In 1978, the voters of California approved Proposition 13, which capped property taxes at 1%, rolled back assessed property values to their 1975 values, and restricted annual increases in assessed values to 2% — unless the house was actually sold. Remember, this was a time of rampant inflation.
As William Voegili says, the experts still haven’t forgiven the voters:
In 1994, Columbia historian Alan Brinkley ascribed Prop. 13’s passage to Californians who believed that they could get “something for nothing: substantial tax relief without a reduction of services.”
In 2009, the Washington Post’s Harold Meyerson blamed the “malign initiative” for “effectively destroying the funding base of local governments and school districts” while empowering Republican “Neanderthals” in the state legislature, who refuse “in good times as well as bad to raise business or other taxes.”
Earlier this year, Joe Klein of Time wrote that the proposition had made California “Exhibit A of a public pathology that we’ve inherited from the Reagan Era: the public wants a modified welfare state, excellent schools, a clean environment, low college tuitions… but it’s not willing to pay for them.”
We shouldn’t blame Prop 13 for California’s fiscal woes though, Voegeli argues:
The first thing to recognize is that Proposition 13 did not destroy the tax base of California’s local governments. True, the average property-tax rate has fallen from 2.67 percent in 1977 to 1.1 percent today, observes David Doerr of the California Taxpayers’ Association. But the state still brings in a lot in property taxes. By 2007, the year of the most recent Census Bureau data comparing state finances, California’s state and local governments levied $1,141 in property taxes per capita, less — but only 11 percent less — than the corresponding average, $1,288, for the other 49 states and the District of Columbia. Property-tax revenues in the state have increased from $4.9 billion to $47 billion in the 30 years since Proposition 13. Adjust those figures for inflation and population growth, and property-tax revenues in California were 87 percent higher in 2009 than they were in 1979, chiefly because of rising property values.
And even if one tax is limited, others can rise. A recent article in the California Journal of Politics and Policy by Colin McCubbins and Mathew McCubbins shows that, adjusted again for population growth and inflation, total state and local tax revenues in California were higher ten years after Proposition 13’s enactment than they were just before — and that they were half again as high in 2000 as in 1978. Census Bureau data show that California ranked tenth in the nation in 2007 in terms of per-capita receipts from all state and local taxes (property, income, sales, and excise taxes) paid by individuals and corporations. Per-capita receipts from individual and corporate income taxes were 64 percent higher in California than they were in the rest of the country: $1,764 in California, $1,077 elsewhere. All told, California’s governments received $4,731 per resident from all taxes, 14 percent more than the $4,160 average outside California.
Ah, comes the objection: these numbers unfairly compare California with an aggregate that includes many rural states with low taxes and limited public services. But even if we confine our discussion to the ten most populous states in the nation, home to 54 percent of all Americans in 2009, California remains a high-tax jurisdiction. Its per-capita taxes exceed not only the national average but those of every other high-population state except New York.
Not only is California a high-tax state; it is even more conspicuously a high-revenue state. Things that aren’t taxes, such as fees for government services, often have a high degree of “taxiness,” as Stephen Colbert might say. “Charges and fees have become an integral part of the California budgetary landscape” because they “give the government a revenue stream that is not subject to limitation and hard for voters to track,” the McCubbinses argue. For example, local governments impose assessments on real-estate developers for the infrastructure and public services that a new housing tract’s residents will require. The developers then incorporate those charges into every unit’s sales price. “Home developers estimate that fees, new infrastructure, and other mandated expenses now run to between $30,000 and $60,000 for each new home,” journalist Peter Schrag noted in Paradise Lost, his book on California’s fall from grace since the 1950s.
Thus it is that the Golden State, routinely described as desperately short of funds because of Proposition 13, brought in $12,776 per capita in governmental income from all sources — taxes, fees, federal aid, charges for government-administered insurance, and revenue from government-owned utilities — in 2007. This amount was the fifth-highest in the nation and second (again) only to profligate New York among the ten most populous states (see the chart above).
Apparently California’s fiscal woes are due to high spending. Shocking, I know.