Taxing the 1% in 2012: Why Not Reform Prop 13?

December 6, 2011

Taxing the 1% in 2012: Why Not Reform Prop 13?Thirty-three years ago, California passed Prop 13 – and it still dominates our political and fiscal realities today. Of course, the right-wing Howard Jarvis Taxpayers Association took advantage of an opening – escalating property taxes that were threatening the homes of seniors, gridlock in Sacramento and an ascendant conservative movement that elected Ronald Reagan two years later. At a different time, they may not have been successful.

So now that the Occupy movement has put “tax the rich” back on the agenda, and a new generation of activists are clamoring to make the 1% pay their fair share, what kind of electoral opportunities do we have in 2012 that will give these protests a legacy? Will this finally be our chance to reform Prop 13, whose impact will be felt for decades? Read more.

December 6, 2011

By: Paul Hogarth

The Occupy movement has given progressives an incredible opportunity to focus public attention on Wall Street greed and income inequality. Today, activists have launched a national Occupy Our Homes campaign to re-take foreclosed houses. But as a long-term strategy, we need serious policy changes for the 1% to pay their fair share – and in California, the logical place is the November 2012 ballot. Progressives have complained for decades that our tax system is unfair, such as the fact that Prop 13 benefits big commercial landlords who bankrupt local treasuries. They talk about, and might even start collecting signatures for a “split-roll” measure, but never get serious about it. Right now, tax measures being seriously considered leave much to be desired. At best, there’s talk of a modest tax increase for millionaires earmarked to fund good causes – which could just have easily passed in 2004. At worst, Governor Jerry Brown has coerced labor unions to support a regressive, temporary sales tax hike. Now is time for real change, not nibbling around the edges.

Thirty-three years ago, California passed Prop 13 – and it still dominates our political and fiscal realities today. Of course, the right-wing Howard Jarvis Taxpayers Association took advantage of an opening – escalating property taxes that were threatening the homes of seniors, gridlock in Sacramento and an ascendant conservative movement that elected Ronald Reagan two years later. At a different time, they may not have been successful.

But they were also crafty enough to go for a comprehensive measure whose impacts were not suddenly apparent – and would permanently starve the public sector. Beyond giving Grandma peace of mind that her property taxes are locked in place, Prop 13’s real impact was a huge windfall for commercial properties. Billions of potential tax revenue gets lost every year in California, because big commercial landlords pay 1% of their 1978 value.

Six months later, Howard Jarvis put another measure on the ballot – Prop 8 – which lets property owners appeal for a downward adjustment in their Prop 13 taxes if the real estate market goes south. Again, this was billed as a means to help the struggling homeowner whose house was damaged by an earthquake – and wanted a “break” on their property taxes. Now, we’re seeing commercial landlords who bought during the real estate bubble get a tax cut because they made a bad business decision as to when to buy property.

And it only gets worse. In November 1996, while progressives were distracted with defending affirmative action with Prop 209, the Howard Jarvis people quietly passed Prop 218. This measure requires virtually all taxes at the local level to get a two-thirds super-majority by the voters. Even in liberal San Francisco, that’s a tall order – and factors into each and every budget crisis when we predictably start talking about more revenue.

But last year we finally got rid of that “two-thirds rule” to pass a state budget, right? Yes and no. Prop 25 passed, but only applies to the budget itself; tax increases necessary to pass a balanced budget that serves all its citizens still need a two-thirds requirement. And while we passed Prop 25, the Howard Jarvis people passed Prop 26 – which requires a two-thirds vote for all fee increases. With Prop 25 and Prop 26, we got “one step forward, two steps back.”

So now that the Occupy movement has put “tax the rich” back on the agenda, and a new generation of activists are clamoring to make the 1% pay their fair share, what kind of electoral opportunities do we have in 2012 that will give these protests a legacy? Will this finally be our chance to reform Prop 13, whose impact will be felt for decades?

Results so far are not encouraging. On the one hand, the Courage Campaign and the California Federation of Teachers are pushing the “California Funding Restoration Act” – which would raise income taxes by 3% for individuals making over $1 million per year, and by 5% for those making over $2 million per year. The resulting revenue – about an extra $6 billion a year – would be specifically earmarked for K-12 and higher education.

Which is good public policy, but we didn’t need an Occupy movement to make that politically palatable. In fact, we passed an only slightly more modest version of that eight years ago in another presidential year. In November 2004, California passed Prop 63 – a 1% income tax increase for those making over $1 million per year, which funded mental health programs. Besides, we need a lot more than $6 billion to fix California’s monumental crisis when it comes to jobs, health care, education and infrastructure.

Split-roll taxation – where commercial property would be exempt from Prop 13, and be re-assessed on a regular basis to reflect market value – has been talked about for years. As recently as 2009, the California Teachers Association submitted two initiatives for circulation that would have given us “split-roll” taxation in some form.

I have my own ideas for reforming Prop 13. In cities like San Francisco or Berkeley with rent control ordinances (which were passed in the late 1970’s, it turns out, to give tenants the same housing stability that homeowners enjoy under Prop 13), landlords have managed to exempt rent control from applying to pied a terre apartments. If your landlord can prove your apartment is not your “primary residence,” your unit is exempt from rent control.

So why not extend that same logic to Prop 13? If Prop 13 was meant to keep property taxes under control so that homeowners can have peace of mind, it should only apply to owner-occupied dwellings. Unlike John McCain, most of us don’t have seven homes.

Now that the political winds have changed, and people are eager to make the 1% pay their fair share, will the California Teachers Association renew their efforts at “split-roll” and submit something more ambitious than what their counterparts at CFT are pushing?

Nope. In a move that is nothing short of disgraceful, Governor Jerry Brown has coerced CTA and its union counterparts at AFSCME and SEIU to support an alternative proposition that would raise the income tax for those making over $250,000 per year – and raise the sales tax, which of course is very regressive. Oh, and rather than build a long-lasting legacy, the taxes are only temporary.

When political momentum help conservatives, groups like the Howard Jarvis Taxpayers Association go to the ballot with sweeping, all-encompassing measures that tie California in a fiscal straitjacket for over a generation. Now, while the Occupy movement gives the Left an historic opportunity, Democrats are going to squander it with half-ass measures.