Michael An average single-family home in our neighborhood costs just under two million dollars. Now, in the heart of the tech industry, many people in the tech sector have money burning holes in their pockets, so the exorbitant purchase price isn't really the problem. But one must consider that the city of San Francisco levies a property tax of 1.17% per year on the assessed house price. That amounts to $23,400 a year on 2 million house, which is almost $2,000 a month. For that, you could almost rent a ramshackle place in a bad neighborhood! You could even say that homeowners are essentially renting their house from the county, at the price of the annual property tax, even though they bought it with already taxed income. We live in crazy times.

These property tax payments are not insignificant and are collected by the county and used to initiate relatively sensible things, such as supporting local public schools. Wealthy suburbs that collect a lot of property tax usually have the best public schools, while poorer areas often have deplorable ones. Since most parents prefer good schools for their children, this way they're driving up house prices in expensive areas with good schools.

Now, until 2017, homeowners were able to fully deduct their property tax (and also interest on loans) from their income tax to the federal tax office (Federal Income Tax). However, then-President Trump pushed through with Congress the SALT-Law which limited the maximum deductible property tax to $10,000. In the state of California, homeowners can still fully deduct their property tax bills from their state income tax. However, the state tax amounts to only about $12,500 for a typical annual income of $200,000, while the federal income tax amounts to $38,500. And, mind you, "deduct" simply means that you don't have to pay income tax on the amount of property tax paid: a sort of consolation prize from the tax office.

That wasn't always so extreme, because 40 years ago, real estate prices were still about one-tenth of today's level. You heard that right, the little house that costs 2 million today was available for 200,000 dollars in 1984. So that Grandma Meume, with her little cottage that she bought 40 years ago for 200,000 dollars but which is now worth two million, doesn't run into financial difficulties with her modest pension and has to move away from her neighborhood, the so-called Proposition13 was introduced in 1976. The law stipulates that the property tax will remain at the 1976 level, with annual increases of about 2-3%.

This leads to extreme unequal treatment of homeowners regarding property tax. Some time ago, a Luxury property in San Francisco's prestigious Sea Cliff neighborhood was for sale at a price of nearly 10 million dollars. According to the real estate listing, the current owner's property tax bill was only 3,721 dollars annually! The lucky owner probably bought the house ages ago at a bargain price. However, since the property tax adjusts sharply to the purchase price upon the sale of a property, the new owner would then have to shell out a hefty 117,000 dollars per year, which is almost 10,000 dollars a month! Such a decision requires careful consideration.

Now, the process is not without controversy, as tax fairness would look different, and even when Arnie Schwarzenegger was governor, he brought up a reform for discussion. However, he quickly backed down when he sensed the growing opposition from homeowners. Therefore, the regulation is unlikely to change anytime soon, as no one wants to evict the scruffy hippies from their multi-million dollar shacks. It's a hopeless endeavor for any politician.

Recently, it became known that our governor, Gavin Newsom, bought a house in affluent Marin County (north of the Golden Gate Bridge). His new luxury estate cost a modest nine million dollars. Now how a governor can manage the property tax of about 110,000 dollars per year, when his official annual salary is only 250,000 dollars? That's honestly a mystery to me.

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