Sunday, January 7, 2018
Proposition 13 isn’t the problem, pensions and spending are
FILE PHOTO/GETTY IMAGESProposition 13 isn’t the problem, pensions and spending are
By THE EDITORIAL BOARD | firstname.lastname@example.org |
PUBLISHED: January 1, 2018 at 8:00 pm | UPDATED: January 2, 2018 at 11:01 am
Not for the first time, an effort is underway to persuade voters to “reform” Proposition 13 and raise property taxes.
“The California Schools and Local Communities Funding Act of 2018” was filed in mid-December with the attorney general’s office. It aims to raise $11 billion per year by removing Prop. 13 protections from industrial and commercial properties, reassessing them based on the unrealized, paper profits from rising real estate values.
However well-intentioned the backers of this initiative may be, it is reckless to impose a massive tax increase on nearly all California businesses, simultaneously and repeatedly.
If raising taxes was the solution to every problem, California would have no problems. The Golden State boasts the nation’s highest income tax rate and sales tax rate, and we’re within an eyelash of defeating Pennsylvania for the title of highest gas taxes.
Only property taxes fail to lead the nation in taxpayer pain. That’s because in 1978, the people of California used the initiative process to stop the escalating tax assessments that were tracking the rapid rise in property values and literally taxing people out of their own homes and businesses.
Under Prop. 13, taxes are limited to 1 percent a year of the assessed value of any property — residential, commercial or agricultural. Properties are reassessed to market value when sold.
This acquisition-value system protects longtime property owners from unaffordable tax increases while also bringing in revenue at a brisk pace when values are rising. Although California’s average effective property tax rate is under 1 percent, among the lowest in the nation, the state ranks 22 of 50 in per-capita property tax collected, according to the Tax Foundation’s data for 2014.
Proponents of the new initiative argue that California’s schools need more funding, but they are silent on the reason that California’s record spending on education is insufficient.
In March, officials of the California State Teachers’ Retirement System announced that CalSTRS’ unfunded liability increased to $97 billion in the fiscal year ended June 30, a $21 billion increase from the previous year.
But what effect will that tax increase have on California businesses?
In an apparent maneuver to limit opposition, proponents of the measure exempted residential rental property, agricultural property and commercial property owned and occupied by a business with 50 or fewer employees. So the tax hike would be borne by small businesses that rent space in a commercial building and large businesses that, incidentally, provide the jobs many Californians rely on to pay their bills.
California’s business climate is already abysmal by every measure. A massive and recurring tax increase on virtually all California businesses, simultaneously, will only accelerate the exodus to other states with more reasonable taxation.
And then what?
With growing pension costs continuing to draw funds away from classrooms and basic city services, will this measure’s proponents return to demand an end to Prop. 13 protections for everybody else?
Don’t bet the ranch that they won’t.
California needs pension and spending reform. Prop. 13 isn’t the problem.