Progressive Politicians Don’t Understand Markets or Rich People

Progressive Politicians Don’t Understand Markets or Rich People

Then Rep. Karen Bass, current Los Angeles mayor, shakes hands with President Joe Biden before he speaks about the Bipartisan Infrastructure Law in Los Angeles on October 13, 2022. (Saul Loeb/AFP via Getty Images)

John Seiler

John Seiler

4/18/2024

Updated: 4/18/2024

Commentary
In her State of the City Address, Los Angeles Mayor Karen Bass tackled the city’s homeless crisis. Appropriately delivered on April 15, Tax Day, she demanded the city’s wealthiest residents reach out and help those most in need. But many such politicians don’t understand markets, especially housing markets, or the mentality of rich people.
She pleaded: “We are asking the most fortunate Angelenos to participate in this effort, with personal, private sector and philanthropic funds—to help us acquire more properties, lower the cost of capital and speed up housing. This is the mission of our new capital campaign: LA4LA. We have brought the public sector together—and now we must prevail on the humanity and generosity of the private sector. LA4LA can be a Sea Change for Los Angeles—an unprecedented partnership to confront this emergency ... an example of disrupting the status quo to build a new system to save lives.”
LA4LA is a catchy title. But it’s yet another new government program. And rich people are unlikely to be convinced to support it given the failure of the existing programs.
Most billionaires used to be moderate Republicans like the Rockefellers. Now most are moderate Democrats like Bill Gates and Mark Zuckerberg. I haven’t met either of them personally. But I’ve known a number of rich people over the years, including billionaires. One thing they have in common: They know how to read a balance sheet. And the balance sheets for the state of California and the city of Los Angeles, especially on reducing homelessness, are abysmal.
Just last week I headlined an Epoch Times article, “California Auditor Finds Homeless Council Can’t Account for Money Spent.” It analyzed how most of the more than 30 state programs helping the homeless can’t account for how the money is spent. And how the homeless population soared 53 percent between 2013 and 2023.
Los Angeles is by far the largest city on California, with a population estimated at 3.7 million, down from almost 4 million in 2019. With the population declining instead of rising, and so many new homeless programs, shouldn’t property prices and rents be dropping instead of rising?
Ms. Bass urged “we must prevail on the humanity and generosity of the private sector.” Except she and the state in general have been prevailing the past two decades through massive tax increases to pay for all the homeless programs that haven’t worked.
Just two decades ago, the top income tax rate in California was 9.3 percent. Now it’s 14.4 percent. That’s on top of the federal top income tax rate of 37 percent. Total: 51.4 percent.

More Taxes and Inflation

That could go up, too, because President Biden is promoting big tax hikes on the wealthy. At a campaign stop April 16 in Scranton, Pa., his home town, he said of former President Donald Trump, who is running to return to the Oval Office: “His failure starts with his $2 trillion tax cut that overwhelmingly benefitted the wealthiest and biggest corporations and exploded the federal debt when he was president.”
And he promised, “Under my plan, nobody earning less than $400,000 will pay an additional penny. I hope you’re all able to make $400,000. [Laughter.] I never did. But they’re not going to pay an extra penny in federal taxes. That’s a promise. Nobody. Not one penny.”
Except—this will seem unbelievable to those in other states—$400,000 is middle class in California. In February the California Association of Realtors calculated, “Fifteen percent of California households could afford to purchase the $833,170 median-priced home in the fourth quarter of 2023. A minimum annual income of $222,800 was needed to make monthly payments of $5,570, including principal, interest and taxes on a 30-year fixed-rate mortgage at a 7.39 percent interest rate.”
That $883,170 price is for the whole state, including cheaper rural areas. Zillow pegged the average home value in Los Angeles this week at $974,105.
What if you have kids you want to put in private schools because the Los Angeles Unified School District scores so abysmally on test scores? Then it’s a minimum of $16,780 per kid, reported Private School Review. For two kids, that’s another $33,560—after taxes.
If you have a long commute to and from work, the cost of gasoline, now soaring above $5 a gallon again, adds thousands a year.
Throw in the inflation we have suffered in under Mr. Biden, and soon even a $400,000 income is eroding fast.
I’ll spare you any more numbers. But the obvious conclusion is those of us working and struggling in the private sector Ms. Bass touted just don’t have more to give.

Rich People Leaving

Taxes remain so high, rich people continue leaving the state. Reported Yahoo Finance in March, “Analysis of the approximately 750,000 people who have bid farewell to California over the last three years has revealed that thousands more high-earning, well-educated workers have left the Golden State than have moved in. ...
“Ultra-wealthy Californians, the top 1 percent, typically pay between 40-50 percent of the state’s personal income tax revenue. And some have clearly had enough of propping up the state’s finances.”
Sky News quoted Todd Litman, an estate planning attorney, who said, “I’m seeing anywhere from two to five clients a month calling me and saying ‘We’re leaving.’ They have $1 million to $2 million sitting in their IRA and they’re saying: ‘When I retire and start pulling that IRA out, I’m going to be paying 13 percent state income tax, so I don’t want to do that.’ So, they’re heading out because of that reason.” On Jan. 1, that gouging rose to 14.4 percent.
And let’s not forget Proposition ULA, the Mansion Tax passed in Los Angeles in Nov. 2022 with a 58 percent vote. It started grabbing a year ago. It imposed a special sales tax of up to 5.5 percent on homes sales above $5 million to pay for even more homeless programs that won’t work.
The tax was projected to lift $700 million a year. But Yahoo Finance reported April 14 over the past year the tax “has fallen far short of expectations—generating barely a quarter of the promised revenue—and has arguably put a chill on high-end home sales as wealthy homeowners stay put rather than pay the six-figure tax bill.”
The article quoted Jon Grauman, founder of Grauman Rosenfeld, a luxury real estate firm in L.A., who said, “Given the high-interest rate environment we find ourselves in and now this exorbitant tax on top, if you don’t need to sell, why would you?”
It’s Tax Economics 101: Tax something and you get less of it. Tax it a lot and you get a lot less.

Conclusion: The Real Disruption Needed

Ms. Bass demanded “disrupting the status quo to build a new system to save lives.” The real disruption would start with bringing rich people back into the state, especially Los Angeles. To do that would mean cutting taxes rates, not raising them.
Fortunately, the Mansion Tax, and other confiscatory local taxes across the state, could be repealed this November. The Taxpayer Protection Act (TPA) is slated to go on the ballot. It would give state voters the right to approve and require a two-thirds vote for passage.
The TPA also would be retroactive. So it would invalidate the Mansion Tax, which passed with only 58 percent.
Naturally, Gov. Gavin Newsom and former Gov. Jerry Brown have petitioned the state Supreme Court to knock the TPA off the ballot. So far they have failed. The court commonly doesn’t rule on the validity of initiatives until after an election. That’s because if voters turn down an initiative, its constitutionality is moot.
Meanwhile, Ms. Bass might go to a local U-Haul and talk to Angelenos who are packing up to head out of the city and state and will be paying taxes elsewhere.
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John Seiler

John Seiler

Author

John Seiler is a veteran California opinion writer. Mr. Seiler has written editorials for The Orange County Register for almost 30 years. He is a U.S. Army veteran and former press secretary for California state Sen. John Moorlach. He blogs at JohnSeiler.Substack.com and his email is writejohnseiler@gmail.com

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