A Taxing Suggestion

Twelve years after it was approved by California voters, Proposition 13, the initiative that inspired a nationwide tax revolt, is facing its toughest legal battle yet. Three separate lawsuits charge that Prop 13 is unduly discriminatory and therefore unconstitutional.

Proposition 13 rolled back California property tax rates and froze property assessments at 1976 levels. The plan was to give longtime property owners stable property tax rates. Under Prop 13, a property is reassessed only when it is sold. With land values in California skyrocketing in the last decade, owners of similar properties in the same neighborhood can have vastly different tax bills.

One suit was brought by a Los Angeles County woman who claims that she pays a tax five times greater than that paid by her neighbors. In another suit, R.H. Macy & Co. claims that it has been put at a competitive disadvantage because it must pay a property tax 250 percent greater than that paid by competing department stores in the same area.

As the trials in these cases begin, no politician or prominent lobbying group has come out in favor of repealing Prop 13. “There is simply not a constituency out there to change Proposition 13,” says Assembly Revenue and Taxation Committee Chairman Johan Kleh.

Prop 13’s supporters say that a little economic analysis shows that the law isn’t as discriminatory as the suits claim. In a letter to the Los Angeles Times, Pepperdine University economist Gary Galles wrote, “The new property taxes that will be due upon sale are perfectly predictable to both parties involved, and those future taxes are capitalized into lower [than otherwise] sales prices …Since the buyer is compensated for the increased property tax liability in the sales price he is no worse off as a result of the reassessment on sale provision of Prop 13. Since he is no worse off, there is no violation of his equal protection rights, and the basis for the court challenges disappears.” 

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