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Prop. 13: Message for Another Time

A Commentary By Froma Harrop

Tuesday, June 11, 2013

If the national tax revolt has bookends, the first bracket was placed 35 years ago this month. That's when California voters passed Proposition 13, a law curbing tax increases.    

Of course, taxes have been a subject of complaint in this land for centuries. But the complaints were of a different nature. It was more like "no taxation without representation" than "no new taxes, ever."   

Prop. 13 set off a national whirlwind. Shortly after passage in 1978, Congress passed an array of tax cuts, including a reduction in the capital-gains rate. And future talk of raising taxes became especially emotion-laden.    

But Prop. 13 was really about local concerns. The prices of California homes had been spiraling upward for several years. Because property taxes in California were based on current market values, homeowners watched their property taxes soar with house prices.    

For owners, it was nice to see a modest home bought for $65,000 six years earlier now worth $200,000. Having to pay property taxes at luxury-home levels was not as nice. Many owners were forced to sell.   

Other things were going on, as well. A recent California Supreme Court ruling had equalized per-pupil school spending throughout the state. That meant homeowners no longer associated their property taxes with superior education for their own children.    

And other state taxes were already high, thanks in part to a recent big-taxing governor. He was Ronald Reagan.    

Gov. Reagan had inherited large budget deficits from his Democratic predecessor, Pat Brown. Rather than beat the living daylights out of every public service, Reagan in 1967 endorsed a $1-billion-a-year tax hike -- the equivalent of a $17 billion tax increase today.    

It was "the largest tax hike ever proposed by any governor in the history of the United States," journalist Lou Cannon observed. Reagan pushed through another big tax increase in 1970.     

"In the end," writes Bruce Bartlett, an economic historian who served in President Reagan's Treasury, "it is clear that Reagan presided over an astonishing expansion of taxes in California."    

Prop. 13 capped increases in home valuations for property tax purposes at 2 percent a year. House values would be reassessed to reflect market conditions only when the property changed hands. Unfortunately, this moved the heavy tax burden onto young homebuyers. And longtime owners became stuck in place.    

The law also gave state lawmakers the power to divvy property-tax revenues among towns and cities. The result was that local governments had to lobby Sacramento for money they once could spend out of local levies.    

Prop. 13 also required a two-thirds majority by both houses of the state legislature on measures that would increase state revenues. A tax-phobic minority could therefore block efforts to fund California's famous university system and other public services.    

But did Prop. 13 solve California's high-tax "problem"? Not quite. Before passage, California was the fourth-most-heavily-taxed state, according to the Tax Foundation. Today it is the fourth-most-heavily-taxed state.    

The other bookend -- marking the tax revolt's waning days -- could be California voters' approval last November of a temporary tax increase to avoid up to $6 billion in education spending cuts. The voters also gave Democrats a two-thirds majority in the state legislature, meaning conservative Republicans can no longer stop tax increases.    

Of course, arguments over taxes are never over, nor should they be. But one can hope for a different kind of conversation.   

Perhaps the cries of martyrdom greeting almost every plan to raise government revenues can be replaced with a more dispassionate discussion: What do we want government to do, and how can we best pay for it?    

As always, no one has to like paying taxes.    

Follow Froma Harrop on Twitter @fromaharrop.

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