Proposition 13 and tax reform

English: Mission Santa Barbara, Santa Barbara,...

English: Mission Santa Barbara, Santa Barbara, California, USA Français : Mission Santa Barbara, Santa Barbara, Californie, États-Unis (Photo credit: Wikipedia)

Proposition 13

Howard Jarvis led the effort to pass California’s Proposition 13 in 1978 to slow the rapid rise in property taxes that was forcing people from their homes. When I moved to Santa Barbara in 1965, many of my co-workers purchased homes in the $20-25,000 price range. As property values increased and assessments rose at the same time that tax rates also increased, my co-workers were hit with a double whammy, often seeing their property taxes exceed mortgage payments. Finally in 1978, Proposition 13 was passed to force a halt to rapidly increasing property taxes. And what was the reaction of our elected officials? Some of them closed libraries and shortened hours at the Department of Motor Vehicles (DMV) causing longer lines to punish the voters for their action. The elected officials had forgotten who they were working for, just as some in Congress have now.

At the time, I thought that Proposition 13 was a temporary measure that would lead to a more sensible,  permanent reform. Although somewhat modified over the years, Prop. 13 lives on after 34 years in effect. This has led to some glaring unfairness that the courts should have addressed by now. The properties that sold for between $20-25,000 in 1965 now sell for between $600,000-800,000. For purposes of this example, let us consider a property now valued at $650,000. If purchased in 1965, that house’s property tax is about $900/annually. An identical house next door on the same street if purchased today has an annual property tax of $8,100. That is a 9:1 ratio for the same government services and blatantly unfair.

Tax reform

I favor progressive taxes in place of regressive ones, and that is why I favor the progressive, graduated income tax as the fairest tax of them all. Property taxes are somewhat regressive and sales taxes are the most regressive of them all. That is why I favor abolishing all regressive taxes and replacing them with progressive taxes based on income and net wealth. And while we are at it,  let us tax corporations as people, as Mitt Romney and the US Supreme Court advocate. Corporations should pay at the same rate as individuals do, and dividends and capital gains should be taxed at ordinary income rates.

The progressive, graduated income tax is the fairest tax of them all, but I think that relying only on an income tax alone is probably not a good idea. Therefore, I advocate an annual wealth tax on a person’s or corporation’s net worth of 1/2 of 1% to 1% as some countries in Europe do. A 1% tax on a net worth of $1,000,000 would be $10,000. Let the Federal government take the lead in setting the rules for the progressive income tax and the wealth tax. Then each state could determine independently whether it wanted to adopt the progressive income and the wealth tax within its borders. For example, Illinois could decide to tax its citizens 35% of the Federal income tax and 20% of the federal wealth tax. Some states might adopt one tax or the other, but not both. Some states like Alaska and Nevada might decide to adopt neither. It would be easy for taxpayers to compute what they owe to states since state rates would be a percentage of what they owed on form 1040. Complicated state forms would be a thing of the past.

Regressive taxes like sales tax and property tax would be a thing of the past also. How would cities and schools and sanitary districts be financed in the future? It would be the responsibility of each state to allocate tax revenues within the state to those government entities losing tax revenues under my proposal. This would greatly change how revenues are raised and spent in the US in the future. I cannot predict all the effects of my proposal at this time. However, I will predict that my proposal will have a profound and beneficial effect on schools. Each state would be required to fund all schools within its borders equally. Under the present system, schools are financed mainly from local property taxes which leads some schools to be much better financed than others. This would end under my proposal.

5 thoughts on “Proposition 13 and tax reform

  1. While I largely agree with you allow me to play devils advocate for a moment. As per property taxes and the 9:1 ratio, we must take into account not only inflation, but the real rise in income as well. (while I can’t speak to 1965 I can say that in the past 30 years a call from a payphone (yes, a few still exist) has gone up 5X. A Soda or candy bar from a vending machine probably 3X or 4X. The cost of pratically everything has risen dramtically in the past several decades (the only things I have seen go down are probably marijuana and computers)- and this affects governments as well as individuals. And in many ways it hits governments even more- as technologies increase allwing more to be done- so do the costs. (ie- the internet didn’t exist in ’65- now it is a substantial cost for every government agency- despite some of the real cost savings it does present).
    Likewise the population has skyrocketed. Which places a large burden on the government for roads, schools, libraries, social services, medical care, public water supplies, ports and airports, etc.
    And our understanding of the true costs of many products has likewise exploded- costs that more often then not fall on the government and not the manufacturer or consumer. The costs of mitigating pollution, development, the necisity of more powerlines and pipelines etc all tend to fall on the government.
    And issues such as the rise of wal-mart, home-depot, lowes, target, amazon. Americans demands for cheap goods. Which drastically reduces a states tax base. Not only do we see cheaper goods which result in less sales tax per item. But we also see manufacturing being pushed overseas. Downward pressure on real wages. Small, local retailers- and the property and business taxes they represent being replaced by big box sotres that often demand, and receive- massive tax breaks.
    We have seen massive increases in the costs associated with the indroduction of pests, diseases, and non-native species with the rise of the world economy. Things that threaten public health. Agriculture. Recreation. Tourism.
    And of course CA also grapples with the costs associated with illegal immigration. And the reality that all of America, not just CA demands cheap products. So of course CA’s vegetable, fruit, nut, wine, ornamental industries are overwhelmingly staffed by illegals. The hotel and restaurant industries. The construction industry.

    I would argue THE major problem is americans demands of more- for less. Spurred in no small part by the corporations who want to pay low wages, and hence need cheap goods to pacify their employees. A vicious circle. And I would argue that if we don’t follow much of europes lead- where increasingly the true cost of goods are being handed back to the corporation (and yes, ultimately the consumer) then we are doomed. I would rather be confronted with the true cost of an item at purchase, then be paying for it- often without knowing why, come april 15th. Or worse- watching my state, and my country collapse because they can’t get people to pay the costs of their lifestyles and choices, while corporations reap the benefits.

    • What you say is true, but I think that you are missing my point. I own the 1965 home paying only $900 per year while my neighbor next door making a similar income pays $8100. He is paying too much and I am paying too little. In effect, he is paying some of the property taxes that I should be paying. I don’t like paying taxes. I agreed with Ronald Reagan when he said that taxes should hurt. Making taxes less painful by payroll deduction makes increasing taxes easier. I voted for Reagan in 1966 and against him in 1970 when he changed his position and supported payroll deduction for the California state income tax. He was re-elected without my vote.

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