SF Chronicle Calls Prop. 13 Tax Cuts ‘Subsidies’: What’s the Impact?
Today’s buzz in California centers around the iconic Proposition 13, the groundbreaking ballot initiative from 1978 that dramatically slashed property tax rates by an astonishing 57% for homeowners, businesses, and farms alike. This monumental move was met with overwhelming support from California voters who were tired of being squeezed by skyrocketing taxes.
But here’s where the plot thickens: critics argue that Prop. 13 has left our public schools gasping for funds, and that businesses are getting a free ride on taxes. Really? Let’s take a closer look.
To label tax reductions as “subsidies” is a bit ridiculous, don’t you think?
Prop. 13 was a lifeline for countless families, ensuring that they wouldn’t be taxed out of their homes. It brought a sense of security to taxpayers and commercial property owners, allowing them to breathe a little easier about their financial futures.
As highlighted by the Howard Jarvis Taxpayers Association, Prop. 13 established a robust framework where “property tax increases on any given property were capped at a maximum of 2% annually, unless the property changed hands, in which case it would be reassessed at just 1% of its new market value, still under the 2% cap.”
This initiative is fondly dubbed the “Holy Grail of the tax revolt” for good reason.
Before Prop. 13, Californians faced an average property tax rate of nearly 3% of a property’s market value, with no limits on how high tax rates or property assessments could soar. Some homeowners saw their property taxes spike by 50% to 100% in a single year—an untenable situation that forced many out of their homes.
By the late 1970s, the property tax burden had become unbearable, especially for seniors living on fixed incomes. Howard Jarvis shared a heart-wrenching story about an elderly woman who suffered a heart attack at the Los Angeles assessor’s office after being unable to contest her tax bill.
The cherry on top? Prop. 13 mandates that any increases in state tax rates require a two-thirds majority in the legislature, while local tax hikes must be approved by a vote of the people. This is a crucial safeguard for taxpayers!
Curiously, the Chronicle’s article skips over the contributions of the Howard Jarvis Taxpayers Association, the staunch defenders of Prop. 13, who battle year after year to keep this protection intact from relentless attacks.
Instead, the article moans about how Prop. 13 “restrains property tax increases alongside home values.”
Let’s get real—the idea that Prop. 13’s approach to tax reduction is a “subsidy” reflects a mindset that views tax relief measures, like the home mortgage deduction, as mere ‘tax expenditures.’
This perspective suggests that government has a claim to all wealth, rather than recognizing that it belongs to the hardworking individuals who earn it.
This line of thinking is both corrupt and damaging.
The critics of Prop. 13 have long set their sights on commercial property owners, pitting them against the residential sector in a misguided “us vs. them” narrative to justify a “split roll,” a targeted tax increase on businesses.
A “split roll” would apply different tax rates to commercial properties compared to residential ones, effectively stripping Prop. 13 protections away from businesses and subjecting them to higher taxes. Cha-ching, right?
In 2020, voters decisively rejected Proposition 15, which proponents misleadingly labeled as “tax reform.” This would have removed property tax protections from commercial property owners—many of whom are multi-generational family businesses struggling to survive in an increasingly challenging market.
Support for Prop. 15 came from a coalition of well-funded interests, including Governor Gavin Newsom, the California Democratic Party, and powerful unions, who poured millions into the campaign.
According to the Howard Jarvis Taxpayers Association, “A study by the University of California at Davis shows that under Prop. 13, low and middle-income households pay less in taxes than they would have under the old property tax system.”
The Chronicle’s perspective mirrors that of legislative Democrats, who have year in and year out sought to dismantle Prop. 13 or impose a split-roll tax:
“Despite governments finding various ways to reclaim revenue lost due to Prop. 13, overall tax revenue has never fully bounced back. After adjusting for inflation, the LAO’s 2016 analysis—the most thorough economic evaluation of Prop. 13—found that cities and counties earned about $150 less in tax revenue per person in the 2014 fiscal year than they did in 1977.
Total revenue, including new fees, did increase for local governments, thanks to new fees created to fill the Prop. 13 deficit. However, California’s per-person local government revenue growth remains below the national average.
California’s reliance on tax revenues and affluent taxpayers to fund its budget makes the idea of tax cuts anathema to the Democratic agenda.
Yet they seem to grasp that exorbitant taxes and fees are driving homebuilders and prospective homeowners right out of the market:
“Many local governments have turned to development fees to recover tax revenue lost due to Prop. 13. Unlike taxes, these fees can be implemented without voter consent, making them a more convenient source of revenue.
California boasts some of the highest average development fees in the nation. According to a 2016 LAO report, in 2018, total development fees averaged a staggering $62,000 per single-family unit in Oakland—an obstacle for new home construction.
Even amid prosperity, they just can’t help themselves.
“After Prop. 13 passed, California excelled compared to the rest of the nation in nearly every metric, from personal income and employment growth to skyrocketing real estate values,” HJTA notes.
But… the government wasn’t reaping enough rewards!
Jon Coupal, President of the Howard Jarvis Taxpayers Association declared, “Ronald Reagan was spot on when he asked, ‘Are you entitled to the fruits of your own labor, or does government have some presumptive right to spend and spend and spend?’”
Encapsulated within the California Constitution, Proposition 13 also:
- Prohibits the state legislature from imposing new taxes on property value or sales.
- Mandates a two-thirds vote from the state legislature to raise non-property taxes.
- Requires local governments to send special tax measures to the ballot for a two-thirds approval from voters.
- Ensures that the state government is responsible for distributing property tax revenue among local governments.
It’s clear why preserving Proposition 13 is crucial—it guarantees that property taxes remain predictable and manageable, allowing homeowners to budget effectively and stay in their homes.
