California Democrats are nothing if not shortsighted, and the knock-on consequences of every new tax or regulation they put in place always manage to catch them by surprise. Case in point: Los Angeles’s “mansion” tax.
Los Angeles’s supposed “mansion” tax was meant to take a cut of the sale price of any property sold for more than $5.4 million, with an even bigger cut if the price exceeded $10.9 million. At face value, this would seem reasonable to normal people, who will never see $5.4 million in their lives and cannot even fathom transactions involving that much money.
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The problem, of course, is that everything is wildly expensive in California, especially housing, and especially housing in Los Angeles. Thus, the tax doesn’t just apply to mansions but also to office buildings, apartment buildings, warehouses, fairly normal homes, and even vacant lots. And so, according to the nonprofit think tank RAND Corporation, the tax has helped block the construction of 9,100 homes, including around 1,000 affordable housing units, and cost 16,650 full-time construction jobs.
The tax was projected to bring in $2.7 billion in revenue over three years, but it brought in only $1.2 billion. It also deprived government agencies of $452 million in revenue associated with construction projects, meaning its actual benefit is even lower. And with this new tax causing many developers to shy away from new projects, housing costs in Los Angeles will only go up again.
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Los Angeles made its housing problem worse while collecting less tax revenue than it expected, which is the story of California governance. Democrats have continually hiked the state’s gas tax, only to be surprised that gas prices have continued to rise as a result. They are currently threatening to institute a wealth tax, which has led some of the wealthiest Californians to move out of state and taking their taxable income with them.
In that way, the Los Angeles mansion tax is typical California policymaking. Democrats have yet to understand that their tax plans make things cost more, as all tax increases do, and bring in less revenue than expected — a particular problem for California’s constantly optimistic budget planners. Democrats in California learn nothing and tax everything, which has proven to be a poor strategy for governance.