Proposition 13 at Age 35
Proposition 13 at Age 35 – New York Times (blog)
Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of “The Benefit and the Burden: Tax Reform – Why We Need It and What It Will Take.” Thirty-five years ago this week, on June 6, 1978, California voters approved an amendment to the state constitution known as Proposition 13. It cut and capped property taxes in the state and remains in effect today.
Prop 13, as it came to be known, arose from three developments. First, California was a high-tax state, in no small part because of huge tax increases enacted by Gov. Ronald Reagan. One of his first acts in office in 1967 was to ask for a $1 billion tax increase, the largest tax increase in state history, equal to one-third of state revenue. Reagan also supported further tax increases in 1971 and 1972. State revenue tripled on his watch, to $8.6 billion from $2.9 billion, in eight years.
Second, home prices in California rose very rapidly in the 1970s. Because property taxes were assessed on market value, any increase in home prices led automatically to higher property taxes even if the tax rate was unchanged. Many Californians were literally being taxed out of their homes.
The third important development leading to Prop 13 was a state Supreme Court decision, Serrano v. Priest, which equalized per-pupil school spending in the state. This meant that the higher taxes homeowners paid no longer benefited their own children. According to research by William A. Fischel, an economist at Dartmouth, the strongest support for Prop 13 came from school districts adversely affected by Serrano. Two tax activists, Howard Jarvis and Paul Gann, organized a petition drive to get Prop 13 on the ballot and were successful in early 1978. In an article on April 14, 1978, The New York Times reported that support for the initiative was weak and that it was strongly opposed by the business community, which feared higher business taxes would result from a cut in property taxes.
The Times also cited an analysis by economists at the University of California, Los Angeles, that enactment of Prop 13 would sharply raise the state unemployment rate, to 6.7 percent from 5.9 percent under their best-case scenario.
Nevertheless, two-thirds of California voters supported Prop 13 despite the dire warnings of devastation to government services by both Republican and Democratic state leaders. This quickly led to talk of a nationwide tax revolt. A New York Times/CBS News poll in June 1978 found strong support for tax and spending cuts throughout the country, at both the federal and state and local government levels.
Prop 13 unquestionably bolstered the efforts of Representative Jack Kemp, the Republican of New York for whom I worked, and Senator William Roth, Republican of Delaware, to enact a big federal income tax cut. Within weeks of Prop 13’s enactment, the Senate Finance Committee held hearings on their legislation.