SACRAMENTO, CA - Developments in New Jersey, where property taxes are the highest in the nation, recall conditions in California during the 1970s. What Californians did about those conditions sends key lessons to legislators everywhere, especially those who want to help people buy and keep their homes.

That is now a problem in New Jersey, where the Associated Press notes the case of a high-school teacher whose property taxes have climbed 56 percent since 2000 to a full $14,000 a year. The average New Jersey property tax bill is $6,000, about twice the national average. In some counties, according to the New York Times, property taxes have increased two to three times faster than personal income. Part of the problem is that state and local government owe billions to New Jersey's troubled pension system for public employees. The tax burden is driving people out of their homes, which was also once true in the Golden State.

Before 1978, California counties set property taxes based on two to three percent of a house's assessed value. Local officials made sure that assessments soared. This made life difficult for first-time homebuyers and those on fixed incomes, and came at time when California was awash in money. From 1973 to 1978 state spending increased by 12.5 percent a year and state revenues ran up 18.4 percent. That helped the 1978 Proposition 13 pass in a landslide, by 66 percent, despite furious opposition from California's government establishment and then-governor Jerry Brown, who now wants to be state Attorney General.

Proposition 13, section 2 of Article XIIIA of the California Constitution bases property taxes on one percent purchase price of the home and limits increases to two percent per year. It helped many Californians buy and retain their homes - but the acolytes of taxolatry blame it for most state woes, including the Polly Klass murder and the O.J. Simpson verdict. A more common argument is that Proposition 13 is unfair because someone who bought a house in 1975 pays less in property tax that someone who bought a similar property in 2001.

That is a consequence of basing taxes on the purchase price. It could also be argued that it is unfair that one homeowner bought her house for $95,000 and another for $475,000. The purchase price of everything is now higher than it was during the 1970s. The unfairness complaint, one notes, does not extend to a system that taxes at a higher rate the incomes of those who work harder to boost their earnings. The "progressive" tax system really means punitive.

Spending advocates want to remove commercial property from the protection of Proposition 13, but as Tom McClintock notes, they do not tie increased taxes on commercial property to a decrease in taxes on residential property. The goal is not fairness but increased revenue. State greed remains insatiable. Home ownership, meanwhile, is a good thing.

People more readily assume responsibility for property they own rather than rent. Buying a home in California is difficult but Proposition 13 helps first-time buyers get an accurate assessment of their costs. It also helps those retired on fixed incomes to keep their homes, something a sociologist might call a desirable outcome. So is limited government, which implies limited taxation.

If New Jersey does not want $14,000 yearly tax bills, presumably unfair, to drive schoolteachers from their homes, they should look to a measure like Proposition 13 to limit and lower property taxes. Based on the experience of California, residents of the Garden State can ignore the scare stories and the unfairness argument. What remains unfair is not tax limitation but capricious tax increases imposed not to provide
new or better service but to bail out other government failure, such as insolvent pension plans for state employees.

As for the Golden State, Proposition 13 is the law. Instead of trying to find ways around it, legislators should strengthen the measure, cut taxes on other fronts, slash spending, and convert state pension plans to a defined contribution system. (See PRI's Pension Intervention: Reforming California's Public Employee Retirement Systems, by Anthony P. Archie and Peter J. Ferrara.) Such measures, and maintaining strict limitations on property tax, will enable California to serve as example to other states.

K. Lloyd Billingsley is Editorial Director at the Pacific Research Institute. He can be reached via email at
lbillingsley@pacificresearch.org.