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Blog: Prop. 13's End Would Be A Disaster

Prop.13 has protected the middle class for more than 30 years from politicians trying to raise property taxes and grow government. It is now coming under attack.

Governor Brown supported Proposition 30, telling us this tax increase would restore good government in California, make the rich pay their fair share and negate the need for future tax increases. He was, by his own admission, looking out for the middle class. 

A month and a half after the tax increase to end all tax increases and we have an effort, in the California Legislature, to overturn Proposition 13. 

After the promise not to raise additional taxes, here is a major effort toward another massive tax increase. For those who don’t follow such things, Proposition 13 was enacted in 1978 to stop a steady increase in property tax rates. It had reached the point in 1977 where older people, and the lower middle income class, were unable to afford their property tax. After spending years working hard to purchase their home, they were losing them because of a high property tax rates they could not afford. 

There was a tax payer rebellion of sorts, led by Howard Jarvis, which led to fixing property tax rates at 1 percent based on the value of a property in 1975. There could be no more than a 2 percent increase each year. 

In true rebel spirit, Prop 13 also required a two-thirds vote of the Legislature to increase tax rates or tax revenue. The politicians and public employees were rabid in their denouncing this unreasonable attempt by citizens to keep more of their own money. Since then the repeal of Prop. 13 has been a major goal of the California Democratic Party.

Proposition 13 has worked well over the years. From 2000 to 2005 property tax revenue increased in the state by 22.1%. Person income per capita increased at 13.80% and general revenue per capita increased at 21%.  So while the elderly and the middle class were able to afford to keep their homes, revenue increased faster in property tax than in general revenue per capita.

Then, we in California made a terrible mistake. We elected one party, the Democrats, to control a veto-proof majority in the state Legislature.  The Senate Pro Tem Leader, Darrell Steinberg, has proposed doing away with the two-thirds majority vote needed to increase tax rates.  There is nothing to stop this one-party state from doing away with the protection we had over our homes.

I’ve been reading the materials prepared by those who want to overturn Prop 13. It all boils down to the need to get more money to grow the size of the state government. Many are not worried, because they understand the legislature will raise taxes on the rich, and they will be fine. They are mistaken. The rich will be fine. It is those who work who will see a lower standard of living, less opportunity to buy their own home, save for retirement or save to send their kids to college.

It is always the middle class that pays.

Here is how you, the middle or lower middle class income person, will be affected by higher taxes. A good example is to look at what happened in Britain. In 2009-10 there were 16,000 British subjects who reported income of a million or more.  The new government then raised the income taxes to 50 percent. There were 6,000 British citizens who reported incomes of a million or more in 2011. How does it happen that over 60 percent of the millionaires left? Easy, money brings mobility. If you have wealth and your attorneys cannot figure out a way to avoid taxes, you move to a friendlier environment. When the millionaires left Britain they took the jobs with them. They will no longer buy homes, cars, gardening services, dry cleaning, gifts or food in Britain. Who gets hurt the most? The middle class who provided those services get hurt the most.

I’ve had California state legislators tell me businesses will not move from California, because we are the Golden State. Just this morning on the business channel Greg Stanton, the mayor of Phoenix, was talking about his success in drawing high worth individuals and businesses to Phoenix from California.  This same story has been repeated by Governor Rick Perry of Texas.  Right here in
Anaheim, the CEO of Carls Jr., reports most of its expansion in the coming years will be in Texas and not California. Money is mobile, and businesses have a fiduciary responsibility to make money for their stock holders, even if it means moving the headquarters for the business.

However, as money flees California, the infrastructure of government will remain the same size.  You understand, government does not adjust due to business cycles, government always grows. With less income from business, with fewer millionaires to fleece, the burden will by necessity flow down to the middle
class.

If you have a home, and a family, can you afford to pick up and move to a less expensive state? Some may, but most of us have roots here. If taxes continue to increase, less people with money will move to California, so the value of our homes will drop. If our home values drop, then an unchecked legislature can increase property taxes to plug the gap in tax revenue due to lower priced housing. The rich or the poor never pay the price of bad government. The middle class always picks up the tab.

None of this should surprise anyone. The reason this country has worked so well over its history is the system of checks and balances. In California we have committed the one sin that cannot be corrected. We have bestowed absolute power on one political party. What flows from Sacramento will be epic in its destructive nature.

What to do? The only things politician’s fear is getting a real job and losing his power. Start writing letters. Write the governor and his people telling them your plans, for their future, if they overturn Prop. 13. If you are a caller, call your state representative and let him know how you feel about overturning Prop. 13.  Each of us should start talking to people and talking about the effect of losing Prop. 13 on us personally and to our state.

We may have made a huge mistake but it is never too early to start digging out.

As Will Rogers once said: "When you find yourself in a hole, stop digging."

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

MFriedrich December 11, 2012 at 11:17 PM
Agreed. I don't think there's really any political will to revoke or modify Prop. 13. As stupid and short-sighted as Prop 13 was, today it's probably a good thing we have it, because most of the "normal" states in our union calculate the cost of running the government and divide that by total property value in a given jurisdiction (state/county) to get a millage tax rate. Cost of running the government!?? Just imagine trying to apply that math in California. Given our CA govt costs and grossly inflated property values, we'd be talking 15% or something dumb like that. No way. Now HMID and FHA loan limits? Hell yeah. Those sacred cows are definitely going to get a serious look by Congress. They won't be eliminated, but I predict that both will be amended downward to boost government revenues.
MFriedrich December 11, 2012 at 11:19 PM
Housing might be a good cash-flow investment right now, assuming of course you could find any supply.
Alberto Barrera December 12, 2012 at 02:08 AM
I already knew that John, I was just addressing the unspoken economic side of your blog. When I agree with what a writer says, I normally don't comment on the content of the article, unless there is a portion that I don't agree with or I question the statistics or sources used.
Alberto Barrera December 12, 2012 at 02:21 AM
The housing market will price me out before I even get enough savings to even apply for a loan. We're destined to have another housing bubble, and I'm afraid we're not going to see interest rates this low for decades.
Alty48 December 21, 2012 at 10:48 PM
Mr. Webb does not say in his blog that owners of commercial real estate benefited under the original rules of Proposition 13: if a corporation owning commercial property (such as a shopping mall) was sold or merged, but the property stayed technically deeded to the corporation, ownership of the property could effectively have changed without triggering Proposition 13's provisions. Under current law, a change of control or ownership of a legal entity causes a reassessment of its real property as well as the real property of entities that it controls. Corporations often avoid reassessment by limiting portion of ownership by purchasing in groups where no single party owns more than 50%. For example: In 2002 wine barons E&J Gallo purchased 1,765 acres of vineyards in Napa and Sonoma from Louis M. Martini. But the deal avoided a reassessment, because 12 Gallo family members individually obtained minority interests. In other words, before Prop 13 corporations paid 45% of the property taxes in California. Today big corporations pay only 8%. On top of that, since the passage of prop 13 in 1978, the vast majority of home owners no longer enjoy prop 13 property tax reductions because the vast majority of California home owners have sold their homes and bought higher value homes. http://www.sfweekly.com/2012-01-04/news/prop-13-one-market-plaza-assessor-real-estate-money-taxes-california/3/

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