A recent article in the OC register discussed a $150 million home for sale in south Orange County:
A rare 42-acre estate in San Juan Capistrano known for decades as “Porcupine Hill” has hit the market for the first time for $150 million. . . .
The estate, marketed as ‘Casa Grande’, includes an existing 21,000 square meter structure consisting of three apartments, offices and storage, completed in 2010 and permitted plans for a 38,000 square meter main residence on a 360 degree ridge prospect .
The plans, which have been in the works for more than forty years, also include two 10,000 square meter guesthouses and unlimited maintenance areas for the existing agricultural sector.
While future housing is subject to Proposition 13, the agricultural sector is taxed under the Williamson Act, which offers lower property tax savings based on production.
It is not at all self-evident that farmers have to pay a lower tax rate than other companies. It also doesn’t seem likely that this kind of ‘gentleman farmer’ is what the legislature had in mind when they introduced those tax breaks for agriculture. Many young people are moving away from Orange County due to high housing prices, and yet the state is offering tax breaks to keep a 42-acre “farm” in an area in dire need of more housing.
In the past I’ve talked about how New York City often raises taxes on taxes Manhattan Apartments owned by billionaires at much lower rates than worker-owned homes in Queens. I also talked about the fact that progressive politicians have been working hard to repeal the federal luxury tax on large private yachts. Many of these politicians also support the SALT tax deduction, which largely goes to higher-income earners.
Both New York and California are theoretically “progressive” states, full of 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 could actually pay taxes. What can we conclude about the values of a politician if he opposes high taxes on the consumption of the rich, but favors high taxes on investments made by the rich?
Some on the left would argue that the best way to tax the rich is through taxes on income and wealth. But those taxes can be evaded with cleverness tax avoidance schemes:
Suppose you own a successful company, so successful that your stake in it is worth a billion dollars. How should you finance your expenses? If you pay yourself a wage of $20 million a year, the federal government will collect 37%, or about $7.4 million. So maybe you should take a $1 salary and sell $20 million worth of stock. If these were gifted to you at the incorporation of the company, the entire amount represents capital gains and is taxed at 20%, which would mean a gain of $4 million. What if instead you called your investment manager and agreed to put up $100 million worth of stock as collateral for a $20 million loan? In 2021, the interest on the loan might have been just 2% per year, meaning the proceeds from holding the equity, rather than selling it, would have easily covered the cost of servicing the loan. Because loan proceeds, which must eventually be repaid, are not considered income, no tax would have been due at all. . . . When the holder of an asset dies, the value for capital gains assessments is “stepped up” from the purchase cost to the value at the time of death. In this way, “buy, borrow, die” not only defers capital gains taxes, but can eliminate them altogether.