The California Ballot Measure That Inspired a Tax Revolt

http://www.nytimes.com/2016/10/17/us/the-california-ballot-measure-that-inspired-a-tax-revolt.html

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In between America’s two most famous tea parties, the Boston affair in 1773 and the protest movement that arose in 2009, there was a referendum known as Proposition 13. Like the tea parties, it was rooted in an abhorrence of taxation (with or without representation). Like them, too, it had enduring consequences.

Proposition 13 was an assault on the property-tax structure in California, where plebiscites are hard-wired into the political ethos and voters tend to exercise the franchise aerobically. In 1978, they approved this ballot initiative by nearly 2 to 1, setting in motion a continuing debate over whether they had acted with beneficent wisdom or with heedless foolishness. Owners of real estate quickly saw their property tax bills slashed. But they, and millions of others, also found themselves burdened with assorted new fees and levies to compensate for lost state and local government revenues.

For better or for worse, Proposition 13 inspired tax revolts in other states. In its wake, anti-tax firebrands rose to prominence, such as Grover Norquist, who turned his no-tax-increase pledge into an article of faith for conservative office seekers. In California, the birthplace of many American trends, politicians in both major parties have long regarded Proposition 13 as they would a subway line’s third rail: You touch it, you die.

The 1978 vote shapes the latest offering from Retro Report, a series of video documentaries exploring major news stories of the past and the long shadows they cast. This installment comes as the 2016 presidential race enters the homestretch, a campaign in which taxation has loomed large — not local property taxes so much as federal income taxes, specifically those of Donald J. Trump, the Republican nominee.

It seems evident that Mr. Trump went years paying not a nickel’s worth of those taxes. “That makes me smart,” he said in his first debate with Hillary Clinton, his Democratic opponent. Besides, he said later, any tax paid “would be squandered, too, believe me.”

His words echoed those of Howard Jarvis, a pugnacious businessman who was a principal architect of Proposition 13, formally called the People’s Initiative to Limit Property Taxation. Jarvis worked on it with another businessman, Paul Gann. In terms of temperament, they could not have been more different. Gann was quiet-spoken, Jarvis a pillar of bombast. As such, he became the public face of the referendum — a prophet of fiscal rectitude to his admirers, a grumpy cheapskate to his detractors. He drew inspiration from another Howard: Beale, the mad newscaster in the 1976 film “Network,” who was immortalized by his signature line: “I’m as mad as hell, and I’m not going to take this anymore!”

Soon after Proposition 13 passed, Jarvis shrugged off concerns about forfeited revenue. “The bureaucrats have just squandered it,” he said. Sound familiar?

In truth, Jarvis, who died in 1986, three years before Gann, was against more than taxes. He also opposed many of the things taxes paid for, including schools, parks, libraries and garbage collection. As recalled in the Retro Report video, he was unfazed by severe spending reductions that the proposition forced upon many communities.

“The most important thing in this country is not the school system, nor the police department, nor the fire department,” he said. “The right to preserve, the right to have property in this country, the right to have a home in this country — that’s important.”

His crusade took shape in an era of double-digit inflation throughout the country, and escalating real estate valuations in California. As property assessments soared, so did the taxes on them, at rates too rapid for many homeowners to absorb. The state was primed for a “mad as hell” moment.

Proposition 13 rolled back property values to their 1975 levels, and imposed a 2 percent limit on yearly increases in assessments. The tax on property could not exceed 1 percent of the value. In addition, any attempts to raise many types of taxes were cramped by a new requirement of approval by a two-thirds majority, be it in the State Legislature or at the local level.

Right away, property-tax revenues plummeted nearly 60 percent. The state — led then, as now, by Gov. Jerry Brown — helped keep cities and counties afloat by diverting about $5 billion from a surplus it had accumulated.

Over the long haul, fallout from the proposition landed broadly. Property taxes, estimated now at $55 billion a year statewide, declined as a share of government revenue. Hotel, utility, sales and other taxes were increased to take up the slack. As cities and counties struggled to raise revenue on their own, a good deal of power shifted from them to Sacramento, the state capital.

Inevitably, there were winners and losers. Wealthier property owners greatly benefited. So did those owning their homes for decades, given the relatively small annual increases in their assessments. Better to have bought a house in 1975 than, say, in 2015. It is not uncommon in California for an older couple’s tax bill to be appreciably lower than that of a young family living next door in a house that is nearly identical but newly purchased at a steep price. Critics deplore the inequity. On the other hand, older people on fixed incomes are insulated from tax increases they might find punishing.

There are many hands. On one hand, Proposition 13 led local governments to lay off employees and defer essential maintenance. On the other, it impelled them to become more efficient. On one hand, it protected older people from possibly being driven from their homes. On the other, it reduced the turnover of properties, making it harder for young couples to find a nest of their own. On one hand, the proposition’s opponents say it has shrunk the share of property-tax collections paid by businesses, and shifted the burden to homeowners. On the other, California’s nonpartisan Legislative Analyst’s Office said in a report last month that, while the homeowners’ share is “slightly larger” than it used to be, factors other than Proposition 13 were the reason.

Since 1978, California has become somewhat proposition-happy. So have other states that turn to the voters on matters that once may have been left to legislators. In California, the November ballot will ask for ayes or nays on proposals to ban the sale and possession of large-capacity ammunition magazines, to impose price controls on state drug purchases, to uphold a ban on plastic grocery bags, and to end capital punishment or — in a separate initiative — to quicken the death penalty process.

What Californians (and others) have also learned is that you get what you pay for. People want their roads repaired, streetlights installed and schools kept open. All of them cost money. And that means taxes. San Jose, Calif., is an example of how a decline in property tax collections can pinch badly, as a February article in The Atlantic showed. Because the city lacks a thriving commercial district, it is hard-pressed to generate sales tax revenue.

Four years ago in, yes, another ballot initiative, Californians recognized the need for a steadier flow of state revenue. They approved a slight increase in the sales tax, and raised income tax rates on individuals earning $250,000 or more each year. The sales-tax increase is about to expire, but a proposal to extend the higher income tax rate is up for a vote in November.

Not surprisingly, an advocacy group called the Howard Jarvis Taxpayers Association opposes the extension. Also not surprisingly, one does not hear many references to Oliver Wendell Holmes Jr., the eminent Supreme Court justice, who observed decades ago that “taxes are what we pay for civilized society.”