So, if we hold a mock election on the ballot proposition among the residents of Terry's Mobile Home Park with Mr. Terry and those of his family & relatives who benefit from the collection of land rent within the park also entitled to vote, wouldn't we expect the ballot proposition to cruise to an easy victory? If we were to predict, wouldn't we expect a large majority of the residents -- who will greatly outnumber the rent collecting voters -- to vote in favor of the tax reform proposition? This will especially be true if there is a concerted campaign to point out to these residents the fact that their demand for land upon which to live, in combination with the demand by all other renters for a site to live, gives rise to the rental value of such land as they are presently occupying.
Now let us extend this election to the one-third of California's total household units who rent their living quarters whether those quarters be apartment units, single family homes, condos or mobile home spaces. Most of these households will have at least one if not two or even three members who have jobs and who currently have state PIT withheld from their wages. Most of these renter households also pay sales taxes when they buy clothes for themselves or for their children, when they eat at a fast-food restaurant and when they buy or lease a car.
These non-landowning households will be even greater beneficiaries of the tax reform than the senior residents of Terry's Mobile Home Park because a higher percentage of their income will come from wages which are subject to state PIT (unlike social security income which can completely escape state PIT) and because they are likely to spend more money on goods and services currently subject to the sales tax. The California tax reform initiative will effectively exempt the vast majority of people who do not own land from general fund state taxes.
The rent-collecting class, through their political ads and arguments, will attempt to create fear among tenants that taxes on the value of land will be passed along to tenants in the form of higher rents. However, this will be a hollow threat because, as is well known among those familiar with basic economic principles, landowners who are already collecting a market rental rate for their land will not be able to pass on land value taxes to their tenants.
A California landlord with multiple rental units now receiving the market rate of $1,600 a month in rent per housing unit which each have a ratio of land value to improvements value of 50/50 will pay LVT of $600 a month for the land occupied by that unit under the proposed ballot measure (75% of the monthly land rental value of $800). If the landlord attempts to pass this $600 a month land value tax onto his tenants, the landlord will increase the rent on each unit from its present market monthly rate of $1,600 to $2,200.
However, with rents now well in excess of market rates, the landlord will quickly empty his or her rental units of tenants. This will deprive the landlord of the very income needed to pay the $600 monthly land value tax per unit. The landlord will be forced to reduce rents for the units back to the market rate.
Similarly, if the owner of rental units located at an inferior location four miles away from the $1,600 a month units presently leases his or her unit, which are smaller and have fewer amenities than the $1,600 a month units, at the market rate of $1,200 a month and the rental value of the land is $600 a unit, the land value tax owed by that owner will be $450 a month per unit.
If this owner attempts to increase the rent for her units to $1,650 a month in order to recover the cost of the land value tax, the rental rates for her units will now be greater than the rent charged for the superior units! She will lose tenants either unwilling or unable to pay the higher, above-market rates. Also, some of her more financially able tenants may opt to move to the superior units because, if required to pay $1,600 a month or more for housing, why not live in the superior location and enjoy larger living quarters with more amenities for roughly the same price?
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