March 17, 2004
Tax Policy
Testimony Memorandum
Support for Prop. 13
In 1789, Benjamin Franklin wrote a letter to Jean-Baptiste Leroy where he scribed the now famous proverb: “in this world, nothing is certain but death and taxes.”[1] However, this statement conveys the irony that existed before the passage of Proposition 13 when the uncertainty of property taxes made buying a house, or keeping a house, much more difficult, if not impossible, for many Californians. Now is the time to protect the gains we have achieved with this groundbreaking measure.
Why Did We Need Proposition 13?
There have been a few swings of the policy pendulum to bring us to this point today. When Californians passed Proposition 13 on June 6, 1978, it was as a response to a system of property tax that had run amuck. To fully understand the state of affairs, one must travel back to 1966. Responding to a tax assessor scandal, the California legislature passed a bill that would guarantee a uniform property tax rate that was tied to the current market value of property. This took property assessments out of the hands of an office that could be swayed by corruption.
The downfall of such a system was that a homebuyer lacked the certainty of how much property tax she will have to pay during the course of owning that property. For instance, if a shopping mall is built the year after a home is purchased, and causes the house to dramatically go up in value, the owner would be responsible for the additional taxes. These are taxes she could not foresee and did not budget for and thus could be forced to sell the property. Yet, it does not take such a dramatic event as a shopping mall development to alter the tax landscape. The pre-1978 system provided that every time a house in the neighborhood was sold, its selling value reflected the new market value of its neighbors’ homes. Therefore, homeowner’s rates were constantly being shifted (usually upwards) based on these neighborhood sales or sky-high inflation that was prevalent in the 1970s.
To illustrate the chaos and unfairness another way, imagine a retail sales tax that operated this way. When a consumer buys a good, say a baseball card, he pays a sales tax at the time of purchase. However, when the card goes up in value with time, the consumer would have to submit additional sales tax to the county to reflect the higher current value of that card. Moreover, every time the baseball player on said card achieves a milestone, the consumer would have to check back with the government to pay more. It is conceivable that the card can become so valuable that a child who owns it could not longer afford to hold onto it and pay the taxes, so he must sell the card to pay off tax on the card.
This meteoric rise in property valuation, and corresponding taxation, hit the elderly community particularly hard. Those who had purchased their homes decades earlier at historically cheap rates, and were now on fixed incomes, could not possibly afford the on-going hikes in property tax. The sad scene unfolded where these vulnerable members of our community were forced to leave the homes they had known for most of their lives and move to more meager accommodations.
With this frustration across the board, California voters overwhelmingly approved Proposition 13 by 65 per cent.[2] This vote has been deemed reminiscent of the tax revolts of colonial America like the Boston Tea Party.[3] This measure had two goals. The first was to cut the property tax rate, and the second was to sever the connection between property tax and current market value assessment. The new law did this by capping property taxes to 1 per cent of a home’s assessed value in 1975. There was also an allowance for a modest annual increase capped at 2 per cent. The property tax would only rise to reflect current market valuation when the owner sells the property.
The proposition even included a two-thirds vote threshold for other tax increases to avoid legislators’ increasing other taxes to offset the loss of the property tax revenue. This represents a real effort for tax reform, rather than a more typical deception of giving with one hand and taking away with the other by hiding new taxes in lower profile areas of the tax code.
Implications of the New Property Tax System
The new system resulted in the scenario where two identical neighboring houses would pay widely divergent property tax rates based on how recently one of the houses had been purchased. While this may seem to be unequal treatment, it is still fair because the new owner had notice and certainty of the tax rate and could factor that in when deciding whether to purchase the property. This treatment also protects the elderly homeowners and is not meant as a penalty to new owners, who would not have faired any better under the old system.
Back in 1978, and even today, opponents of Prop. 13 claim that the law’s draconian cuts in tax revenue would bankrupt the state, cause a huge hike in unemployment, and result in the devastation of law enforcement and schools.[4] While none of these apocalyptic outcomes occurred in the 25 years since the passage of the proposition, this measure has been the scapegoat for every California malady from the collapse of the 880 freeway in the 1989 Loma Prieta Quake, to the kidnapping of Polly Klaas, to the riots following the Rodney King verdict.[5]
In fact, in the short run, Prop. 13 saved taxpayers $6.1 billion.[6] It was credited with ushering the ‘80s fiscally conservative movement and encouraging “tax revolts” around the country.[7] This measure also marked the turning point of citizens taking an active role in the initiative/referendum process thereby increasing the feelings of efficacy of the average voter and making this state more democratic.
The Future of Prop. 13
Proposition 13 has been challenged from various angles. The politicians who opposed this law wasted campaign war-chests to scare the public about the effects of the measure.[8] It’s also been challenged in front of the Supreme Court, where a stunning 8-1 opinion supported the initiative.[9]
Most recently, opponents to Prop. 13 have returned to the initiative process to try to reverse some of the gains achieved in 1978. Three and a half years ago, Californian’s passed an initiative that lowered the vote threshold for passing bond measures.[10] Legislators are also attempting to lower the same supermajority requirement for raising sales taxes. Californians must act now to indicate that they do not want to return to the dark days before the passage of Prop. 13. They also need to send a clear message to current elected officials that they will not tolerate a ‘three-card-monty’ approach to their tax system. The consistency and certainty of the property tax system has been innovative and fair, while still enabling hard-working taxpayers to buy and keep a home. Let’s maintain the integrity of this system for the years to come so that our children may afford to own a home in the same state that we do.
1
[1] The Phrase Finder, available at
[2] “Proposition 13: Love It or Hate It, Its Roots Go Deep,” November 1993, Cal-Tax Research. Available at
[3] “Background on Proposition 13”, Howard Jarvis Taxpayers Association,
[4] “Proposition 13: Twenty Five Years Later,” Bruce Bartlett, June 6, 2003, Capitalism Magazine, available at
[5] “Proposition 13: A Look Back,” Joel Fox, Howard Jarvis Taxpayers Association, available at
[6] “Proposition 13 hits 25th anniversary,” Jim Wasserman, The Washington Times, June 2, 2003, available at
[7] “Proposition 13 Then, Now and Forever,” Stephen Moore, Cato Institute, July 30, 1998, available at
[8]Proposition 13: Twenty Five Years Later,” Bruce Bartlett, June 6, 2003, Capitalism Magazine, available at
[9]See Nordlinger v. Hahn, 505 U.S. 1 (1992).
[10]“Proposition 13 hits 25th anniversary,” Jim Wasserman, The Washington Times, June 2, 2003, available at