The Nov. 3 ballot includes a handful of local tax measures and a pitifully perplexing question about California’s infamous Prop. 13, first passed by voters in 1978 and now trying to be amended by this year’s Prop. 15. California has been in need of major tax reforms for decades. Unfortunately, this election is taking another pass on our Prop. 13 tax problem that everybody likes to complain about but nobody has the political guts to attack it. So it goes.
Prop. 13 limits annual property tax increases to no more than 2% is one of the root sources for our unequal and volatile, “boom or bust” tax structure. Prop. 15 seeks to amend Prop. 13 and bring $8 to $12.5 billion in new annual commercial property tax revenues to schools and local governments. It has attracted lots of opposition and only a slim margin of likely voters (51%) are supporting it in the latest polls.
Prop. 15 would introduce a “split roll” property tax system used in other states where commercial property annual tax increases would not be limited to just 2%, while keeping the Prop. 13 protections for all residential and agricultural properties. The state and local farm bureaus are opposing Prop. 15 because they do not see enough protections for agriculture-based buildings or infrastructure. But the Community Alliance with Family Farmers (CAFF) is an enthusiastic supporter of Prop. 15, claiming the measure “makes no change to existing laws affecting the taxation or preservation of agricultural land” or “commercial agricultural.” It’s hard to tell who has the right analysis.
But California’s tax problem is bigger than this single issue.
Only nine states have a higher personal income tax rate than California. But California has the 35th lowest property tax rate, thanks to Prop. 13. We also have the highest sales tax rate in the country. Before Prop. 13 was passed in 1978, all property tax collections stayed local and funded local schools and governments. As property tax collections became semi-frozen and fell behind public needs, more and more funds were needed from the state and federal government. Further, to make up for slim property tax receipts, local schools started enacting parcel taxes and local governments concocted new fees and special assessments.
It’s a mess. Too bad, because a less-rushed draft of Prop. 15 would have been a great start to a major fix. With so much powerful opposition to Prop. 15 we may miss a chance to bring California’s tax structure into the 21st century.
Do you think you like Prop. 13 just as it is? Well, consider a few stubborn facts first. Our largest and wealthiest corporations pay the least in property taxes. Seventy percent of all property taxes are collected from private residential properties and not multi-billion dollar properties like oil refineries or Disneyland. Prop. 13 protects older homeowners but it thwarts younger and first-time homebuyers from buying a home. A couple that bought a house 40 years ago is paying a fraction of what a new neighbor would pay on an identical property at 2020 tax rates.
When it comes to sales taxes, households with lower incomes pay a higher percentage than wealthier households. This is because we only tax a limited number of essential goods instead of expanding the list of taxable items such as legal fees, services, internet transactions, etc. The more things we tax, the more we could spread out the tariffs. And, we could probably lower the overall sales tax rate that is now almost 10% here.
Another opposition argument against Prop. 15 claims commercial property landlords would pass on increased tax bills to small business tenants. This might be so, but local market factors drive rental rates more than taxes do.
We should vote for Prop. 15 and force our elected officials to fix the rest of our tax madness. We can do this and protect our farmers, too.