Real estate

City Journal: Don't Blame Proposition 13

|

William Voegeli has a new numbers-rich piece out that you might want to clip and save next time you're arguing with frenemies and/or child-pundits about the alleged nuclear holocaust that Proposition 13 detonated on the public finances of California. Long excerpt:

The new Bermuda Triangle

[T]he state still brings in a lot in property taxes. By 2007, the year of the most recent Census Bureau data comparing state finances, California's state and local governments levied $1,141 in property taxes per capita, less—but only 11 percent less—than the corresponding average, $1,288, for the other 49 states and the District of Columbia. Property-tax revenues in the state have increased from $4.9 billion to $47 billion in the 30 years since Proposition 13. Adjust those figures for inflation and population growth, and property-tax revenues in California were 87 percent higher in 2009 than they were in 1979, chiefly because of rising property values.

And even if one tax is limited, others can rise. A recent article in the California Journal of Politics and Policy by Colin McCubbins and Mathew McCubbins shows that, adjusted again for population growth and inflation, total state and local tax revenues in California were higher ten years after Proposition 13's enactment than they were just before—and that they were half again as high in 2000 as in 1978. Census Bureau data show that California ranked tenth in the nation in 2007 in terms of per-capita receipts from all state and local taxes (property, income, sales, and excise taxes) paid by individuals and corporations. Per-capita receipts from individual and corporate income taxes were 64 percent higher in California than they were in the rest of the country: $1,764 in California, $1,077 elsewhere. All told, California's governments received $4,731 per resident from all taxes, 14 percent more than the $4,160 average outside California. […]

I think they should call that font "1978"

[E]ven if we confine our discussion to the ten most populous states in the nation, home to 54 percent of all Americans in 2009, California remains a high-tax jurisdiction. Its per-capita taxes exceed not only the national average but those of every other high-population state except New York. […]

[N]ot only is California a high-tax state; it is even more conspicuously a high-revenue state. Things that aren't taxes, such as fees for government services, often have a high degree of "taxiness," as Stephen Colbert might say. "Charges and fees have become an integral part of the California budgetary landscape" because they "give the government a revenue stream that is not subject to limitation and hard for voters to track," the McCubbinses argue. […]

Thus it is that the Golden State, routinely described as desperately short of funds because of Proposition 13, brought in $12,776 per capita in governmental income from all sources—taxes, fees, federal aid, charges for government-administered insurance, and revenue from government-owned utilities—in 2007. This amount was the fifth-highest in the nation and second (again) only to profligate New York among the ten most populous states[.]

Whole thing here; link via The Conspirators Volokh. Related content from Voegeli: "The Big-Spending, High-Taxing, Lousy-Services Paradigm," and a new book entitled Never Enough: America's Limitless Welfare State.

Reason on Prop. 13 here, on California budget/governance problems here.

NEXT: Stinking Canadian Leads "Los Suns" to Victory in Basketball Game, Denounces Arizona Immigration Law.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. As always, spending is the problem. Almost too boring to discuss.

  2. To paraphrase Jurassic Park: Government always finds a way.

  3. arguing with frenemies and/or child-pundits

    truly you live the life of reily, mr. welch.

    1. “Child-pundits.” Heh. They have their own blogs in the toddlersphere.

  4. So, the budget crisis is really a spending crisis? Just like every other budget crisis in the country?

    We’re all doomed. I better start that garden this summer. Can you grow hops in Texas?

    1. I dont see why not, I have 3 plants climbing in KY. A bit late to get hops out for this year though.

    2. Unfortunately, they don’t grow very well in southern Arizona. I guess they don’t like 15% humidity and 100 degree temperatures; imagine that.
      -K

      1. I blame Mexicans

      2. They grow fantastically well in the Yakima valley under very similar conditions, as anyone who knows Cascade hops could tell you.

    3. You can grow damn near anything somewhere in Texas. Its a big state, with climates ranging from near-alpine to bog-swampy.

  5. If there were one (1) example of someone’s pro-tax (or anti-anti-tax) position being based on or alterable by numbers, this would be useful information.

    Cite war? Have fun. “California ranks 48th among the 50 states in state employees per 10,000 residents,” so you’re Palin’s vagina.

