s something here for everyone.
The more fortunate residents of the City occupy luxurious mansions, homes which were built well above the normal size in order to provide its inhabitants a comfortable and lavish lifestyle. These mansions often have features such as in-home movie theaters, extravagant heated pools and/or energy-intensive landscaping.
OK, you get the idea. How dare they be so rich and ostentatious. They must suck up a lot of electricity and water, and it's only fair that they pay us back for it. Problem is, of course, they already do; we have tiered water and power rates so resource hogs pay for their excess. Could top rates be higher? Perhaps, and of course the reconfigured motion may now contemplate an additional utility tax.
But that’s not the current motion; it instead calls for a “Monopoly”-style luxury tax - a tax on people with the temerity to have big houses. If your square footage is more than 4,999, you have to pay the city $1,000. More than 5,999, you have to pay $2,000, and so on up to $6,000 if you have 10,000 or more square feet.
Alarcon acknowledged that "the message, to me, is just as important as the amount of money" the tax would raise.
I'm speechless. No, I'm not. Fringe conservatives make one ridiculous claim after another about how liberals are just angry at the rich and crave revolution in order to grab others' wealth. They take a comment like Barack Obama's about how he wants to "spread the wealth around" and nervously fantasize that he's a Marxist come to abolish private property, rather than a moderate Democrat with a moderate plan to move the highest two income tax brackets back up to their 2001 levels.
Where do they dream up this stuff equating American liberalism with socialism? And then something like this motion comes along - or this proposed state ballot measure, currently in circulation for signatures - and I have to say, well, I understand where they dream it up.
Alarcon notes, correctly, that his plan would hit most rich folks with a much lighter touch than increases in income tax. But that doesn't make it OK. There really are intelligent conversations to be had about revising Proposition 13 and making property taxes more closely reflect property value; and there really is room for reasoned discussion of public investment in projects or programs that bring broad returns to society. But those discussions are often shut down by alarmist claims that any deviation from the status quo or any consideration of any tax increase is a headlong rush toward confiscatory rates. For evidence, critics cite ideas like this one. Seems to me that a tax on, essentially, ostentation rather than transactions or income helps to undermine rational reform. So maybe this motion isn't all that fun or entertaining after all.
AP Photo / Mark Sexton / Peabody Essex Museum
Los Angeles was losing jobs faster than any major city but one - even before the current crisis. We have fewer jobs per resident than almost any other city and a lower per capita income than other major cities in this country - and we are falling further and further behind.
And instead of making LA more attractive to people who create jobs and build businesses - the city - and the CRA - are doing everything they can to drive jobs and businesses out of LA. So I am... astounded.... this new tax might not be passed. It seems to perfectly meet all the city's guidelines.
Posted by: Brady Westwater | October 30, 2008 at 11:21 PM
Politicus Finch: Thanks for the comments, especially about how the people who can afford the mansions can also afford the $6,000. It seems to me, though, that when looking at property tax policy the proper inquiry is not how much each person can afford to pay the government, but whether one homeowner is living large at the expense of another. That's part of the Proposition 13 problem: our tax law allows someone who bought a house a decade ago to pay low property taxes while the buyer of the identical house next door pays much more - but they get the exact same police, fire and other city services. That's legal, but is it wise?
The principle ought to be that your property taxes cover the goods and services you get from the city, plus perhaps a bit more to keep the city running. If the sheer size of a mansion requires greater-than-average public expenditures for police, fire, water and power, then the owner should pay more - because he or she uses more and should not be subsidized by the poorer neighbors.
Alarcon's plan doesn't do that. It would require people to make a sort of guilt payment for being so blatant about their riches instead of compensating the city for the cost burden such a big house imposes on the rest of us.
Posted by: Robert Greene | October 30, 2008 at 05:26 PM
I was directed here by LA Land to get a "more serious analysis" of this proposal and I don't find this piece particularly serious at all. The faux outrage at class warfare is silly. There is not one likely soul who owns a 5000+ square foot home for whom $6000 additional a year in taxes would be a hardship of any kind.
But the broader and more worthwhile question is, in fact, one that was raised. Does this proposal violate Prop 13 and is it enforceable. Is it a wise way to raise funds or not? If Alarcon knows it is not enforceable, then he should stop grandstanding and propose something real and, God forbid, intelligent.
I do have to add, it is amazing to me that LA could be so in the red. Upon seeing home values double and even triple in a mere four years, and one would assume seeing property tax revenue rising by a considerable amount, might it not have been prudent for the Council to refrain from over-spending and put some of the windfall into a rainy day fund for the inevitable crash? My sense is they were too busy overpaying for services provided to the city by well-connected friends. This is how it usually works when people with no sense of frugality are in charge. And I have seen absolutely ZERO sense of frugality in the LA City Council. A buck wasted is fine by them, as long as its wasted into the right pockets.
With regards to the rhetoric, the Alarcons of the world resort to "tax the rich" ideas because these ideas do sell emotionally to a large portion of the voting population, and because the knee-jerk conservative "support the rich!" reaction comes across as petty and small and thus reinforces the liberal goal. (And also because the super-rich in LA can -- genuinely, truly, no fooling -- afford it without batting an eye.)
But the bottom line is, is there or is there not a structural deficiency in how the City of LA funds its operations, and what is the best way to remedy that if there is? Why can't LA find some serious world-class experts to actually resolve THAT issue?
Posted by: Politicus Finch | October 30, 2008 at 01:34 PM
Sure it's constitutional.
Just put it on the ballot.
Apparently you can "legally" amend the state constitution in all sorts of illegal ways if you get enough whack jobs to sign some paid petition gatherer's petition sheets.
Posted by: Drew | October 30, 2008 at 10:22 AM