Should the State of California eliminate Proposition 13?

David Kersten
David Kersten is president of the Kersten Institute for Governance and Public Policy (www.kersteninstitute.org). Kersten is also an adjunct professor of public finance and economics at the University of San Francisco.

In November 2020, California voters will be given a chance to weigh in on one of the most dangerous and sweeping economic propositions in the state’s history.  

A well-funded public employee union coalition has qualified a measure that would dismantle Proposition 13 by removing taxpayer protections for non-residential property.

We are told the measure is necessary to fund the state’s education system, which has already received massive funding increases over the past 10 years despite declining enrollment and deteriorating academic achievement.   

Yet somehow this massive tax increase is “necessary,” despite a $20 billion plus state budget surplus this year.  Moreover, less than half of the $11 billion plus raised annually will go to education. So why do they raise $11 billion, and not, say $5 billion?

This is question starts to scratch the surface of a very brazen, and long-term plot by the state’s public employee unions to rip-off hundreds of billions of dollars to fund unsustainable pension benefits, and dismantle Prop. 13 in the process.  

Let’s face it, it may not be politically correct to say, but Prop. 13 appears to be the only thing standing between California taxpayers and socialism in the State of California.  

This so-called “split roll” measure is billed as a harmless “tax loophole closure” targeting wealthy property owners, but the truth of the matter is this measure removes one of the state’s last enforceable legal protections for privately held property in this state.

It may not happen overnight, but the elimination of laws protecting private property from seizure or unjust taxation by the state is a major violation of a key founding principle of this great nation—the right to own private property.   

Unfortunately, most of these founding principles have already gone out the window in Sacramento, but make no mistake about it, Prop. 13 is the only thing standing between the insatiable appetite of Sacramento politicians for higher taxes and one of the last bastions of untapped private wealth in this state.  

Private property in the form of residential and non-residential property is currently protected by the California Constitution (i.e. Prop. 13 provisions) from unjust taxation.  Under Prop. 13, ad valorem property tax rates are limited to 1% per year on the assessed value of a property, plus a maximum of 2% per year inflation, unless a “change in ownership” occurs, which triggers a full market rate reassessment.   

If California voters vote to eliminate these Prop. 13 protections for non-residential properties, there will literally be nothing stopping Sacramento politicians from raising property tax rates on non-residential property, attaching various new “special assessments” and fees, and then doing the same to homeowners and residential property owners.  

Prop. 13 is literally the state’s only remaining vestige of a fair and just tax system.  

The Democrat politicians in Sacramento have managed to max out every other major source of tax revenue in California—the income tax is the highest in the nation, sales taxes are at the top if not the highest, energy and gas taxes are the highest in the nation, the corporate tax is among the highest in the nation.  

Enough is enough.  Fortunately, the California business community has said that they will band together to fight the split-roll, along with the accompanying rent control measures—which taken together have the potential to transform the Golden State into a failed socialist state of economic decay and stagnation, not unlike Venezuela or Cuba.  

The reasons why the split-roll measure must be defeated are mostly economic, but also political in nature.  

Politically speaking, if we want to keep California as a free and just democratic state, we cannot let a small minority of bad actors rip-off $11 billion annually for their special “needs” and tell us that it is in the public’s interest. 

If the money raised truly went into the classroom and could potentially lead to an improvement in the quality of education for the state’s six million school children—then there might be an argument for the public benefit on the expenditure side.  

But the sad reality is that most, if not all of this money, will go into try to shore up the state’s failing pension system that is sucking up an estimated 50-100% of all new state and local tax revenues.    

Moreover, there is nothing in the 2020 split-roll initiative that provides accountability for how the additional dollars will be spent to make sure that taxpayers actually get something for their money.

The only thing we are told is that schools “need” the money.  However, if we give the teacher unions this money, history has proven that they will be back in a few years for more money with the same old story and nothing to show for how they spent the last major tax hike.  

Bernie Sanders and other left-wing Democrats call this democratic socialism.  I just call it socialism. Regardless of what you want to call it, this continues to be the status quo in California politics and government, and that is why taxes keep going up but the quality of services taxpayers get, or rather don’t get, appears to continue to decline.

The split-roll measure is bad politics, and even worse economics.

This measure would essentially take $11 billion annually in private sector wealth and investment and squander it on a failed state and local pension system—providing zero measurable public benefits in return.  That makes no sense by any rational calculation, unless you happen to get a cut of the proceeds.

Moreover, the elimination of Prop. 13 would send a message to the broader business community and investors that your investment property is no longer a safe investment in California because it can and will be taxed with impunity by Sacramento politicians who are beholden to tax and spend interests.

Perhaps worst of all, the split-roll initiative would further exacerbate the state’s affordability crisis for the poor and middle-classes by further increasing the cost of doing business in California, which will serve to further increase the already high prices we pay for essential goods and services.

The real danger with the split-roll measure as well as the residential rent control measures, is that even if they are defeated, they will likely come back within a year or two, and 10 or 20 years down the road will likely stand a much better chance of passage due to demographic changes and the political trend lines in this state.   

This is why the only viable long-term political solution is to try to win the war against socialism and radical liberalism, and not just individual battles.

Some national political commentators already say that socialism is on the national ballot for 2020.   

But few California voters know that socialism is already on the California State ballot in 2020 in the form of the dismantling of Proposition 13.

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