My fellow Baby Boomers and I can help raise tax revenue for schools and local governments—all we have to do is die. That’s the message I got from this Bloomberg News headline: Boomers Nearing End of Life Seen Helping California Tax Revenue.
The news story reports on a brief issued by the Legislative Analyst’s Office that examines how aging baby boomers die or move to smaller quarters freeing homes around the state for new buyers. Under the Proposition 13 tax system, the property tax cap comes off when a home is sold and taxes are set at one-percent of the new market value established by the purchase price. Given the increase in home values over the years, the LAO predicts such activity would provide a significant boost to property tax revenue.
The projection of higher property taxes is based on turnover of property. The LAO points to the large Baby Boomer generation ready to turn over homes as they exit from the stage.
From the LAO report: “As California’s homeowners continue to age—transitioning from the 55 to 75 age group to the over 75 age group—more and more will begin to downsize, move into assisted living or with family, or die. When this occurs, home sales are likely to rise. Between 2003 and 2013, over two-thirds of homes in California with owners 75 or older were sold to a new owner, compared to less than one-third of homes with owners ages 55 to 75.”
Stating the obvious, that older homeowners have lived in their homes for many more years than homeowners in the 25 to 35 year-old age group, the report notes that the value of homes have increased over those many years the seniors have occupied their homes and sales will boost property tax revenue dramatically.
The LAO covers some caveats in the report. “Potential property tax gains from rising turnover among older homeowners will vary across communities. This variation will be based on two key factors (1) concentration of older homeowners and (2) past home price appreciation.”
That’s an old story. Some communities are richer than others.
The LAO also included a note that, “Over the past decade, around 10 percent of property transfers have taken advantage of the parent-to-child exclusion to prevent an increase in property tax payments.” The inheritance provision would reduce the potential property tax increase somewhat.
Benjamin Franklin once said that the only certainties in life are death and taxes. In California the quip should be edited to read: Death Then Taxes.