Last week, California Governor Gavin Newsom signed Assembly Bill 418, a measure dealing with “tax-defaulted property.” The governor provided no official signing message for the bill, also missing from his October 8 legislative update, despite its huge significance for Californians.
AB-418 closes “a loophole that allowed California localities to seize and transfer homes to the government or nonprofits without compensating former owners for their hard-earned equity,” explains the Pacific Legal Foundation (PLF).
“For too long, California allowed local governments to strip homeowners of their life savings,” said PLF state policy director Jim Manley in a statement. “With the signing of AB 418, that injustice ends.” The measure was “a victory for California property owners,” but should not be taken as the end of government greed in the Golden State. On that theme, Californians might recall the case of Gilbert Hyatt, inventor of the first single-chip microprocessor.
Hyatt moved to Nevada, which has no state income tax, but California’s Franchise Tax Board (FTB) claimed the inventor lied about his residency and owed $7.4 million in taxes. That ballooned to nearly $60 million, and California harassed the Nevadan until 2008, when a Las Vegas jury awarded him $388 million, including $250 million in punitive damages. The Nevada Supreme Court tossed much of the award, but Hyatt retained $1.2 million for fraud.
The case failed to prompt reflection that California’s state income tax, the highest in the nation, acts as a disincentive to inventors and entrepreneurs. State sales taxes remain among the highest in the nation, and the overall tax burden has motivated many Californians to move to other states. State Attorney General Rob Bonta, when he was a member of the California Assembly, claimed that California could continue to tax them for 10 years. At this writing, there is no sign of tax reform that would motivate people to stay, and others to show up.
In 1978, Californians limited tax increases through Proposition 13. In a similar style last year, the Taxpayer Protection and Government Accountability Act required voter approval for all new taxes passed by the legislature and two-thirds voter approval for all new special tax increases. (RELATED: Your Mileage May Vary on New Tax Proposal)
The measure easily qualified for the November ballot, but Newsom and former Governor Jerry Brown persuaded the state supreme court to take the measure off the ballot. If Californians thought they had been disenfranchised, it would be hard to blame them. As they should know, the Golden State held no monopoly on equity theft. (RELATED: Supreme Court Hands the ‘Pillage’ People a Loss)
In New Jersey, the government foreclosed on the property of Guyanese immigrant Lynette Johnson, sold the property, and kept the difference between the selling price and her property tax debt, about $24,000. A New Jersey appellate court ruled in Johnson’s favor.
In Nebraska, the government seized the home of Kevin Fair over a property tax debt of $588. Nebraska is one of a dozen states that allow counties to “seize homes over small tax debts without returning any equity to homeowners.” Relief may be on the way.
The U.S. Supreme Court will hear Pung v. Isabella County, Michigan. That case questions “whether taking and selling a home to satisfy a debt to the government, and keeping the surplus value as a windfall, violates the Takings Clause of the Fifth Amendment.” As this plays out, workers nationwide face another longstanding injustice.
The Internal Revenue Service (IRS) withholds workers’ money from their paychecks, a practice that dates from World War II. It was supposed to be temporary, but the government likes getting workers’ money before they do. Milton Friedman supported withholding but later conceded that it would help to empower a government “too large, too intrusive, too destructive of freedom.”
No current court case or federal legislation questions whether withholding violates workers’ rights, or whether the government has a prior claim to what workers earn. As legislators strive to end equity theft, they should target this wartime government greed. On all fronts, let freedom ring.
READ MORE from Lloyd Billingsley:
California’s Real Safe Districts
Newsom’s Search for the Secret Police
Lloyd Billingsley is a policy fellow at the Independent Institute in Oakland, Calif.