Proposition 13 Then, Now and Forever

Proposition 13 was a political earthquake whose jolt was felt not just in Sacramento but all across the nation, including Washington, D.C. Jarvis’s initiative to cut California’s notoriously high property taxes by 30 percent and then cap the rate of increase in the future was the prelude to the Reagan income tax cuts in 1981. It also incited a nationwide tax revolt at the state and local levels. Within five years of Proposition 13’s passage, nearly half the states strapped a similar straitjacket on politicians’ tax‐​raising capabilities. Almost all of those tax limitation measures remain the law of the land today.

Why was Proposition 13 so overwhelmingly approved in 1978? Few expected it to win. In fact, on two separate occasions, less draconian versions of Proposition 13 had failed. But by 1978 raging inflation had sent property tax bills in the Golden State soaring so high that many families had to sell their homes because they couldn’t afford to pay their taxes. Despite a torrent of horror stories from teachers’ unions, politicians, newspapers and corporate lobbyists in Sacramento about the potentially devastating effects of Proposition 13, more than 60 percent of the voters took a gamble and approved the ballot measure.

Then and now, Proposition 13 was and is the subject of relentless attack. Money ran a cover story back in 1994 by Richard Reeves titled “The Tax Revolt That Ruined California.” The article blamed the recession, the loss of 600,000 jobs and the decline in family incomes in the early 1990s on the cumulative effects of Proposition 13. No mention was made of the fact that in 1991 California passed the biggest tax increase ($7 billion) in the history of any state in the Union. The Pete Wilson tax increase negated many of the positive effects of Proposition 13.

The argument that Howard Jarvis’s brainchild wrecked California was recast by a National Public Radio “news” segment earlier this month. Proposition 13 “drained the California school system of money,” noted the NPR piece. “Since then California’s test scores have gone from near the top of all the states to near the bottom.” One former schoolteacher complained that he was forced to leave the teaching profession because the schools had no money to pay him a living wage. Meanwhile, libraries around the state were shut down. Municipal services deteriorated. Paradise was lost.

But what is not said in any of these accounts is that Proposition 13 ushered in a second California gold rush in the 1980s. California’s economic surge in the years following Proposition 13 was to become the envy of the nation. In the 10 years after the passage of Proposition 13, incomes in California grew 50 percent faster than in the nation as a whole; jobs grew at twice the national pace. Even supporters of Proposition 13 never envisioned that it would unleash the spectacular entrepreneurial and commercial explosion that it did over the next decade.

Did Proposition 13 really starve state and local services? Hardly. In real dollars, California’s budget climbed from $55 billion in 1980 to $97 billion in 1992 — a 75 percent increase above inflation! Only in government would a 75 percent real spending hike be considered inadequate and neglectful. What about revenues? In the 1980s state tax revenues as a share of Californian’s incomes actually rose — from 11 to 12 percent.

California is not an undertaxed state today. According to the latest Tax Foundation data, the state‐​local tax burden today in California is 11.7 percent of personal income, compared with a national average of 11.5 percent. Proposition 13 merely moved California from one of the highest tax states in the nation to a slightly above‐​average tax state.

The major effect of Proposition 13 has been to save the average homeowner in California tens of thousands of dollars in property tax payments over the past 20 years. That is money that would have fueled an even more rapid buildup in California’s state and local public bureaucracies if it had been sent to Sacramento and city hall.

Californians intuitively understand this. That is why a large majority of California residents say that they would vote for Proposition 13 again if it were on the ballot this year — 20 years later.