The Property Tax Panacea
By Anthony Gregory • Tuesday May 15, 2012 10:18 AM PDT • 16 Comments
One of the biggest targets of liberal acrimony in California is Proposition 13, the 1978 ballot initiative that capped property taxes at 1% and requires 2/3 of legislative approval to increase most tax rates. It also caps the reassessment of real estate value by 2% per year, barring new construction or a change in ownership.
During the major last budget crisis many suggested repealing this cap as a solution. “I don’t know how we can talk about reforming the California budget without reforming Prop. 13,” said San Francisco Assessor Phil Ting, who advocated raising rates on commercial properties.
According to the U.S. Census Bureau, as of 2005, California ranked 45th nationwide in property tax rates as a percentage of real estate value. But in terms of per capita income, Californians rated 17th, paying the state an average of 3.17% of their income for the privilege of living in their own homes. Since housing prices were grossly inflated over the last few years—and this author thinks they still are—millions of middle-class Americans with new homes forked over quite a bit. Many landlords barely break even, once they pay tribute for the continued right to own their own property.
States without a cap on property assessments have suffered skyrocketing taxes with the housing boom. Rates have gone up 100% in some Florida markets. Along Lake Tahoe in Nevada, property taxes went up 135% in a period of four years. For those on fixed incomes or retirees with little more than their home to their name, Proposition 13 has been a lifesaver in today’s volatile housing market.
Despite Prop 13, Sacramento’s property tax revenue ballooned during the housing bubble—increasing 22.11% from 2000 to 2005, about the same rate that general per capita revenue increased over the same time, even as per capita income only increased 13.8%, according to the Center for Governmental Analysis. Indeed, property tax revenue rose 30 years in a row after Prop 13’s passage and has now declined for only one year.
With the housing bust, property tax revenues declined, to the consternation of Prop 13 critics. They believe that as houses have been immensely discounted, they will now change hands and be capped in their reassessed value, meaning that “even after the economy recovers, state and local government budgets will not recover fully,” as Jean Ross of the California Budget Project wrote. But this presupposed that real estate will reenter a bull market and continue to climb. It has hardly done so. And given that government has been growing faster than the economy, couldn’t it be time for that trend to reverse?
Moreover, how much money are we really talking about? The San Francisco Chronicle lamented that declining property taxes means a $1.5 billion cut in education spending. That sounds like a lot, but given the huge changes in the housing market and the size of the budget, $1.5 billion is almost rounding error—smaller than the disparity between the true budget shortfall and the shortfall finally closed after months of heated debate.
While California rakes in about 20 billion yearly in property revenue, it is one of the highest taxed states in America overall. The problem is too much spending, not that taxes are too low.
Tags: Budget and Tax Policy, California, Economics, Housing, Taxation 
The question to ask is: Why should California property owners work till their 75 so that some government employee or public school teacher can retire at 55?
libertarian jerry | May 15, 2012 | Reply
Before Prop 13 many people in CA were being driven out of homes they had paid off. The increased assessments per year were higher than their original home prices. Thanks to Howard Jarvis and the hard work of many citizens the property tax rates are almost fair. Stop spending money you do not have – fix CA government – do not penalize the good citizens.
Guapo | May 15, 2012 | Reply
The problem isn’t the caps and rules that Prop 13 brought, but that politicians (and the voters with their bond measures and propositions) keep spending money as if it were not there.
You want to fix the budget problem, require that any bond measure or proposition that requires additional spending, state government expansion, etc. also include a revenue source to cover the additional costs. Thus, you would then require a 2/3 vote to pass these measures, and we would no longer have to worry about them driving up the state deficit, as they would no longer pass.
As long as the voters and politicians think they can expend the role of government and provide more and more hand outs to just about everyone, without have to pay for them, then California is doomed.
Frank | May 16, 2012 | Reply
Anthony,
This type of language (“once they pay tribute for the continued right to own their own property”) is misleading and somewhat dishonest.
The property tax is a tax primarily collected by and used by local government – city and county – to support the communities that property owners live and own their property in. Thus, it covers the costs of public safety, in some instances streets and sewer systems, as well as public schools. You make it sound like the state is confiscating our money for no good reason, like they do with the income tax.
Be careful not to confuse the state income tax, or even the sales tax with the property tax.
