Repeal the death tax in the name of real equity

Equity, before it took on its current “woke” definition, meant value, as in the accumulated value of ownership in real estate.

It still means that. After 30 years of payments for housing, a tenant who pays rent has nothing. An owner who pays off a mortgage loan has equity. The accumulated value of that equity grows when it’s handed down to the next generation. With each 30-year contribution of work and investment, families can rise from the condition of living paycheck-to-paycheck to build a secure financial foundation that endures through good economies and bad ones.

But not every family had the same opportunity to build equity and generational wealth. For example, California’s 1913 Alien Land Law prohibited “aliens ineligible for citizenship” from owning agricultural land. Under the U.S. Naturalization Act of 1870, that meant Asians: Chinese, Indian, Japanese and Korean immigrants.

California’s 1879 constitution stated flatly, “The presence of foreigners ineligible to become citizens of the United States is declared to be dangerous to the well-being of the State.” Article 19, titled “Chinese,” prohibited corporations from employing “directly or indirectly, in any capacity, any Chinese or Mongolian,” and stated, “No Chinese shall be employed on any State, county, municipal or other public work, except in punishment for crime.”

California’s history also includes a well-known chapter of “redlining,” the practice of discrimination in real estate lending by denying mortgage loans and under-appraising property in communities that are predominantly minority. “Redlining” originated in the mid-1930s, after the Home Owners’ Loan Corporation Act was signed into law by President Franklin Roosevelt. The idea was to help homeowners refinance and avoid foreclosure. But when the Home Owners’ Loan Corporation drew color-coded maps of 200 cities to show relative risks of loan default in different neighborhoods, it used racial and ethnic data to determine creditworthiness.

In 2017, the Federal Reserve Bank of Chicago published a working paper on “The Effects

of the 1930s HOLC ‘Redlining’ Maps.” Authors Daniel Aaronson, Daniel Hartley and Bhashkar Mazumder found that the lower-graded neighborhoods experienced “a marked increase in racial segregation” that persisted for more than 40 years. “We also find evidence of a longrun decline in homeownership, house values and credit scores along the lower graded side of HOLC borders that persists today,” they wrote.

California outlawed redlining in 1977. But just three generations later, groups that had suffered under discriminatory practices that limited property ownership were hit again.

This time it was a ballot measure, sponsored by the California Association of Realtors, that robbed families of the generational wealth they had so recently begun to build.

Proposition 19 in 2020 was heavily advertised as a measure that would help wildfire victims and seniors who wanted to move to a new home and keep their old tax bill. What was never mentioned in the costly advertising was the provision in the fine print that removed the constitutional protection from tax increases when family property is transferred from parents to children.

Proposition 13, passed in 1978, limits property taxes by capping increases of the assessed value of property at a maximum of 2% per year, regardless of surges in the market value. Families that have owned property for a long time benefit from controlled and predictable

annual tax increases, instead of waking up to find that they have an insanely high tax bill on the now million-dollar home that they own but could never afford to buy.

Under Prop. 13, property is reassessed to market value when there is a change of ownership, as defined in the Revenue and Taxation Code. A few years after Prop. 13 passed, children who were inheriting family property discovered that California law considered these family transfers to be a change of ownership. In that high-inflation era, reassessment to market value meant a huge tax increase, owed annually as a condition of keeping the family property.

So intense was the political pressure to do something about it that the Legislature passed a constitutional amendment, without even a single vote in opposition, to exempt the parentchild transfer of a home and limited other property from reassessment. It went on the ballot as Proposition 58 in 1986. It was approved by over 75% of voters statewide. Proposition 58 protected generational wealth in every community for more than 30 years.

And then Proposition 19 removed it from the constitution while everyone was watching TV ads about wildfire victims.

Now immigrant families that built small businesses and sensibly bought the property instead of leasing it are hammered with massive tax increases when the older generation passes. Now families

in historically Black neighborhoods like Leimart Park, who had been happy to see property values rising, are getting tax bills that are three, four or five times higher when a parent passes away. Property taxes start at 1% of the market value as of the date of transfer.

Instead of continuing to own an income-producing business that creates local jobs, or a rental property that provides affordable housing in the community where they grew up, families have to sell the properties.

That robs them and their children of the opportunity to build generational wealth through the ownership of real estate. The cash from the sale quickly loses value to inflation. And the next generation are likely to be renters forever.

There’s a better ending that can be written. This “death tax” provision of Prop. 19 can simply be repealed.

The Howard Jarvis Taxpayers Association, where I’m on staff as VP of Communications, is collecting signatures on an initiative to restore the parentchild transfer protection and retroactively restore the assessment of properties reassessed under Prop. 19. The clock runs out soon, but there’s still time to download, print, sign and mail the official petition, available at Repealthedeathtax.com.

If we’re doomed to repeat history, let’s try to repeat the good parts.

JEFF CHIU — THE ASSOCIATED PRESS California’s history includes a well-known chapter of “redlining,” the practice of discrimination in real estate lending by denying mortgage loans and under-appraising property in communities that are predominantly minority.