Tax Analysts Blog

On its 35th Birthday, Prop 13 Remains Flawed

Posted on Jun 5, 2013

Tomorrow, June 6, is the 35th anniversary of the passage of Proposition 13 in California. This very famous amendment to the state constitution limited property tax rates to one percent and limited increases in assessed value to two percent. It was the start of the modern property tax revolt and heralded an age of the politics of anti-taxation. In the ensuing years, Prop 13 was blamed by liberals for virtually every malady facing the state from earthquakes, to poor schools, to gigantic budget deficits. Some have opined that Prop 13 is no longer the big deal it once was. Bruce Bartlett for example recently pointed out it did not change the overall state and local tax burdens in California. And, indeed, California was the fourth highest taxed state before Proposition 13 and the fourth highest taxed state decades later.

Every poll shows that a vast majority of Californians think Prop 13 was and remains a good thing. And in the greatest democracy that ever was, it is hard to argue against the quintessential example of direct democracy. But I think Proposition 13 was a horrible policy choice. It devastated local government autonomy. Local governments in the United States have been the most efficient, effective, and democratically responsive means of providing public services. But that effectiveness is contingent on having an independent source of revenue. When the state finances local government services, it is almost assured that those services will not be provided at levels demanded by citizens. Citizens may want more local government services than they are receiving and are willing to pay for them through higher property taxes. They can't. That is neither efficient nor democratic.

Read Comments (3)

edmund dantesJun 4, 2013

Imagine you buy a house during a period of prosperity. You pay the mortgage and
the property taxes. A few years later, your income is the same but the value
of your home may have doubled during a hot real estate market. Should your
property taxes double too? That is like a large fraction of your income. You
have no way to monetize the home's appreciation, and what's more, it may be
temporary, even illusory.

That is the vice California taxpayers found themselves squeezed by. Prop 13
restored predictability to buying and owning a home. Its greatest benefit was
to retirees who were being forced out of their homes by unpredictable property
tax increases. Prop 13 was a very good thing. Yes, it has led to some
inequities, but these are less harmful than the sword of damocles of looming
property revaluations hanging over the heads of homeowners.

AMT buffJun 5, 2013

David, you and others have fallen prey to misinformation, if not disinformation.

Proposition 13 was an effect, not the cause, of the loss of local control.
Local control was lost in 1971 with the Serrano v. Priest decision which forced
property tax revenue to be redistributed at the state level. This decoupled
local benefits from local costs. Since Serrano v. Priest there are no large
revenue sources controlled locally in California. Local government was
neutered. Voters rationally responded by limiting property tax collections.

David, your dispute is with the California Supreme Court, not with the voters.

Tim P.Jun 6, 2013

I've always harbored the notion that the housing bubble greatly benefited from
Prop 13 (and may have been instrumental) in accelerating the appreciation of
homes. It all started in the larger urban areas, spreading from there. It
wouldn't be a stretch to suggest that the more unscrupulous among us saw this
as an opportunity to inflate housing prices and fuel speculation.

If Prop 13 never passed, the rapid rise of housing prices would have been
decried and quickly dealt with.
Another bubble would have to have been devised and it wouldn't have been as
massive and damaging.

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