Saturday, June 08, 2013

Almost Everything You Know About Proposition 13 is WRONG!

This week marked the 35 Anniversary of the passage of Proposition 13 in California.  The California Taxpayers Association released a report which analyzed what has happened since the measure was first adopted.  It is well worth the read.

When it was under consideration opponents warned that California would crash and burn if the measure were passed.  They suggested that unemployment would increase (it actually was lowered a bit).   They also argued that over time, the burden paid by homeowners would increase relative to business and industrial property.   Finally they suggested that the revenue restraints of the proposition would be unbearable.   Time magazine, a few years ago wailed "But California's woes have a set of deeper reasons: direct democracy run amok, timid governors, partisan gridlock and a flawed constitution have all contributed to budget chaos and people in pain. And at the root of California's misery lies Proposition 13, the antitax measure that ignited the Reagan Revolution and the conservative era."    Contrary to what Time tried to portray every time a politician tries to monkey with the key elements of the proposition - they get their heads handed to them quickly.   Remember the federal government does not have Proposition 13 yet gridlock is as bad or worse than what we live with in Sacramento.   Budget chaos did not come from the Proposition but more from policies adopted by the legislature which combined between a drunken sailor mentality on spending and a confiscatory tax system which has begun to encourage the wealthiest and most productive to leave the state.

So what does the report say.  First, it gives a short history of what caused Proposition 13.   The chart at the right tracks property assessments prior to passage.  They were growing at a healthy clip.   Indeed, for the four years coming up to the June, 1978 election assessments had risen by double digit rates each year.   That was caused by significant improvements in data gathering of assessors and also in several clumsy fixes that the legislature had tried to adopt.   Assessed value rose by 61% in just four years.   The Sacramento sages could not understand why voters were so grumpy.

A second picture emerges by looking at the share of property tax burden borne by Commercial and Industrial property compared to residential real estate.   Remember that most of the legislature's experts thought that because home owners moved more than businesses that the burden would shift. It turns out that since Proposition 13 passed the share of property tax burden borne by residential taxpayers has actually decreased.   Often the justification for supporting a split roll is to address a problem which does not seem to be real.

Let's be clear here.   Since the proposition passed assessed values have exploded from about half a trillion to more than four trillion dollars.   That even takes into account the dip we had from the recession that started in 2007-08.   By any account that is a pretty healthy rate of growth.

There is a third issue with Proposition 13 which is not much of a surprise but it is certainly instructive.  A key marker for a sound tax system is stability of revenues.    Since the passage of Proposition 13 property tax revenues have been relatively stable in terms of growth.   The legislature over the same period of time have had complete discretion over the income tax.  The majority has chosen to make our income tax increasingly progressive - so that the tax relies more and more on fewer and fewer taxpayers.   So compare the red line in the third chart to the blue one.  If you want adequate public services which would you prefer to work with?   The answer should be obvious.

There are some issues with Proposition 13 which could be improved.   For example, because of the way that the Legislature reacted initially local government's ability to meet local needs has been reduced significantly.   The increased  reliance on sales tax revenues by local governments has also produced some distortions in public policy.   Both of those are governance not tax issues.

What is most disappointing about this report is how the opponents of Proposition 13 will continue to ignore the results.  You won't see much coverage of this research in most papers in the state.   It does not confirm their biases.  But you should.   Proposition 13 was a meat axe to a problem facing taxpayers.   But based on the CalTax research - the choice that Californians faced was a meat axe or a bludgeon.

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