Proposition 13: Happy Birthday

SF Gate: Prop. 13 Property Taxes in the Voters’ Hands. Thirty years ago today, California voters overwhelmingly approved Proposition 13 as a way to keep seniors from losing their homes to skyrocketing property taxes. But the 1978 vote also ignited a revolution that dramatically changed the way people across America look at government and taxes.

I think all the usual groups that hate rent control love Proposition 13, which really is a form of rent control on politicians. Prop. 13 amended the California Constitution to limit ad valorem taxes on real estate property to one percent (1%) of the full cash value of such property as shown on the 1975-76 tax bill. However, purchases, new construction or changes in ownership after the 1975 assessment can trigger a new appraisal that may reset the full cash value to market rates. Additionally, Prop. 13 barred the government from increasing the full cash value of a property by more than two percent (2%) on a year to year basis to account for inflation.

Despite all the complaints about Prop. 13, I believe that it actually helps politicians govern better in the end because it stabilizes the growth of property tax revenues. No wild upward swings in taxes that lead politicians to overspend and overcommit. Just look at what happened during the bubble when Sacramento was flush with tax revenues from one-time stock option gains. The bureaucrats searched for new ways to spend the money.

So, when the SF Gate notes that the state is currently facing a $17 billion budget shortfall, I can be fairly confident that Prop. 13 stopped it from becoming a $34 billion or $68 billion shortfall. So, how does more revenue yield a larger shortfall you ask? Quite simply, more revenues results in more programs and more spending. This is not an indictment exclusive to politicians, but an observation on human nature in general. After all, higher salaries don’t necessarily lead to higher savings for most consumers. Instead, the money is often allocated to increasing the standard of living with better food, a nicer car, larger house, and more debt. Likewise, without Prop. 13, the state bureaucrats would have found additional programs to soak up all the extra money and with a larger spending base comes larger shortfalls when the economy takes a dip.

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