(Editor’s Note: This article was originally published in The Wall Street Journal print edition October 27, 2016)
Ronald Reagan noted in his autobiography that California voters set a “prairie fire” across the U.S. in 1978 when they passed Proposition 13, which cut property taxes by about 57% and made it more difficult for legislators to increase taxes. Nearly 40 years later, many Californians are wondering: Will the tax-revolt mind-set die where it all began?
On the statewide ballot, tax measures are aimed at narrow groups of taxpayers. Proposition 55 would extend for 12 years an additional personal income tax on those who earn more than $263,000. The tax, passed by voters in 2012, was sold as a temporary measure to help the state’s schools after the Great Recession. Proposition 56 would increase the cigarette tax by $2 per pack, a 230% increase. A separate marijuana-legalization measure comes with a state tax and permission for local governments to raise levies on marijuana too.
The 427 local tax and bond measures will affect an even broader swath of citizens. During the state’s June primary, more than 80% of the local tax measures on the ballot passed, according to the California Local Government Finance Almanac. These tax increases do well with voters, because proponents claim the money will be spent on tangible services like police or libraries. The pro-tax sides typically have the most funding, and local governments run “information” campaigns that tell voters all the “wonderful” things their tax dollars will go for.
Yet California’s public-pension problem is what really drives many of these campaigns. State and local pensions are deeply in debt because of the generous giveaways elected officials have offered government workers. While the money for the taxes isn’t directly dedicated for pensions, new tax revenue can free up funds to cover local governments’ obligations to the state retirement system.
Another major test of the tax-revolt legacy is tied to legislative races. Proposition 13 required that any tax increase must have a two-thirds majority vote to pass the legislature. The Democrats are within two state Assembly seats and one state Senate seat of reaching the supermajority required to easily pass taxes. During the last legislative session, 76 revenue-increasing proposals were introduced in the legislature, and 28 were signed into law. If Democrats win full control, expect many failed measures to be reintroduced in the next legislative session.
And what about Proposition 13? Taking down or dramatically altering this law is the Holy Grail for the tax-and-spend crowd. Given California’s stature, removing or crippling Proposition 13 would send a national message that the tax-cutting fire is out.
The law has withstood years of bitter recriminations from spending interests around the state, even as it maintained citizens’ support. Lately, efforts have focused on altering the law to tax commercial property on a different basis than residential property. Proponents of the change claim that under Proposition 13 the state’s property-tax burden has greatly shifted onto residential property. Yet a recent reportby the state’s Legislative Analyst’s Office disproved the argument.
Still, public-employee unions searching for money to cover pension costs and other spending interests feel they must weaken Proposition 13. The tax-cutting initiative’s popularity is not measured often, but it has consistently maintained roughly two-to-one support. However, fewer and fewer Californians remember the circumstances surrounding the nearly 40-year-old tax revolt. Changing demographics and powerful unions present a threat to the historic measure.
Ironically, when Proposition 13 passed, its leading opponent was Gov. Jerry Brown, who was serving his first term as governor. Mr. Brown became a born-again tax-cutter after it passed, and he is again in the governor’s chair and known as a fiscal moderate. The governor has steered clear of any challenges to Proposition 13 and told a real-estate group in San Francisco last year that he did not support having commercial real estate reassessed more frequently. Will the governor who was around to see the tax-revolt era ushered in be in place for its demise?
The California electorate is different than it was 40 years ago. The state—once considered a competitive, centrist political realm—has become a liberal Democratic stronghold. And in a presidential year, big-government advocates hope that an increase in the number of Democratic and young voters will boost their tax increases. Howard Jarvis, the antitax advocate who championed the 1978 revolution, probably wouldn’t recognize his state. The results of Nov. 8 will likely lead to a series of new taxes, which could act as a wake-up call to voters to keep Proposition 13 in place.