Don’t Forget “Ability to Pay” in Discussing Property Taxes

Joel Fox
Editor of Fox & Hounds and President of the Small Business Action Committee

At the end of last month, the Legislative Analyst’s Office released a primer titled Understanding California’s Property Taxes with a lot of good information — but one politically tone deaf assumption.

In discussing the equity of the property tax law created by Proposition 13 in 1978, the LAO postured, two owners with identical properties may pay different amounts of property taxes if one owner bought the property a decade before the other. In a tax system with horizontal equity, both owners would pay similar amounts.

The focus of the bureaucratically phrased horizontal equity falls on the property. However, there is no relation to the taxpayer’s ability to pay. Someone who lived for years in the property and may be retired likely doesn’t have the ability to pay a property tax based on the property’s market value, which in nearly every case has grown exponentially over the years.

Satisfying an academic formula on tax fairness could leave many people out in the cold. Wasn’t that what caused the Proposition 13 tax revolt in the first place?

Some have argued if a homeowner cannot keep up with property taxes based on market value, then the homeowner should move. But, we are talking about the core issue of housing. I have suggested in the past that Proposition 13 could be considered a social movement, providing for the taxpayer security in their housing.

At the same time Prop 13 provided stability to neighborhoods by preventing people who can’t keep up with a capricious tax system to be forced out of their homes. This was a key issue cited by the United States Supreme Court in upholding the constitutionality of Proposition 13.

Calculating property tax based on property value instead of on ability to pay ignores the human element, something often forgotten in the cold calculation of tax formulas.

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