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Bruce Bialosky

It is Not a Mansion Tax

Much has been discussed nationally about what is commonly called the “Mansion” tax. It went into effect March 31, 2023, after passing last November. But calling it a “Mansion” tax is a misnomer as that is just part of it.

The measure was sponsored by a litany of unions and left-wing organizations. They formed a group called “Unite to House LA.” They sponsored an initiative that was signed by nearly 100,000 Los Angelenos who were sold a bill of goods (if you go to their website). Just calling it a “Mansion” tax gave voters the impression that the extremely well-to-do were being taxed.

A couple of points. One of their primary selling points was the initiative was written by homeless and housing experts and not politicians. Yet if you look at the track record of these groups, they have been abject failures. Los Angeles City and County have been spending billions of dollars confronting the homeless issue. The plans of so-called “experts” have resulted in homelessness growing; not shrinking. As for the affordable housing people, they too have failed in their mission. When Los Angeles is building units for the homeless costing $500,000 each, they provide a perfect example of their failure. They likewise have done next to nothing to minimize the permitting process which drives the cost of housing to unaffordable levels. Neither group has shown us any proclivity to succeed. The idea of throwing more money at their failed policies does not equate to resolution of the problems.

The second point is how they mislead the voters. Their pitch is only “millionaires and billionaires” will pay. They then say the measure “takes a percentage of windfall profits from real estate sales over $5M to invest back into our communities.” This initiative does not do that at all. The tax is based on the gross sales price of the property. That means if a property is purchased for $6 million and then sold for $5.5 million, the seller would pay a tax of 4% or $220,000 on a loss of $500,000. This is not a tax on profit; it is a tax on the gross sales price regardless of profit. It is a certainty that the voters did not understand that. All they heard was the inflammatory term – windfall profits.

The coalition behind this convinced 57.77% of the voters to support this initiative. Is there any surprise that occurred? Los Angeles is a city totally run by Democrats where there barely is one Republican member of the City Council’s fifteen members. Karen Bass won the mayoral election with her main campaign point being she was the true Democrat running. More importantly, how hard is it to convince people to vote for taxes affecting other people when you characterize them as “rich profiteers.”

The implementation of the tax caused a flood of housing transactions in March and a dearth of transactions in April. Only two sales were recorded that were subject to the tax during April.

What is not written about is how this new tax will affect the market for multi-family residential housing, commercial space, office buildings, hotels, and industrial properties. Just drive down the length any major boulevard In Los Angeles — Sunset, Wilshire, Ventura or Olympic — and you will see commercial properties and office buildings worth more than $5 million. Many of those are worth more than the $10 million amount where the tax goes to 5.5% of the gross sales price.

Then there are the multiple apartment buildings that will be hit with this tax if sold. If the city is building homeless units at $500,000 per unit, it does not take that large of a building to hit either the $5 million or $10 million level.

The city has already put extensive restrictions on landlords of apartment buildings. The relentless prohibitions on activities during the pandemic significantly harmed the owners of commercial spaces as many tenants went out of business and it is slow cooking to replacing them. The office market has been hard hit by tenants wanting to shrink their footprint as more people work from home. And Karen Bass wants to force hotels to house the homeless with the initiative coming next year that will force hotels to fill their uncommitted rooms with homeless. The same people who voted for this tax will approve that hotel homeless mandate and the restrictions on hotel development.

I know we live in La-La Land. We don’t have to live up to the nickname. The fools who support these measures don’t understand how this will harm the economy. The union heads don’t care about their members who will lose jobs or never obtain a position. Capital is already fleeing the city and investing elsewhere. It would be shocking if Karen Bass gets the $150 million from this tax that she has in her budget for the current year.

What we don’t know is how the affluent areas of Los Angeles voted on this. Since I have previously defined the most dangerous people in America as white liberals, it would not surprise me if they supported this destructive initiative.

These voters don’t understand that there is a limit to how much they can strangle the wealth creators in our society before they choke the life out of the economy. Some should ask themselves if “the juice is worth the squeeze.”