The Shock of Proposition 13

 

 

By Richard Colman, California Political News and Views

Proposition 13 of 1978 lowered property taxes for millions of Californians. 

The impact of Proposition 13 reverberated forcefully around the United States.  Suddenly, residents of other states wanted property-tax reductions. 

The California vote took place 40 years ago on June 6, 1978. 

Proposition 13 passed by a about a two-to-one majority (65 percent to 35 percent).  The proposition was an amendment to the Constitution of California. 

The principal proponents of Proposition 13 were Howard Jarvis and Paul Gann.  After Proposition 13 passed, Jarvis’ picture appeared on the cover of Time magazine.  Shortly after Proposition 13 passed, Jarvis wanted to have lunch in a posh San Francisco restaurant.   He did not have to wait in line and was seated immediately. 

Proposition 13 lowered property taxes on the property of residences, businesses, and farms. 

The proposition put strict limits on the amount of property taxes paid. 

Proposition 13 limited the value of the property tax to one percent of the full cash value of a piece of property. 

Proposition 13 rolled back 1978 property taxes to 1975 levels. 

Under Proposition 13, if property taxes were to be increased, there had to be a vote by the property owners affected.  To pass a property-tax increase, a two-thirds (or greater) majority of votes would be needed. 

Proposition 13 contained an inflation factor.  Property taxes could not go up by more than two percent per year unless voters approved a larger increase. 

An aspect of Proposition 13 was the proposition’s allowance for property taxes to increase upon the sale of a piece or property.  For example, if a property in 1978 were assessed at $50,000 and sold for $1.5 million in 2017, the new taxable amount would be based on the $1.5 million selling price. 

Prior to the passage of Proposition 13, local officials could raise property taxes by administrative fiat.  Usually, a local tax assessor would raise property taxes based on the increased value of a home.  Allowing such tax increases particularly alarmed retired homeowners, many of whom believed that property taxes would ultimately tax them out their homes. 

At the time Proposition 13 passed, the State of California had a budget surplus of between $4 billion and $5 billion.  Jerry Brown was in his first of four terms as governor and was seeking re-election to a second term.  Her won that second term. 

(Brown’s first two terms covered 1975-1983.  His third term covered 2011-2015.  His fourth term goes from 2015 to 2019.) 

Brown’s budget surplus in 1978 lead one California resident to say:  “What is Jerry Brown doing?  Is he running a for-profit business in Sacramento?” 

After Proposition 13 passed, local governments and local school districts, which were supported by local property taxes, realized that they would have considerably less money.   

These local jurisdictions were able to apply pressure successfully on the state government.  They asked the state government to redistribute its budget surplus, sending that surplus to local entities that had lost money under Proposition 13. 

The result of this movement of funds from the state level to the local level was to give the state extra power in telling local areas how to behave.  This state power over local government still applies. 

The property tax itself needs to be examined.   

The property tax is paid on an asset (usually a home) while the asset is still in the owner’s possession. 

There is no property tax on such on such possessions as furniture, clothing, or appliances.   

(However, there is a property tax on assets held by a business.  The tax applies to office machinery like computers, office furniture, and other office assets.) 

Normally, when an asset like a stock or a business is sold, a tax is applied at the time of sale.  Such a tax is called a capital gains tax. 

Why should people pay a tax while an asset is still in an owner’s possession? 

The property tax should be eliminated.  If necessary, an income tax could be used to replace the property tax.  If there were such an income tax, the burden should be sufficiently small so that a homeowner — presumably a retired person — living on a fixed income would not be forced out of his residence.

Richard Colman is the founder and president of Biomed Inc., a biotechnology, publishing, and informatics company.  He is a biochemist and earned masters and doctoral degrees from the University of California at Berkeley.  He lives in Orinda, California.


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