CalTax Commentary: Voters Who OK’d Proposition 13 Knew What They Were Doing

By Robert Gutierrez, Director of the California Tax Foundation

This column originally appeared in the Bakersfield Californian

It was disappointing to read Dolores Huerta’s description of California’s nondiscriminatory property tax law as a “loophole” – a label that misrepresents the facts and slights voters who overwhelmingly approved Proposition 13 to protect all property owners (Community Voices: “Fight to close state’s commercial property tax loophole,” August 18).

When Californians went to the polls on June 6, 1978, they saw two competing property tax measures: Proposition 13, limiting tax on all properties, and Proposition 8, allowing the tax on homes to be lower than on other types of property.

Here is how NBC Nightly News described the measures the night before the election:
“Proposition 13 applies to all property – businesses as well as homes. … Proposition 8 is an alternative tax reform proposed by the state Legislature – frankly, because the legislators were afraid the voters would approve Proposition 13. Proposition 8 would allow businesses to be taxed at the present rate, but would offer homeowners a 30 percent cut in taxes.”

The broadcast, anchored by David Brinkley, was on one of only three American television networks that existed at the time, and was watched by many voters.

Proposition 13 won by a nearly two-to-one margin, with 64.8 percent of voters in support. Proposition 8, meanwhile, was rejected by 53 percent of the voters.

The results were especially compelling considering that almost the entire political establishment in California was opposed to Proposition 13, and opponents spent far more than supporters on campaign advertising.
In short, voters knew exactly what they were doing, and made the wise decision to not discriminate against any type of property. This was not a change, as California’s locally assessed tax on real property has always applied equally to all types of property. One of the benefits: Assessors don’t have to audit how properties are being used – a factor that becomes more important as more people telecommute from offices in their homes.

Now, pro-tax activists claim it is “unfair” to treat all property owners equally! They hope to mislead Californians into believing that equal treatment is somehow bad for homeowners, and a windfall for owners of business properties.

Under Proposition 13, however, every property owner is taxed at 1 percent of his or her property’s assessed value, period. There is no way for anybody to shift the property tax burden to another person. This makes the system fair, and insulates it from political gamesmanship such as trying to tax competitors out of business, or hitting political opponents with higher taxes.

Proposition 13 also puts a 2 percent limit on how much the assessed value can increase each year, so all property owners know what their property tax burden will be in the future. This certainty and predictability solved a big problem that existed prior to 1978, when homeowners and business owners often would be surprised by huge increases in their taxes from year to year, based on such factors as whether neighbors had remodeled their homes or businesses.

Not only has Proposition 13 kept the property tax system fair, it also has provided a steady stream of revenue for local government, with assessments growing at an average rate of about 7.07 percent per year (outpacing inflation, which has grown at an average annual rate of 3.57 percent, and population, which has grown at an average rate of 1.43 percent). Thanks to the structure of Proposition 13, the property tax is the most stable source of government revenue.

The pro-tax activists want to mutate the system so California businesses would get hit with a tax hike of an estimated $9 billion per year. Using political doublespeak, they claim that since such a system is not currently in place, businesses are receiving a $9 billion gift! Only in California could it be considered a “gift” for businesses to be paying exactly what they owe in taxes, rather than billions more.

The proposed tax increase on California businesses would be devastating for the state’s economy and its workers. The tax hike would encourage businesses to move to states with lower costs, and would discourage businesses from investing here. Businesses that aren’t able to move likely would cut jobs and/or increase consumer prices to stay competitive.

Proposition 13 is working well for all of us, and must be protected.

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