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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: biometricgngboy who wrote (15025)	11/13/2003 5:50:24 AM
From: biometricgngboy	Respond to of 306849

Grandfather-clause politics crazy By MICHAEL KINSLEY Wednesday, November 12, 2003 gazettenet.com excerpt: The mega-investor Warren Buffett famously lives in Omaha, Neb., but he owns two houses in Laguna Beach, Calif. Buffett's three houses became a small issue in the recent California recall campaign, in a way that needn't detain us. What's interesting is that in a letter Buffett wrote to the Wall Street Journal, which published it on Monday, Buffett contrasted the tax burdens on his two virtually adjacent California houses. One house is worth about $2 million, and the property tax bill on it runs about $12,000 a year. The other California house is worth $4 million, but annual property taxes are only $2,700. Double the house, one-fifth the tax burden - and both in the same state. Buffett's point was: Crazy, no? Answer: Yes, crazy indeed. The craziness comes from Proposition 13, the storied anti-tax initiative of 1978. In many ways Proposition 13 created the political world we live in. It was the first big and successful conservative use of ''initiative and recall'' - the provisions in many state constitutions, especially in the West, allowing citizens to enact laws by popular vote and to vote out incumbents without waiting for their official terms to expire. The specific craziness of Prop. 13 was that it didn't just roll back property tax assessments. It ordained that major increases in property tax assessments could occur only when a home changed hands. For a quarter-century now, California real estate prices have continued to soar. As Buffett points out, the result is wild disparities in tax burdens. The biggest factor in setting your California property tax bill is not the value of your house, or your general financial condition, or the tax rate set by your local community. It is how long you have owned your property. This creates perverse effects similar to those of rent control. People stay in big houses they no longer need because moving to a smaller place would mean a huge property tax hit. With these houses off the market, people who do need a bigger place have fewer to choose from and must pay more to get one. But the real perversity is one of fairness. What possessed the people of California to vote for a system in which two identical houses, side-by-side, carry radically different tax burdens? The answer to that is grandfather-clause politics. A ''grandfather clause'' is a provision in a legal document that says, roughly: Whatever unpleasantness this document involves does not apply to anyone who is already doing whatever-it-is the document is about. If you're in the hot tub, you can stay there. But if you're not, you can't jump in. The term originated in post-Civil War laws imposing a poll tax, but exempting anyone whose grandfather had been eligible to vote (nudge, nudge). California's Prop. 13 was a sort of rolling grandfather clause. Anyone who owned a house at the time it passed was exempt from big tax increases - until that person bought a new house, when he or she became ''grandfathered'' once again at a new level.