The tax revolt started in California in 1978, but it never really ended.
Four decades ago mad-as-hell voters banded together to pass Proposition 13, capping property taxes, slapping a constitutional muzzle on state government and wringing local budgets like a washcloth. The electorate’s anti-tax fever may have broken in the years since, but the legacy of Prop. 13 is still very much with us.
Need proof? Check your ballot.
This year, Californians are being asked to weigh in on two more changes to the tax-slashing constitutional amendment that has done more than any other California ballot measure to reshape the state’s fiscal landscape and the politics of taxation.
Proposition 19 would pop open one new property tax loophole for older or disabled homeowners, while sewing shut another for people who inherit their parents’ and grandparents’ homes. And Proposition 15 would raise property taxes on many businesses—the largest change to California’s property tax structure since Prop. 13 campaign leader Howard Jarvis was railing against high taxes and “marinated bureaucrats.”
If it seems like California voters are perpetually being asked to redefine, clarify, overhaul or rewrite the terms of the 1978 tax revolt, it’s because we are. Since Prop. 13, the state has voted 33 times on potential amendments to it. These offshoots of Prop. 13 have sprouted their own offshoots, adding additions to revisions to edits of the original text. Forty-two years later, the tree first planted in 1978 has gotten mighty tangled.
“It’s an evergreen story,” said Jason Cohn, whose Jarvis documentary The First Angry Man, premiered last week.
Cohn and his wife, Camille Servan-Schreiber, began working on the film in 2010 when voters were considering Proposition 26—a successful Prop. 13 patch that made it even harder for state and local governments to raise revenue through fees.
“It’s never not relevant,” said Cohn.
There are few areas of California economic or political life that Prop. 13 hasn’t touched.
To recap, it:
- Capped property taxes at 1 percent of a property’s assessed value
- Fixed a property’s assessed value to its original purchase price (rather than how much it can be currently sold for)
- Allowed that assessed value to inch up with inflation, but by no more than 2 percent each year
- Allowed a property to be reassessed whenever it is sold or if the owner makes a significant improvement or addition
- Required local and state governments—and in some cases voters—to get two-thirds of the vote to introduce new taxes
In the short term, the measure gave homeowners a lasting tax cut and, amid skyrocketing real estate prices, made it much easier for homeowners to stay in their homes. In exchange, property tax payments plummeted 60 percent in a year, cutting $7 billion from city and school district budgets.
Longer term, Prop. 13 had a number of unintended consequences. State government assumed a much bigger role in school financing. Local governments suddenly had a bigger incentive to approve commercial real estate over residential development. Governments across California turned to other sources of revenue—including income taxes, use taxes and fees—to make up the difference.
The Prop. 13 campaign reverberated across the country. Jarvis, the garrulous, cigar-chomping political gadfly who had been tilting at California’s tax code, Don Quixote-like, for decades, became a magazine cover-gracing populist hero overnight. Tax-capping measures sprouted up elsewhere, augering the landslide election of Ronald Reagan. In its wake, Jerry Brown, the state’s governor at the time, came to rebrand himself a “born-again tax cutter”—one of many Democrats who would see “taxation” and “government spending” as four letter words for decades to come.
“The era of the tax revolt, I think, has largely ended in California,” said Cohn. “But Prop. 13 has its own status outside that liberal-conservative spectrum.”
Of the 33 changes put before the voters, 24 have passed. They come in three varieties:
1. Perk Protectors
Under Prop. 13, a home’s value is reassessed whenever there’s a change of ownership or the property owner makes an addition or improvement. Property owners can find themselves slapped with a much higher tax bill if they opt to fix up their current place or move to a new one. As soon as Prop. 13 passed, people began scrambling for exemptions.
If someone is forced to move after a natural disaster, don’t they deserve a tax break? What if someone inherits a home from a parent—is California going to impose an orphan’s tax? And what about the responsible homeowner who installs a sprinkler system? A solar panel? A rain barrel?
Since 1978, the vast majority of the Prop. 13-related initiatives have carved out highly specific exemptions for niche investments and transactions, expanding the tax break’s protections one ballot measure at a time.
Another key feature of Prop. 13: Legislators hoping to raise taxes need to convince two-thirds of their colleagues to agree. For local taxes, two-thirds of voters are needed to approve “special taxes.”
But what if the taxes were used to pay off debt? If a regulator imposes a fee or a fine, is that a “tax” too? And what’s a “special tax” anyway?
Eight more measures have gone before the California voter to answer such questions.
3. Tax hikers
Proposition 13 makes it really hard for governments to raise revenue. That was the point. So when interest groups are particularly strapped, sometimes they go to the voters directly asking for a loophole.
Despite everything, Prop. 13 still retains its basic structure, said Jon Coupal, president of the Howard Jarvis Taxpayers Association, one of the state’s most influential anti-tax groups. Property taxes are still capped at 1 percent of value, they can increase by only 2 percent a year and reassessment still occurs only with an ownership change.
“Those are the three legs of the stool and those have not changed,” Coupal said.
