If any state could use inspiration from the recent federal tax cuts, it’s California, which has one of the country’s heaviest overall tax burdens. But there’s no pressure building to cut state and local taxes, or to reform California’s broken income tax system. Instead, the noisiest tax proposal in the state would hike taxes by about $11 billion a year.
A coalition of organizations submitted a ballot measure last month to remove commercial properties from the protections of Proposition 13, the landmark constitutional amendment approved by voters to curb lawmakers’ ravenous appetite for revenue. The coalition calls its proposed constitutional amendment “The California Schools and Local Communities Funding Act of 2018” and is aiming for the November ballot. Its members are a cartel of groups that have a taste for high taxes: PICO California, California Calls, the League of Women Voters California, Advancement Project California, and Evolve California.
Under Prop 13, property taxes cannot exceed 1 percent of its assessed value. To compensate for inflation, the law allows assessed values to increase beyond the base year, but they cannot rise by more 2 percent annually. In his book “Eureka! How to Fix California,” economist Arthur Laffer called it the “political equivalent of a sonic boom.”
Prop 13, which has had lasting strong public support, led the state to a new era of prosperity. In just its first 10 years, says economist Stephen Moore, it unleashed a “spectacular entrepreneurial and commercial explosion.” It also had a salient effect on employment. Jobs over that time increased by 32 percent, twice the national rate of 16 percent. Incomes also grew 50 percent faster than the national average. Tearing Proposition 13 apart makes sense only to those who believe that an economy fares better when money is in government’s, rather than the private sector’s, hands.
Demanding more money for education is a routine political appeal to emotions — “it’s for the children” — but it’s a dishonest plea. Split-roll supporters insist it is necessary to make up gaps in school-funding. Yet Laffer points out that even with Prop 13 on the books, total education funding has grown sharply over the years.
More recently, proponents of the Prop. 30 tax increase in 2012 sold that tax as being necessary to prevent education budget cuts. Yet, not all of Prop. 30 went for education funding, despite the promises of proponents. Can we really trust the proponents of a split-roll – many of whom are the same people – to make the same claim?
Split-roll supporters have hoped to conceal their thirst for higher taxes by invoking Prop 13’s imagined inequities. They demand to “make it fair.”
Again, Laffer clears up the distortions. Citing California Board of Equalization data, he noted a little more than two years ago that even though residential property owners pay nearly three-quarters of property tax revenue, less than 40 percent of that is paid by homeowners liable for the tax on their principal residence. The balance of taxes paid on residential real estate is paid by the owners of apartments, vacation properties, and second or third homes.
The split-roll coalition is just as mistaken if it thinks the owners of real commercial property will graciously accept and pay these higher costs themselves. Some will pass on their added tax burden to businesses and consumers in the form of higher prices, and to apartment dwellers in the form of increased rent. Those unable to pass on the costs because market forces make it impossible will have to cut their own costs. This can mean slashing jobs, living with smaller profits, or eventually going out of business.
Finally, we rest our argument on a March 2012 Pepperdine University study that found that split-roll would “result in lost economic output and decreased employment,” and “further undermine the attractiveness of the business climate in California.”
“The cost to the California economy of this property tax increase would total $71.8 billion dollars of lost output and 396,345 lost jobs over the first five years of a split-roll property tax regime. These losses would be even greater in succeeding years.”
That’s a heavy price to pay for nothing in return. But it does align quite nicely with California’s hostility toward business.