Source: Bruce J. Schulman. The Seventies - The Great Shift
in Culture, Society, and Politics (2001)
in Culture, Society, and Politics (2001)
The tax revolt started in CA in 1978 with Proposition 13. The CA state treasury was awash in billions of dollars, while property taxes increased to the point where many Californians became worried they might lose their homes. Prop 13 was a ballot initiative, where enough registered voters signed a petition to get the measure on the ballot, over the heads and against the wishes of the state legislature in Sacramento. Tax revolts such as Prop 13 swept the nation, even in liberal MA, with
Proposition 2.5. It didn’t take long in CA for the state treasury to go from billions of dollars in had for the proverbial rainy day to transitioning to massive debt, a state in which the state of CA is still experiencing.
In CA, property tax revolts had been a regular occurrence since WW II. CA had experienced tremendous growth which meant increased property values. CA homeowners paid increasingly more in property taxes, even though the tax rate remained basically the same. Previous CA tax revolts quickly fizzled out, with the frustration remaining localized, not able to become viral. CA’s constitution was clear: all property needed to be assessed at full cash value, and all property needed to be taxed at the same rate. Assessments often reached 1/3 of the total value, and in San Francisco it was as low as 10%. In CA, tax assessors were elected, and they wanted to remain in office, which meant that happy constituents were needed. Many tax assessors received “kickbacks” from business owners when their property valuations were kept low by an assessor. In 1965, the San Francisco Chronicle exposed shenanigans with the CA assessor’s office.
Proposition 2.5. It didn’t take long in CA for the state treasury to go from billions of dollars in had for the proverbial rainy day to transitioning to massive debt, a state in which the state of CA is still experiencing.
In CA, property tax revolts had been a regular occurrence since WW II. CA had experienced tremendous growth which meant increased property values. CA homeowners paid increasingly more in property taxes, even though the tax rate remained basically the same. Previous CA tax revolts quickly fizzled out, with the frustration remaining localized, not able to become viral. CA’s constitution was clear: all property needed to be assessed at full cash value, and all property needed to be taxed at the same rate. Assessments often reached 1/3 of the total value, and in San Francisco it was as low as 10%. In CA, tax assessors were elected, and they wanted to remain in office, which meant that happy constituents were needed. Many tax assessors received “kickbacks” from business owners when their property valuations were kept low by an assessor. In 1965, the San Francisco Chronicle exposed shenanigans with the CA assessor’s office.
As a result of the expose of the shenanigans, the CA state legislature moved to reform the property tax system. In 1966, the CA legislature passed a law that required a 25% property tax based on actual value, with reassessment every three years, and the law severely restricted the options of county tax assessors. The expectation was that $500m would be generated in state revenue in the first year of the law. Under the old property tax system, businesses were taxed at a greater rate than homes, but the 1966 law did not differentiate. Therefore, CA business owners paid lower property taxes while homeowners unexpectedly paid markedly more in property taxes. All of a sudden, CA homeowners longed for the days of corrupt tax assessors. The 1966 law was the genesis of the first statewide property tax revolt, but the CA legislature cushioned the impact with adjustments, and the initial shock wore off.
However, conservative tax rebels kept at it this time, led by Howard Jarvis, a retired businessman and a Mormon from UT. Jarvis headed the United Organization of Taxpayers (UOT), which kept introducing tax-cutting ballot measures. Jarvis’ proposals were radical and he and the UOT would never have succeeded on their own in getting enough signatures to place their proposals on a statewide ballot.
Then the Los Angeles tax assessor joined the fray in 1968, introducing measures that were deemed dangerous enough that the CA legislature kept making adjustments for property tax relief. CA Governor Ronald Reagan, despite his anti-tax rhetoric, supported increases in sales and income taxes that reached 50%. In 1973, Reagan then sponsored a proposed state spending cap that would steadily tighten up over ten years. Reagan’s proposal was so complicated that Reagan stated he didn’t understand his own proposal. However, unlike previous ones, this proposal, Proposition 1, was narrowly defeated, 54% to 46%.
However, conservative tax rebels kept at it this time, led by Howard Jarvis, a retired businessman and a Mormon from UT. Jarvis headed the United Organization of Taxpayers (UOT), which kept introducing tax-cutting ballot measures. Jarvis’ proposals were radical and he and the UOT would never have succeeded on their own in getting enough signatures to place their proposals on a statewide ballot.
Then the Los Angeles tax assessor joined the fray in 1968, introducing measures that were deemed dangerous enough that the CA legislature kept making adjustments for property tax relief. CA Governor Ronald Reagan, despite his anti-tax rhetoric, supported increases in sales and income taxes that reached 50%. In 1973, Reagan then sponsored a proposed state spending cap that would steadily tighten up over ten years. Reagan’s proposal was so complicated that Reagan stated he didn’t understand his own proposal. However, unlike previous ones, this proposal, Proposition 1, was narrowly defeated, 54% to 46%.