What makes Prop. 13 such a moving target, constantly in need of more modest revisions and clarifications, he said, is its brevity.
The 1978 effort took place before California proposition campaigns became the half-a-billion-dollar, professionalized business they are today.
Jarvis and his co-drafters “were not insiders and they wanted a quick immediate fix that was really needed at the time,” said Coupal. “It was sparse … so there were a lot of unanswered questions. You can criticize Prop. 13 for that but remember, the United States Bill of Rights is very sparse too.”
Darien Shanske, a law professor at UC Davis, agrees that Prop. 13’s repeat presence on the ballot is a product of the way that it was written. But he doesn’t liken its lack of specificity to the genius of the Founding Fathers.
Overly-strict in some places and ambiguous in others, the measure “was particularly poorly drafted,” he said, which has led to continual efforts to prune or graft modifications onto it. That’s to say nothing of the frequent court battles over its precise meaning.
Critics of ballot box budgeting contend that the Legislature is better equipped than voters to make complex taxation and spending decisions, and believe Prop. 13 has resulted in an infuriating catch-22. By making it more difficult for lawmakers to raise taxes, Prop. 13 makes it more likely that increases will require yet another ballot measure. And because constitutional amendments can only be changed through the popular vote, any direct changes to Prop. 13 have to go before the voters.
Tax policy and refined spending decisions shouldn’t be done within the Constitution, Shanske said—“but once we’ve started down this road, we’re stuck with it because now we can’t fix it except through the Constitution.”
Ben covers California politics and elections for CalMatters, a nonprofit, nonpartisan media venture explaining California policies and politics.
I never really thought prop 13 was anything but a Trojan Horse for commercial interests. However not the residential front, I figured the homeowners would eventually leave the scene and the property be revalued. The provision that a home can be passed on while keeping the prop 13 valuation is what needs to go. I know of well of high school colleagues of mine living in their parents old home while paying a token amount of property tax. Very unfair.
At least they live in their family home. There are some that rent it out and make piles of money while only paying the prop 13 taxes.
I believe that a provision of prop 15 is that the cost basis pass through to inheritors does not apply to homes that will be rented out. That’s a start, but I still don’t think giving the CB to children who inherit the house for purposes of living in it is sound policy or makes any sense. Of course they love it, but then they are reaping benefits they aren’t paying for–who wouldn’t want that? It’s a bad deal for everyone else who has to subsidize them.
They are not reaping any benefits. Instead they are not being SCREWED by malcontents who want someone else’s money. Why should they be taxed more just because their parents died? That’s sick.
Work90. They should pay property tax on the home’s market value when they inherit it b/c they aren’t the original purchasers–their parents were. It baffles me that some people think this is somehow a fair or equitable provision of prop 13 as it creates a sort of landed gentry. I know of a couple in Mtn. View living in an inherited home worth at least $2M paying about $2K annually in prop tax (and they put two children through district schools). I think it’s a bit of a stretch to say that they aren’t reaping any benefits (that obviously others are having to pay for).
Perhaps they are “reaping the benefits” of their parents foresight and savings for them, otherwise you just want more of their money because why?? Because it’s not “fair”?
Give me a break. NO ONE deserves more of their money just because their parents died and left them what they had owned. What a ridiculous argument you are trying to make.
The children inherited the house–the government isn’t taking it from them. In fact, they getting a great deal in SV because the home’s cost basis is “stepped up” to FMV for purposes of inheritance which means a home purchased for $50K in 1970 with a 2020 $2M FMV value will in effect avoid taxes of $1.95M of capital gains. That’s pretty sweet and I think it’s an example of parents leaving children their property. Property taxes are something separate altogether. Paying virtually nothing for government services that residents in a property require (police, fire, library, schools, etc.) is simply not fair or just to others who weren’t lucky enough to inherit property.
BTW, just curious, do you favor rent control? I’ve noticed that many people who believe all provisions of prop 13 are fair and just seem to think that rent control is communism–which I think is a logically incoherent position to take (I don’t personally favor rent control). Prop 13 acts in effect as “rent control” for property taxes.
XBR976, that’s just wrong in every way.
If you want to sell less of something, make it cost more. By increasing property taxes you make property more expensive and people will buy less of it and invest less in it.
For sake of argument, let’s say a very rich person or entity could make a 5% return on building houses. However Rent Control now limits that return to 2.5%. So what is that investor going to do with the money? Invest it in a low return with a cap on it? Or find something else with a better return? And when that money leaves housing in seek of a better return, then all we get is less housing. Which does what to the cost of housing? Plus add on your increase in property tax and what does that do to the cost of housing?
And what’s the number one problem in California these days, is it arguably the price of housing?
And I still can’t comprehend how someone else inheriting their parents property and tax rate is unfair to you? I personally don’t think property tax rates should stay with the house regardless, if if a stranger buys it.
Again, if you want less of something, make it cost more.
*Should have proof read first. I think the tax rate SHOULD stay with the house regardless.