Frank | May 16, 2012 | Reply
Frank..................We can all agree that property taxes cover most of the services that are provided by local and county governments, that are shared by all and are necessary for a “civilized society.” However, studies show that the majority of property taxes go to pay for “public schools” that are only used by a fraction of the population. The only answer is to privatize the public schools in full and let the users of the schools pay for their children’s education through tuition billed directly to the parents. The savings on government funded education should more than halve the property taxes in a community. After all,why should home owners pay for government services that they neither need,use or want?
libertarian jerry | May 16, 2012 | Reply
Libertarian Jerry,
yea right. Eliminate education and taxes will go down. Like that will happen. You will likely end up with more taxes in order to either A) subsidize people going to private schools, or B) pay for increased policing to protect the wealthy from the uneducated poor.
Also, what kind of private schools? What level of quality? What standards?
It is easy to propose anarchy for others, but do you really want to live in a society that more closely resembles Nigeria than America?
When you come back from Fantasy Island let us know.
Frank | May 17, 2012 | Reply
Frank......Separate the State from education,just like the separation of the State from religion,which was the precursor of “public education.” Is there anarchy in the churches? And judging by the amount of functional illiterates “graduating” from High School today any change in education would be a positive step in the right direction. Fantasy Island? Facts are facts,not fantasies. American education test results are near the bottom in the industrial world. Education today is more indoctrination then education. 125 years ago there was virtually no public education in America,yet there was a better than 95% literacy rate among young adults. Most high school grads today can hardly read their own diploma. Radical change is needed. Your attitude to privatization is reactionary in the least. Your views on education is to just keep going with the status quo until Americans are so dumbed down that it will turn into a 3rd world country populated by serfs.
libertarian jerry | May 17, 2012 | Reply
The property tax should be abandoned completely. It is a revenue tool for another era when there was a direct correlation between how much property one owned and their income and we were predominantly an agrarian society. Today you can have 3 homes in a row of near identical value while you have the owners pay the equivalent of 3% or 10% or even 20% of each of their incomes.
The writer has it right when they comment about paying taxes just for the “privilege” of living in one’s home. In reality, one is just renting from the town. Don’t pay your taxes and you are evicted so they can sell your home to someone who can pay. What a crime.
Visit the listed website and this one http://EndPT.wordpress.com to read about the benefits of eliminating the property tax. Please forgive the typos and such, as it is a one-man operation.
John | May 21, 2012 | Reply
Umm, Frank, unless I’m very much mistaken (& I’m sure I’m not) even private school teachers in California have to be licensed by the state.
Only exception would be homeschoolers and even they have to work within a system already sanctioned by the State of California.
California would do just fine with no “public” education scam, all those teachers in private schools are as qualified to teach as the ones now teaching Public School...
flicka47 | May 21, 2012 | Reply
Frank, eliminate government supermarkets and what quality level of private supermarkets will we have? What standards?
Oh, wait, we don’t have government supermarkets. Not only is there no complaint about the quality of private supermarkets, they routinely put out a better, more accepted line of goods than our government-run schools.
The biggest barrier to having good, accessible private schools is the competition they get from “free” schools run badly by the government, coupled with the organized harassment they receive from mutually-backscratching teachers’ unions whenever they outshine the “standard” product.
Henry Bowman | May 21, 2012 | Reply
North Dakota will be voting to eliminate this ridiculous tax....thoughts?
lee | May 21, 2012 | Reply
“This type of language (“once they pay tribute for the continued right to own their own property”) is misleading and somewhat dishonest.”... Frank
I’d put the crack pipe down now if I were you. Being forced to pay taxes on your own property, no different than the taxes you pay for your car, boat etc., is evil. You’re in essence being given “permission” from your Lord to use something. How is this not tribute? You’re renting what you paid for and if you don’t cough up more they steal it from you. Land of the free, eh?
David | May 21, 2012 | Reply
It’s not the taxes collected, it’s where our priorities are as a society and how we spend that money.
I for one voted for Prop 13 “way back when”...it didn’t take an idiot to see then where property taxes were headed...straight up!
I also think some who write on this site should take up the subject of public education and why it was implemented in the first place.
It’s not public education that should be on trial here, it’s how the administration of PE has become overly bloated and is robbing so much money from the rank an file that do the actual scut work of teaching.
There is a definite “public good” that can come out of public education; privatizing social necessities is not the answer....that has been proven by the latest economic disaster brought about the fallacy of relying on “private markets” to solve our problems.
More responsibility by the public is needed, not privatizing of our social needs.
sierra7 | May 22, 2012 | Reply
Sierra7, what “private markets” are you referring to that you allege “prove” ... prove what exactly?
Libby19 | May 23, 2012 | Reply