Wednesday, September 16, 2009
IN MY OPINION (Column)
It’s Always Open Season on Proposition 13
By JON COUPAL
Not long ago, a major California newspaper ran an editorial cartoon depicting pith-helmeted explorers peering through jungle growth at a crumbling temple where worshipers bow down before a stone altar on which is carved, “Prop. 13.” One of the explorers is saying to the other, “I believe we’ve stumbled upon the origins of the demise of California’s civilization.”
At the Howard Jarvis Taxpayers Association, founded by the principle author of Proposition 13, we are accustomed to seeing attacks running from dubious to frivolous on the landmark 1978 tax limitation initiative.
One of our favorites is the high school physical education instructor who wrote in a small weekly newspaper that Proposition 13 was responsible for the loss of school equipment. Seems that when his track-and-field students were putting the shot, they were losing the shots in the tall grass. Proposition 13, the coach complained, did not provide enough money to cut the grass.
We’ve seen the riots that broke out in Los Angeles after the Rodney King beating, a freeway collapse during the Loma Prieta earthquake and the Third Word debt crisis all blamed on Proposition 13.
While no outrageous accusation against Proposition 13 surprises us anymore, the source of the latest is unexpected. Conor Dougherty, a staff reporter for the Wall Street Journal, has blogged on the paper’s website questioning the fairness of Proposition 13. As evidence of the inequities of Proposition 13, he relies on a foundation-funded study by the Population Dynamics Research Group of USC. The complaint? Proposition 13 is creating a bigger generational wealth gap.
The argument goes like this. In a down housing market, like we have today, recent home buyers pay taxes based on the higher value of the home at the time of purchase and this is punitive. On the other hand, because of Proposition 13’s cap on annual tax increases, longtime owners who in what over time has been a rising market are still paying on assessed value lower than the current market value and this is a benefit the new buyers do not enjoy.
Before the reader tries to calculate where this purported generational disparity rates on their personal outrage meter, let’s make one thing clear: The argument is bogus.
Under Proposition 13, the recent buyer who bought at the top of the market is entitled to a tax reduction based on the loss of market value. So the homeowner who paid $500,000 for a home three years ago and has seen their property value decline to $350,000 is entitled to a tax cut. While it is the responsibility of the owner to apply to the county assessor for the reduction, many California assessors have been proactive and have automatically reduced the assessed value on their books — which reduces the tax obligation — of thousands of recently purchased homes.
When considering fairness it is worthwhile to review the system in place prior to Proposition 13, when California’s residential property tax rate was nearly three times higher and there were no limits on annual increases. The inequities of the pre-Proposition 13 tax system were glaringly evident, as many longtime homeowners were forced from their homes due to massive annual property tax increases.
Proposition 13 provides security to homeowners, all homeowners, by capping property taxes at 1 percent of assessed value and limiting annual increases in assessed value to no more than 2 percent. This makes property taxes predictable and allows homeowners to budget for future tax increases.
Further, in 1978 the California Supreme Court recognized the fairness of Proposition 13, finding the tax system created by the measure was “roughly comparable” to the sales tax, which is also based on acquisition value. If sales taxes can be based on acquisition value, why can’t property taxes?
And in 1992, the United States Supreme Court sided with Proposition 13’s fairness in the case of Nordlinger v. Hahn, when the plaintiff claimed that the tax limitation measure violated “equal protection.”
Because Proposition 13 has helped property owners manage taxes and hold on to their homes and businesses over the past 30 years, the measure consistently enjoys strong support from California residents — young and old.
Those who are genuinely concerned about unequal treatment of generations should focus their wrath on the trillions of dollars of borrowing that the federal government has undertaken to fund the “stimulus.” This is outright theft from multiple generations of Americans to come.