Ironically, up to this point the tax revolt in CA (and brewing in other states) was more of a progressive revolt than a conservative revolt, in that the focus was on the inequitable distribution of property tax revenues, as well as shifting the property tax burden to wealthier CA businesses. The conservative view of shrinking the government and cutting taxes had not yet taken hold. There was not yet a conservative pedigree to the CA tax revolt, and it hadn’t yet been taken over by the New Right. The high inflation of the late-1970s changed the political and economic landscape, which led to a new sort of tax rebel that demanded that the actual property tax itself be drastically reduced, especially for homeowners. The wrath of these conservative tax rebels was unleashed on the elected officials, not on the wealthy elites; demands for “socking it to the rich” and remove special breaks for businesses disappeared altogether.
The rising conservative tide in CA didn’t just rage against property taxes and elected officials, but also against wage laws that guaranteed high wages for municipal workers. Also, spending limits on government became common with conservatives. This emerging tax revolt in the late-1970s was in a way the opening that Nixon had envisioned for a conservative take-over. Conservatives needed to exploit the frustration and fears of CA homeowners while at the same time not going over-the-cliff of extremism, a la Goldwater. Previously, voters wanted to balance their demands for tax relief without losing funding for schools, roads, etc. However, by the late-1970s, that view no longer held sway, and there was far less resistance in cutting government services. Inflation was the #1 reason, with families in CA (and other states) paying two-or-three times more in property taxes for the same modest home.
The rising conservative tide in CA didn’t just rage against property taxes and elected officials, but also against wage laws that guaranteed high wages for municipal workers. Also, spending limits on government became common with conservatives. This emerging tax revolt in the late-1970s was in a way the opening that Nixon had envisioned for a conservative take-over. Conservatives needed to exploit the frustration and fears of CA homeowners while at the same time not going over-the-cliff of extremism, a la Goldwater. Previously, voters wanted to balance their demands for tax relief without losing funding for schools, roads, etc. However, by the late-1970s, that view no longer held sway, and there was far less resistance in cutting government services. Inflation was the #1 reason, with families in CA (and other states) paying two-or-three times more in property taxes for the same modest home.
Inflation actually increased the money held in state treasuries as taxpayers became squeezed. Between 1964 and 1980, the Social Security payroll tax increased by a factor of eight. And due to inflation, while people lost purchasing power they were also bumped up to a higher tax bracket(s). Prop 13 was placed on the CA state ballot in June 1978, and the campaign for-and-against became heated. Opponents predicted doomsday, with schools closing, public employees losing their jobs, and local revenues reduced to the point where police and fire protection would be at risk. These doom-and-gloom prophesies probably would have carried the day, defeating Prop 13, had the CA state treasury coffers not been bursting with a surplus of $6B.
To those that supported Prop 13, it was not only for property tax relief, but also to discipline the liberal rogues in Sacramento. Prop 13 was probably heading to a narrow defeat until Los Angeles County dropped a bombshell a few weeks before the election. The LA county assessor announced that there would be a 125% property valuation increase that would take place shortly after the election. In prosperous areas in LA County, property valuations would double or triple.
To those that supported Prop 13, it was not only for property tax relief, but also to discipline the liberal rogues in Sacramento. Prop 13 was probably heading to a narrow defeat until Los Angeles County dropped a bombshell a few weeks before the election. The LA county assessor announced that there would be a 125% property valuation increase that would take place shortly after the election. In prosperous areas in LA County, property valuations would double or triple.
The announced revaluations created such as uproar that LA County dropped the new increase and kept things the same. The politically deaf LA County Assessor proved to be the difference, and Prop 13 passed by large margin in June 1978. Property taxes were immediately reduced by 57%, and property valuations could not be increased by any more than 2%/year, unless it was sold, then it was reassessed at market value. Prop 13 also amended the CA constitution, which now required a 2/3’s vote in the state legislature to increase state taxes, and that voters approve any local levies by a 2/3’s majority. The scope of Prop 13 stunned the nation, in that Prop 13 had strong support across economic and political lines, with only African-Americans and public employees opposed to the measure.
Prop 13 was driven mostly by middle class homeowners on whom the property tax burden had become too much or too threatening. The effects of Prop 13 were immense, with property tax revenues declining by $7B, and Californians paid 35% less in property taxes than the rest of the US. At the same time, the decrease, decline, and destruction of public services did not occur, since the CA state surplus of $6B blunted the initial revenue shortfalls. It wasn’t until 1982 that CA stopped bailing out counties and cities with massive government spending. After that point, the CA counties and cities were on their own, and the state debt of CA increased yearly.
Prop 13 was driven mostly by middle class homeowners on whom the property tax burden had become too much or too threatening. The effects of Prop 13 were immense, with property tax revenues declining by $7B, and Californians paid 35% less in property taxes than the rest of the US. At the same time, the decrease, decline, and destruction of public services did not occur, since the CA state surplus of $6B blunted the initial revenue shortfalls. It wasn’t until 1982 that CA stopped bailing out counties and cities with massive government spending. After that point, the CA counties and cities were on their own, and the state debt of CA increased yearly.