Mises Wire

California’s Tax-Limiting Prop. 13 Survives Yet Another Attack

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Proposition 15’s attempt to undermine California Proposition 13’s property tax protections for businesses through a split roll has apparently narrowly failed. But one thing I find striking is that, even after the fact, the same false claims—or fake news—against Prop. 13 continue to be repeated. As a November 12 Los Angeles Times editorial put it, “It is not an overstatement to draw a straight line from Proposition 13 and related anti-tax measures to California’s crumbling roads, struggling schools and reduced social service programs,” because it starved government of revenue.

Soon after Prop. 13 passed in 1978 with 64.8 percent of the votes cast, people started blaming it for every state and local fiscal pinch, every citizen complaint, and every government “good deed” left undone. Whatever the problem, Prop. 13 allegedly caused it. So the LA Times has just hopped once more on a long-running bandwagon.

I have read attacks on Prop. 13 for unsolved kidnappings, murders and car thefts, library and education cutbacks, insufficient teacher pay, poor school performance, pothole problems, fee hikes, increased racial and demographic tensions, too much commercial development, increased road congestion and pollution, ad infinitum. However, those attacks have always hinged on the premise that Prop. 13 to this day has decimated state and local government funding. But that premise has long been false.

The most commonly cited data used to support “blame 13” arguments is that state and local taxes per $1000 of personal income fell after Prop. 13 passed. But such data cannot prove Prop. 13 gutted state and local revenues, because they do not measure whether the government was forced to shrink. They measure the share of Californians’ income going to government. The argument, however, rests on an ongoing cut in the real amount of government resources available per resident. In a growing economy, even if the government’s tab shrank as a proportion of citizens’ total incomes, it could still command substantially more resources per citizen.

That is why a better measure is real per capita data, which adjust for both population change and inflation. A government with constant real per capita revenues or expenditures should be able to maintain the same level of services per citizen. If fewer services are being provided, government is becoming less productive and/or shifting resources elsewhere. And real per capita measures are far from consistent with the forced shrinkage story. 

A second major failing of the tax data usually cited against Prop. 13 is that, as anyone having extensive dealings with California’s various governments can attest, taxes are far from the only way our government siphons resources from its citizens. In fact, tax measures omit what became by far the fastest growing source of government revenue after Prop. 13: charges, fees, and assessments (lumped into the innocuous sounding “charges and miscellaneous revenue” category). While not officially called taxes, these have the same effect on citizens’ pocketbooks. Any accurate assessment of whether Prop. 13 imposed a fiscal tourniquet on state and local revenues must include these sources, not just taxes.

Examining real (inflation-adjusted) state and local revenue and expenditure per capita trends reveals that California had already passed its pre–Prop. 13 peaks by 1989. By 1990, real per capita expenditures for welfare, police, and fire were higher than their pre–Prop. 13 peaks, and education was only slightly lower. And those trends have not been reversed since. For example, local government spending in the state increased 63 percent in the past decade. These facts make it impossible to honestly blame Prop. 13 for every fiscal problem of the past four decades. And that is still before counting the burdens imposed by America’s notoriously least friendly regulatory regime.

Those who want the government to take even more from California’s taxpayers were the advocates for Prop. 15. But in a state with the highest personal income tax in the nation and where over half those in a UC Berkeley voter poll had thought about leaving for another state due to our unfriendly tax and regulatory climate, I have never heard someone thinking of leaving because the state doesn’t tell us what to do often enough or take enough from our pockets. It has vastly more real resources per capita than before. If too little is accomplished with those resources, it is not Prop. 13’s fault for constraining California. It is the government’s fault.

In response to those pushing the split roll gambit, who no doubt are already planning their next assault on Prop. 13, we should also remember that it shared the 1978 ballot with Prop. 8, a split roll property tax which would have eliminated Prop. 13 protections for commercial properties. But Prop. 8 won only 47 percent of the vote (versus Prop. 13’s 64.8 percent), despite widespread backing from the politicians and taxeater groups who pushed Prop. 15 to a barely distinguishable result this year. Perhaps despite all the scheming and misrepresentation, not to mention the billions spent to convince Californians otherwise, the reality has been obvious enough that those efforts haven’t succeeded in moving the political needle. If that is true, and it persists, that would be a reason for increased hope for Californians. And if people in other states asked the same questions of their governments, it would be reason for increased hope for many more people.

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