BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
SB 1430 - Walters
Amended: March 24, 2010
Hearing: May 12, 2010 Tax Levy Fiscal: Yes
SUMMARY: Increases the Homeowners' Exemption from Property
Tax and Renters' Credit for Taxpayers over the
age of 62.
I. Homeowners' Exemption
EXISTING LAW (California Constitution) provides a
property tax homeowners' exemption of $7,000. At the
state-wide average property tax rate of 1.067% (1% plus
voter-approved bond tax rates), this amounts to annual tax
relief for homeowners of almost $75. The exemption was set
at this level in 1974, and has remained unchanged since
then. However the amount of tax relief due to the
homeowners' exemption was more than twice as great at that
time, and was reduced by passage of Proposition 13, which
reduced the state-wide tax rate to 1%. The Constitution
requires that whenever the Legislature increases the
homeowners' exemption, the renters' benefits must also be
increased by an amount comparable to the average increase
in benefits to homeowners. The Constitution also requires
the state to reimburse any local property tax losses
associated with the homeowners' exemption.
THIS BILL increases the amount of the homeowners'
exemption from $7,000 to $27,000 for taxpayers over the age
of 62 commencing in the 2011-12 fiscal year. The measure
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increases the exemption amount to provide a cost of living
adjustment based on the annual change in the California
Consumer Price Index for these taxpayers.
II. Renters' Credit
EXISTING LAW provides various tax credits designed to
provide incentives for taxpayers that incur certain
expenses, such as child adoption, or to influence behavior,
including business practices and decisions, such as
research and development credits and Geographically
Targeted Economic Development Area credits. The
Legislature typically enacts such tax incentives to
encourage taxpayers to do something but for the tax credit,
they would otherwise not do.
EXISTING LAW allows qualified renters to claim a
credit of $60 (single) or $120 (married filing jointly,
head of household) if adjusted gross income is equal to or
less than $25,000 (single) or $50,000 (married filing
jointly, head of household). To qualify, taxpayers must be
California residents and rented and occupied California
premises as a principal place of residence. Under prior
law the renter credit was refundable (i.e., renters with
little or no income tax liability would receive a check
from the state), and there were no income limitations.
During the recession of the early 90s the renter credit was
completely suspended, and it was reinstated in its current,
reduced form in 1998.
THIS BILL increases the credits to $75 (single) and
$151 (married filing jointly, head of household) for
taxpayers over the age of 62, effective in the 2010 taxable
year. The measure requires FTB to increase the amount of
the credit based on the annual change in the California
Consumer Price Index.
FISCAL EFFECT:
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SB 1430 result in revenue losses of $426.6 million in
2010-11, and $422.4 million in 2012-13, and $418.9 million
in 2013-14.
According to BOE, SB 1430 property tax changes result
in revenue losses of $425.6 million annually.
According to FTB, the measure results in revenue
losses of $1 million in 2010-11, and revenue gains of $3.2
million in 2011-12, and $6.7 million in 2012-13. Losses
resulting from the increase in the renter's credit are more
than offset because taxpayers would have a lower itemized
deduction amount for property taxes paid, and therefore
higher taxable income.
COMMENTS:
A. Purpose of the Bill
While Article XIII (Prop 13) protects existing
homeowners from rapidly rising property tax rates based on
market value rather than the assessed value based on Prop
13 formulae, it is more difficult for many seniors to
downsize when the property tax assessed on a new home
purchased is substantially higher than that of their home
being sold with today's median values in substantially
higher than when the original home was purchased. When the
property tax exemption was written in 1974, a $7,000
exemption was very valuable to taxpayers. For seniors
downsizing in a market when home values are substantially
more than in 1974, $7,000 does not provide adequate relief
on a fixed income. Increasing the exemption to $27,000
provides at least some relief for seniors living on fixed
incomes.
B. Which Way?
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Federal and state law provide copious benefits to
individuals seeking to purchase homes (homebuyer tax
credits, government-backed mortgages, Federal Reserve
purchases of Agency MBS and debt), owning homes (mortgage
interest deductions, deductibility of property taxes,
acquisition-value property taxation), and selling homes
(principal residence capital gains exclusion and inherited
property basis step-up described above). Seniors
specifically enjoy Proposition 60/90 property tax base year
value transfers. Homeowners benefit from these tax
benefits financed by the general taxpayer through either
higher general taxes or lower services.
These generous benefits help Californians purchase
homes, build better communities, and aids the construction,
residential home sales, and mortgage finance industry, but
are not without costs. SB 1430 adds additional benefits
for seniors, but would result in almost one-half of one
billion dollars in foregone revenue, when recent budget
cuts have eliminated funding for the Senior Low-Income
Property Tax Assistance Program and the Property Tax
Postponement Program, programs which assist qualified
seniors with property tax payments. While lowering taxes
for all senior citizens is a laudable goal, what benefit
will California see as a result of SB 1430 when it could
fund these other programs for income-eligible seniors? The
Committee may wish to consider which way better helps
seniors who have difficulty paying property taxes.
Support and Opposition
Support:California Association of Realtors
Oppose:None received.
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Consultant: Colin Grinnell