Americans are increasingly worried about paying taxes.
Most people don’t like paying Uncle Sam, but for much of the 2000s and 2010s, a large percentage of Americans thought that the amount of federal taxes they paid was “about the same,” according to Gallup. But recently, the proportion saying their taxes were “too high” has been rising; last year, nearly 60 percent of Americans said they pay too much.
Call it the Great American Tax Rebellion, or maybe The Third American Revolution. Whatever we call this anti-tax wave, its effects are already spreading across the country. Republicans in red states are cutting property taxes, or threatening to eliminate them altogether. Even some members of the Democratic Party propose a large tax cut to be paid for the tax increase only for the rich.
All of this reminds Isaac Martin, a professor of urban studies at the University of California San Diego, of the battle against Proposition 13: California’s 1978 ballot measure that lowered property taxes statewide, setting in motion a series of fiscal and social consequences the state is still grappling with.
“I think the history of California really teaches us that you can want your government for free, but you can’t get it for free,” Martin told. Today, It’s Explained co-host Noel King.
King and Martin talked about the history of property taxes in the United States, the story of Prop 13, and what California’s experience suggests about where the rest of the country may be headed.
The following is part of their conversation, edited for length and clarity. There’s a lot more in the full podcast, so take a listen Today, It’s Explained wherever you find podcasts, incl Apple Podcasts, Pandoraand Spotify.
What was going on with taxes in the 1970s?
There was what we now call the property tax revolt, a major protest movement against local property taxes. It was a nationwide phenomenon. It happened in communities all over the United States, but people remember the events in California a lot because the people of California then, in 1978, amended their constitution to lower property taxes. And that the highest tax rate, which they called Point 13then it became national news and had all kinds of repercussions in and outside of California.
I lived in Los Angeles for several years and remember Proposition 13 being a big topic of conversation, but not everyone will know its history. Why is Prop 13 important? Why is it such a big deal?
Point 13 is a big deal for a few reasons. The first is that it significantly changed the tax structure of the government. It said local governments could not levy any property tax at more than 1 percent, so it reduced the property tax rate to 1 percent.
“It’s a cautionary tale that you can lose something very valuable if you let your tax anger take over and you don’t think carefully about what to do with that anger.”
The second and most important thing it did was set an annual limit on the amount by which the assessed value of your property for tax purposes could increase from year to year. Even if your home appreciated very quickly, according to the local tax assessor, it was not really going up more than 2 percent a year in value. And that, among other things, blocked local government funding in California.
It also gave property owners tax breaks that grew over time, the longer they stayed in their homes. It was the beginning of a series of similar changes to California law, including later programs in the 1980s that said that the tax breaks you have on your home because you got in early, you can pass that on to your children. You can pass that on to your grandchildren. That’s one reason why Peter Schragwho was editor (opinion) of the Sacramento Bee for many years, said in the 1990s, Listen, we now have the legacy of the property aristocracy in California.
The story of Proposition 13 in California is important for at least a couple of reasons. One of those reasons is that it’s a real warning that you could lose something very valuable if you let your anger at taxes take over and you don’t think carefully about what to do with that anger. As I understand it, it is the story of the simplest and worst solution to a real crisis.
Where did (Prop 13) come from?
First, property taxes have always been a mess in America. The estate tax is the oldest tax we have in the United States. It precedes the republic. And until the middle decades of the 20th century, property taxes were still administered as if we were in the horse-and-carriage era.
The people who were responsible for determining how much your home or business was worth for tax purposes were political animals, and they didn’t have much expertise in property valuation. Instead, what they do is write from year to year, Oh, we wrote this number for your house last year. Let’s write again this year.
They were giving these kinds of unofficial tax breaks to people in a way that was often very political as well. They can exchange a low rating for a bribe. They usually sold low valuations for lots. And in the 1960s, led by California, many states then began to reform the way they administered property taxes. They brought in computers, did a professional appraisal, and suddenly for the first time, many property owners, especially homeowners in the United States, began to be taxed on the real value of their homes for the first time. And it turned out that they didn’t like it that way.
It was the cause of a strange phenomenon – people asked to abolish the property tax. One of the most interesting people in that movement was a real guy named Howard Jarvis, who was a Los Angeles entrepreneur, a serial entrepreneur, who first campaigned in the late 1960s to end the property tax and he got nowhere with it, but he got enough traction that he decided it was worth trying.
He teamed up with a used car dealer named Paul Gann, and got inspiration from a Los Angeles property appraiser, who was also arguing for property tax reform, a guy named Phil Watson, and wrote a restriction – an amendment to the state constitution to lower taxes – which became Proposition 13. They collected more signatures than any ballot initiative in California history. And in June 1978, the majority of voters accepted it.
Why did so many voters accept it? Was it difficult to convince people?
Jarvis later wrote in his memoirs that the best move was to go to the people and say, Sign this, it will lower your property taxes.
Okay, so what exactly is the result? What happens after the voters say, Yes, this is what we want.
The quality of service often declined. It is clear, for example, that there was a shift in fire protection from professional fire departments to volunteer fire departments in some areas of the state.
It hurt the school. School funding has continued, of course, to increase in California as in the rest of the United States, but California was leading in the quality of education in elementary and secondary education and in terms of school spending. And now it is not obvious.
“The lesson here is that we really value, and should value, the many public services and public goods that our governments provide.”
It has hurt the quality of infrastructure – potholes in roads, first responder response times. It has shifted the state tax structure to income tax, which means that the tax system in California is very flexible – with an increase, more money can go into the state coffers, and in a recession, the state budget suffers. During the financial crisis, this meant that local governments that could no longer rely on large amounts of property tax revenue were at risk of bankruptcy.
It has also created all kinds of injustice – a new injustice, different from the old system. Now you may pay more in rent than someone else in your neighborhood who owns a similar home worth the same amount of money, simply because they bought their home earlier than you. And they may agree that that’s unfair, but they may not vote to change it because it’s an injustice that allows them to stay in their home.
You know that Americans continue to be upset about paying taxes, and I wonder if you think it’s okay to look at California and see a warning about where other parts of the country may be headed?
I do. I mean, I think the history of California really teaches us that you can want your government for free, but you can’t get it for free. The lesson here is that we really value, and should value, the many public services and public goods that our governments provide. That doesn’t mean they shouldn’t work efficiently, but it does mean that when you think about how much you’re willing to pay them, you should also consider what you’re willing to give up.
