The latest article on OC register discussed a $150 million home for sale in south Orange County:
A rare 42-acre San Juan Capistrano property known for decades as “Porcupine Hill” has hit the market for the first time for $150 million. . . .
Marketed as “Casa Grande,” the property includes an existing 21,000-square-foot building consisting of three apartments, offices and a warehouse completed in 2010 and plans approved for a 38,000-square-foot main residence line the corridor with views of -360-degree. .
These plans, which have been more than 40 years in the making, include two guest houses of two square meters and unlimited maintenance areas for the existing agricultural business.
Although future residences are subject to Proposition 13, agricultural business is taxed under the Williamson Act, which provides reduced property tax savings based on production.
It does not appear at all that farms should pay lower taxes than other businesses. And it doesn’t seem likely that this type of “gentleman farmer” is what the legislature had in mind when it issued those agricultural tax breaks. Many young people are leaving Orange County because of high housing prices, yet the state is offering a tax break to save a 42-acre “farm” in an area in dire need of more housing.
In the past, I have discussed the fact that New York City tends to levy taxes Houses in Manhattan owned by billionaires for much less than working class housing in Queens. I also discussed the fact that progressive politicians have worked hard to eliminate the federal luxury tax on large private yachts. Many of those politicians also favor the SALT tax deduction, which goes mostly to high-income earners.
Both New York and California are “progressive” states, filled with politicians who claim to favor a more egalitarian society. Perhaps they would argue that their representatives in Washington favor higher taxes on “corporations”, as if non-human entities would actually pay taxes. What can we conclude about the values of politicians when they oppose a high tax on the consumption of the rich, but prefer a high tax on the investments made by the rich?
Some on the left would argue that the best way to tax the rich is to tax income and wealth. But those taxes can be avoided by using wisdom tax avoidance schemes:
Say you own a successful business—so successful that your stake in it is worth $1bn. How should you finance your money? If you pay yourself a salary of $20m a year, the federal government will collect 37%, or $7.4m. So maybe you should take a $1 salary and sell $20m worth of shares. If these were donated when you set up the company, the entire sum represents capital gains and will be taxed at 20%, which would mean a $4m hit. What if, instead, you called your wealth manager and agreed to put up $100m worth of equity as collateral for a $20m loan. By 2021 the interest rate on the loan could be only 2% per year, meaning that the return from holding the equity, rather than selling it, would easily cover the cost of servicing the loan. Because the proceeds of the loan, which must eventually be repaid, are not considered income, doing so would result in no tax liability at all. . . . When the owner of the property dies, the capital gains assessment value “steps up” from the purchase price to its value at the time of death. In this way, “buy, borrow, die” doesn’t just mean deferring the capital gains tax—it can eliminate it entirely.
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