No, It’s Not Just for Seniors — Prop. 13 Has Something for Everybody
This Thursday, the 6th of June, the Western democracies will commemorate the Normandy invasion that marked the beginning of the end of Fascist tyranny in Europe. On the same date, Californians will also celebrate a second liberation, the passage of Proposition 13 which 35 years ago reined in the onerous property tax system and made the passage of new taxes more democratic.
After three and a half decades, polls show Proposition 13 as popular now as it was the day it passed. Still, a divide on the issue remains, with the overwhelming majority of average folks supporting the tax limiting measure and a minority — primarily special interests that benefit from government spending, politicians who are in the pockets of those interests, a few leftist professors from taxpayer-supported universities and, of course, editors at some of the state’s largest newspapers — remain dogged in their opposition.
For most Proposition 13 opponents, like the public employee union bosses, their opposition is all about money and getting more of it from taxpayers. Others, in the “chardonnay and brie set,” object to the bottom up origin of the 1978 tax revolt that carried Proposition 13 to victory. These folks are always uncomfortable with ideas that are popular with those who they see as part of the “great unwashed.”
However, the majority knew exactly what they were doing when they approved Proposition 13 by a nearly two-to-one margin. They saw that property taxes were out of control — in some areas actually doubling in the duration of a single year — and friends and neighbors were being forced from their homes. They saw clearly the benefit of a tax system that would limit annual tax increases and make property taxes predictable from year to year. By lowering the tax rate from nearly three percent, to one percent and restricting annual increases in assessed value to two percent, Proposition 13 provided a stable system for all, including government agencies that depend on property taxes.
Still, the opposition continues to try to gin up discontent against the tax limiting measure, using absurd and sometimes insidious arguments.
Critics whine about fairness, like children in a school yard shouting “no fair, no fair.” They point out that in some neighborhoods a recent homebuyer is paying more in taxes than a neighbor who has owned their home for thirty, twenty or even ten years.
This, they claim, shows that the tax burden is being born by the young, while older property owners reap the benefit. Of course, this is nonsense. The longtime owner has been paying property taxes for years – property taxes that built the infrastructure the new buyer now enjoys – and they began paying based on what they could afford to pay for their home at the time of purchase. The new buyer is in the exact same position, in that his or her taxes are based on what they can afford now, and they, too, enjoy the benefit of knowing what their taxes will be in the future.
What Proposition 13 provides to both new and longtime homeowners alike, whatever their age, is certainty and security in taxation. And the critics of this system are not in the least bit concerned about “fairness”; they are looking for more money from the older owners.
For those who wonder what good Proposition 13 is to renters, consider that by limiting annual increases in property taxes, it reduces the pressure on owners to increase rents.
And all taxpayers, whether property owners or not, benefit from Proposition 13’s requirement that local voters be given the final say on local tax increases, like those on utility services.
Finally, even government benefits from the Proposition 13 system. When times are tough, both income and sales tax receipts plummet, but due to Proposition 13’s acquisition value system, in most years, property tax revenue continues to increase, and if it declines, the reduction will be very modest. It should be noted that property tax receipts were $4.9 billion in 1978-79, but by 2010-11 property revenue had seen a tenfold increase to $49 billion per year – an increase that is two and a half times the rate of inflation over the same period — providing a healthy revenue stream to local governments.
So after 35 years, Proposition 13 has proved it has something for everybody by providing stability to our property tax system, protecting all taxpayers from unreasonable taxation, and by providing a healthy revenue stream to government. What’s not to like?
Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.
I am neither a politician nor a leftist college professor (in fact, I’m secretary of the OC Libertarian Party), but I think Proposition 13 has made California worse off. As a young professional, I get clobbered with high state income taxes (9.3% on all income earned over $49,000), high state sales taxes (8-9% in most parts of the LA metro), and struggle to enter the expensive real estate market, which is overpriced in no small part to the shift away from property taxes that occurred thirty-five years ago. If Prop 13 was passed to protect seniors, it has failed at this task as California is consistently rated one of the worst places to retire (and taxes almost all retirement income). Our state poverty rate, which has placed massive demands on the welfare system, is the highest in the nation, when the cost of living is taken into account.
Our public schools used to be the best in the nation, but according to test scores, are significantly worse than those in Texas, where funding levels and demographics are similar. Almost all taxpayer funds for education and other programs are funneled through Sacramento, which has brought about more state control, unfunded mandates, and has made it easier for public employee unions (or other special interests) to make unreasonable demands. It is much harder to stop governmental overreach at state and federal levels, especially when CA state senators represent almost one million constituents.
Real estate speculation runs rampant in California, which is partially why the state’s economy crashed so hard in the late 2000s. If we step back a second and think about it, this makes perfect sense. CA primarily taxes productive activity (income and sales), so investors shy away from facilitating job creation and instead purchase land as a tax haven. This has driven up the price of property in the desirable coastal areas (like OC and the Bay Area) and enticed sprawl (into the Inland Empire and the Central Valley) as builders are pushed further out by speculators that hold vacant lots. Many CA cities such as San Jose have fought back against the infrastructure costs borne by sprawl through adopting urban growth boundaries, which has driven up real estate prices even more.
As Milton Friedman noted, taxing land is the least economically destructive way to fund the government. Income taxes discourage working, sales taxes discourage shopping, but the supply of land is fixed and unaffected by tax rates (only the purchase price changes). Tax evasion is not an issue, as land cannot be hidden and tax records are public information. Local control is encouraged as people will not try to avoid income/sales taxes by conducting their business elsewhere.
Proposition 30 is a bad fix to California’s structural deficits. To have more effective governance, we need to rethink the Golden State’s tax structure.
California doesn’t have a revenue problem. They have a nice spending problem.
They have a rampant land speculation problem that makes everything more expensive.
They do have a spending problem, but do you really think continuing to funnel money through Sacramento will reduce government waste? Most government should be at the local level, where people have the opportunity to move with their feet next door rather than out of state. Furthermore, ordinary citizens, rather than special interests, have more of a voice at the local level.
Real estate taxes are the only inherently local taxes because real estate is the only thing that cannot step across a municipal line to avoid taxes. Of course, new buildings can be built where the tax climate is expected to be favorable, but land does not move at all.