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Tom McClintock

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Shadow Governor
In Defense of Proposition 13
by Senator Tom McClintock

Just for fun, take the current value of your home and multiply it by 2.67 percent. Look hard at that number, and then imagine paying it this year as property tax. This isn’t a theoretical exercise – if not for Proposition 13, that’s what you would now owe to the county tax collector.

Prop. 13 made two critical changes in California property taxation. It reduced the tax rate from the average 2.67 percent to one percent. And instead of basing the tax on your home’s current value, it based the tax on the price you paid for it.

The difference is staggering. Suppose you bought your home five years ago at the median price of $186,490. Today that home is worth $316,000. The Prop. 13 property tax paid on that home today is roughly $1,900. Without Prop. 13, the property tax would be $8,400. How long do you think you could keep up with those taxes?

This is an important question as the landmark taxpayer protection law celebrates its 25th anniversary under a new round of attacks by California’s insatiable spending lobby.
To hear them tell it, Prop. 13 decimated state and local finances and it’s long overdue for some “adjustments.”

But the facts paint a completely different picture. Between 1977 (the year before Prop. 13) and 1999 (the latest year for which complete data is available), inflation and population grew at a combined rate of 235 percent. State revenues grew 448 percent, California city revenues grew 333 percent and county revenues grew 326 percent. If Prop. 13 was supposed to slow government spending, it was a complete failure. Governments simply shifted to other taxes.

Prop. 13 was actually supposed to keep a lot of California families from losing their homes to galloping property taxes. And there, it succeeded.

When the facts don’t fit the appetite of the spending lobby, an appeal is made to “fairness.” Since the tax is established by the price of the home when it was purchased – and not by the current market value -- identical homes purchased at different times can end up with different tax bills. But consider the alternative: a system where taxes that were affordable when you bought your home make it impossible for you to keep it just a few years later.

When a home is purchased, the buyer knows the cost of the mortgage payments and the property taxes and can calculate his or her ability to afford the home based on these predictable costs. Before Proposition 13, property taxes presented an unpredictable wildcard that was as erratic as California’s peripatetic housing market.

It is true that the relative property tax burden has shifted from commercial to residential property, since residential properties sell more often.

But once again, consider the alternative. If commercial property is removed from Prop. 13, skyrocketing business taxes will ultimately fall on the same families in one of three ways: as consumers through higher prices, as employees through lower wages, or as investors through lower earnings. And most investments aren’t the fortunes of wealthy fatcats; they’re Mom and Dad’s retirement savings.

You never see a proposal to tie an increase in commercial property taxes to a decrease in residential property taxes. The reason should be obvious: the objective isn’t fairness – it’s more money.

And that’s what’s at the heart of the latest attacks on Proposition 13. It’s something to think about as you pay your property tax bill this month.


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