At New York’s Met Gala last year, Alexandria Ocasio-Cortez infamously wore a white gown with “Tax the Rich” emblazoned in red across it. The irony that she wore it at an event not open to the common people she purports to represent, and that she started selling “tax the rich” sweatshirts on her website afterwards, was clearly lost on her.
In most places, the slogan is dismissed as unserious, anti-American, communist lingo. But not in California, where it is now real. State Democrats just introduced a bill to impose an annual one percent wealth tax on anyone worth over $50 million. Under this plan, a person worth $50 million would pay the state an extra half million dollars every year for the privilege of living in California. The King, a.k.a. Governor Gavin Newsom, would then redistribute those monies to the peasants.
In Los Angeles, owners of homes worth more than $5 million must pay a 4 percent tax on the sale of their home commencing on April 1 thanks to a city initiative passed by voters. The Queen, a.k.a. Mayor Karen Bass, will redistribute the monies to the homeless. Home sellers are scrambling to close deals before the April 1 deadline. Some have sued to overturn the ordinance as an unconstitutional taking and a violation of equal protection rights.
The purported purpose of the ordinance is to “reduce homelessness,” with 92 percent of proceeds to go to programs such as the “homeless prevention program.” Once again, L.A.’s progressives use a crisis as an excuse to implement their socialist policies. They do not see the homeless crisis as everyday Angelenos do.
Most residents see the homeless problem as their own problem. They see tent cities on their beaches, in their parks, on their sidewalks, under overpasses, in the hills. It is about being able to walk their children to the beach without fear of encountering a mentally deranged or drug-addicted homeless person. It is the petty theft and break ins regularly committed by homeless. It is the disgusting mess left on sidewalks. It is not being able to fill up your tank or enter a convenience store without being hit up for “change.” It is about controlling fires overwhelmingly caused by homeless.
But these are not the problems the progressives see. If they did, they would have solved it a long time ago by simply enforcing the laws against camping and loitering as many of surrounding cities have done. They prefer to use the homeless as an excuse to implement policies such as this redistribution of wealth. Thus, they put the focus on “preventing” homelessness.
How does government prevent homelessness? If you ask a socialist, it is things like guaranteed income, rent control, eviction protections, housing vouchers, and government housing. L.A. has done all of this. Yet, the problem keeps getting worse. So, they double down on the policies, spending even more money. And that brings us to a new tax on the “rich.” The city’s 9.5 percent sales tax, which includes .25 percent exclusively for the homeless, is not enough.
The new tax is structured in a way that is as unsophisticated as the programs it is designed to support, which should lead to its downfall in court. As pointed out in the case just filed (Newcastle Courtyards v. City of LA) the tax is not graduated. Thus, you make more money if you sell your house for $4.99 million (no tax), than if you sell if for $5 million (pay a $200,000 tax)!
The tax applies regardless of whether you made or lost money on the house. It also applies to seniors who may have bought the home for $300,000 forty years ago and have been relying on its appreciation for their retirement. It also wreaks havoc on the mortgage industry since banks rely upon a loan to value ratio. A 4 percent drop in value on April 1 will impact those ratios and thus could affect home loans as well as reverse mortgages utilized by seniors to tap into their home’s equity.
The tax is dubbed a “mansion” tax, but in L.A. $5 million does not buy you a mansion. Down the street from me, a three-bedroom, 2,500 square-foot home sold last year for over $5 million. And it applies to all real property, commercial and residential, homes, and apartment buildings. Thus, most apartment buildings with 10 or more units will be subject to the tax, just when L.A. politicians say we need more affordable housing.
The Voter Information Pamphlet states, “The bottom line is this: Millionaires and billionaires cashing in on mega properties can afford to pay the ‘mansion tax’ and we’ll all benefit from reduced homelessness when they chip in and pay their fair share.” Feels great, right? “We’ll all benefit” while we tax the heck out of people who have more money than us.
This is the type of retributive tax which concerned the founders who warned against a “tyranny of the majority.” They put in numerous constitutional safeguards to protect the minority, and they apply even if that minority is the wealthy. (Of course, the founders also were no fans of taxes, having cast off British rule over unfair taxes, and giving no power to the federal government to collect income taxes.)
The initiative says the tax will be paid by “millionaires and billionaires” who can easily “afford to pay.” However, lots of owners of $5 million homes have only $1 million in equity on the home having just put 20 percent down with a mortgage for the rest. Add on a vehicle or student loan, and the homeowner is not, in fact, a millionaire. So much for taxing just those who can “afford to pay.”
Under the new rule, the day a $5 million home is purchased the owner has lost $200,000, since to sell it he will have to pay the tax. In the meantime, a much wealthier person may invest in lower priced homes and sell ten of them for $4 million dollars each, and they will pay no tax on the $40 million!
The Newcastle Courtyards plaintiffs note that the United States Supreme Court ruled in Stewart Dry Goods v. Lewis that in the case where, as here, gross sales rather than net income is used as the justification for a taxpayer’s purported ability to pay, the justification is deemed arbitrary and irrational and, therefore, in violation of the Constitution.
Angelenos should hope that the court finds in their favor. If not, experience shows there is only one direction for this to go: continued increases in the tax rate and continued decreases in the minimum sales price. Quickly, “we’ll all benefit” will become “we’ll all pay.”
