Taxable Talk

They're at it again.

The California Public Employees Unions are, according to this story in the San Jose Business Journal, gathering signatures on an initiative that would cause all non-residential property to be reassessed annually. While this would be a boom (temporarily) to local government—property taxes would increase—this would be devastating in the long-term to California.

If a business's property tax bill increases, what will they do? Basic economics gives us the answer: the price charged will increase. If prices increase, demand decreases. Fewer sales in California. Fewer businesses in California. Instead of calling the initiative the "Tax Fairness Act" (the current title), the initiative should be called the "Nevada Full-Employment Act."

This same proposal came to a vote a few years ago and was defeated by the voters. If it comes up again, it deserves the same fate.

I recently wrote a post about my company's receipt of a letter mandating participation in California's electronic tax payment program. Two weeks following receipt of that letter I received a call from someone at the FTB acknowledging that my company really shouldn't have to enroll in that program. Apparently someone (or some business) has been erroneously using the wrong corporation number. I was told that I would not receive an official "I don't have to enroll" letter but that I didn't.

End of story?

Not hardly. This past week I received another letter from the FTB again mandating my enrollment in the program. I was mildly amused, but I wrote a letter (sent certified mail) to the FTB. I'll keep you posted.

San Diego may be the city with the best climate in the world; however, its' pension system has driven the city to near bankruptcy. John Moorlach, Orange County's Treasurer-Tax Collector, wrote an op-ed piece in today's Register about the parallels. It's must reading for any resident of OC and, frankly, any Californian. (One-time registration required to read the article.)

Samuel Johnson put it well: Whatever you make, spend less. Mr. Moorlach believes that the Orange County Employees' Retirement System is doing a better job than San Diego; however, with an unfunded liability of somewhere between $1 and $2 billion, problems lurk in the future.

I should point out that San Diego's pension problems appear (allegedly) to also have causes from illegal activities by their pension oversight board—problems that do not exist in Orange County. As Mr. Moorlach put it, "...San Diego's retirement board has been caught with its hand in the cookie jar...."

With the Democratic legislature following in lock-step with the labor unions, a Democratic governor could cause further problems through mandated larger benefits. All-in-all, this is a situation to watch in the future.

In a comment to my post on real estate prices, Andrew asked if I had any backup for my statement that restrictions (environmental and otherwise) are increasing the costs of new homes. And there's plenty available in the literature.

This study shows that for a new home in Vancouver, WA, about 18% of the home's price is caused by regulations. This article talks about NIMBYism & Boston's housing market. This paper describes regulatory barriers and housing prices. Finally, this paper looks at environmental regulations and urges more academic looks at this issue.

However, I don't think you have to be an academic to come to the conclusion that NIMBY is impacting housing prices. Take Houston, TX. There is (famously) no zoning in Houston. Houston remains one of the most affordable cities in the United States. Contrast this with the Bay Area, where there's a lack of land to build (it's largely built out), numerous environmental regulations, strict zoning, and a large amount of land that can't be built on (mountains, earthquake faults, etc.).

The Franchise Tax Board and the Employment Development Department don't believe there is such a thing as an independent contractor. Indeed, California's rules and regulations on independent contractors are much stricter than the IRS's rules. So it should come as no surprise that the EDD is continuing its' war on contractors.

The latest battle is against "temporary" doctors. According to this article in the San Francisco Chronicle, the EDD is challenging Staff Care Inc.'s use of independent contractor doctors.

Registry of Physician Services, another temporary doctor staffing company, also received a bill from the EDD. Oh, who is Registry's client? The State of California (Department of Corrections).

Legislation is pending to correct this, at least for doctors. SB279, by Gil Cedillo, is pending and would make "locum tenens" doctors independent contractors by statute.

Real estate prices in Southern California (where I reside) continue on an upwards trajectory. The Los Angeles Times (one-time registration required) has an interesting article that speculates on why people are not selling their homes. The article notes property taxes and transaction costs as two of the main reasons why.

However, the article doesn't address the main "culprit." (I'm not even sure that culprit is the right word. On paper, this boom has made me a lot of money.) It's NIMBY.

Basic economics state that if supply is constant but demand increases, price increases. There is almost no land available to build new homes. What land there is has environmental restrictions, traffic restrictions, and other restrictions placed on it, decreasing the number of new homes built and increasing their cost.