    1. Thank goodness they have relatively so few employees; with the huge salaries, pensions, and benefits, California would be in even more fiscal trouble if they were closer to the national average.

    2. Wow dude, that was a pretty epic cite war…

  6. Things that aren’t taxes, such as fees for government services, often have a high degree of “taxiness,” as Stephen Colbert might say.

    This can’t be overstated. New York is vicious regarding this, and it’s one of the ways the government can nickle and dime us to death.

    But as rob says above, it’s not about government revenue streams. It’s that the parasites always spend more than they can afford–always–no matter how much is coming in. You could double California’s revenue tomorrow and they’d be in the exact same boat in 5 years.

    It’s not their money, and overspending it buys them votes and power. Why wouldn’t they?

  7. But Kindly Old Grandpa Buffett says his property taxes are higher in Omaha than they are in Malibu (or wherever the fuck his Left Coast mansion is).

    This grieves him.

    1. If it will make him feel better he could send me a check for a billion dollars and I would pay the income tax on it.

  8. The problem with Prop 13 isn’t its effects on revenues*. If a state needs to get tax revenues, it will get it from one source or another, whether it is property, sales or income taxes. The problem with prop 13 is the significant amount of distortion it causes in the housing market, making it far more inefficient. It provides disincentives for selling property in favor of remaining at the current property and modifying or transferring to family to avoid a higher assessments. This leads to lower workforce mobility, which is positively correlated to higher unemployment (if people don’t move, they can’t leave places where there aren’t jobs to go to places where there are jobs).

    It is possible for both a) Sacramento is full of profligate spenders and b) Prop 13 is a bad policy to be true at the same time. CA’s issues come from all sorts of constitutionally mandated expenditures as well as all sorts of bizarre hoops that have to be jumped through because of the bass-ackwards proposition system.

    * As stated by robc, CA’s problem is spending, not revenue.

    1. Everybody here who’s willing to make personal sacrifices for the sake of greater job mobility, raise your hand.

      Everybody here who’s willing to pay higher property taxes so that the rest of society can enjoy greater job mobility–please–raise your hand!

      I’d rather eat mud.

      1. By that logic, you’d be against repealing home loan tax break because it raises taxes on some people. Prop 13 sucks because it distorts the real estate market and lends itself to an immobile economy rather than a more mobile, dynamic one.

        The solution is to put all homes on the same scale rather than when they were purchased. The government putting its thumb on the scale is wrong and leads to bad ends in the long run. Removing the thumb is a net good. Let people decide when they should and shouldn’t move rather than tying them to their current home due to tax distortions. I guess government distortions to tax treatment are ok as long as YOU benefit from them, I suppose.

        1. So by your logic–the government putting its thumb on the scale–keeping their hands out of my wallet means pushing on the scale harder?

          That’s propaganda.

          I’m not willing to make any personal sacrifices to keep 10,000 Caltrans workers from losing their jobs, why would I care about someone else’s worker mobility?

          In fact, Caltrans still has more than 20,000 permanent workers…so things must not be bad enough yet–I guess we need tax cuts!

          How many more schools are they gonna close? How many more violent convicted criminals are they going to free? …before they finally lay off all those Caltrans workers?

          Or am I supposed to wait around for politicians to finally decide they want small government? That’s stupid. Like I said elsewhere, Keynes knew that was stupid.

          If we want smaller government, this is the only way we’re gonna get it. If we want some real economic growth again, we need to slice the costs of investment. We need to stop worrying about who’s going to do all the lending in the future, and start worrying about who’s going to do all the borrowing. We need to put more dollars in the consumer’s pockets–we’re gonna have to cut taxes, way, way down…

          Smaller government’s just icing on the cake, but that’s some really tasty icing. I want to see California employees marching in the streets–so scared. The only way they’ll ever stop parasiting off what would be legitimate business growth and consumer discretionary spending is if we stop feeding them…

          They could lay off another 10,000 Caltrans workers tomorrow and it wouldn’t even cut their numbers by half.

          The time to cut taxes is now that the beast is finally starting to starve. The beast might be hungry–but he’s still way too fat. Good things are finally starting to happen, no reason to let up now…

          And if they really do raise taxes in any meaningful way, shape or form, they’re gonna find themselves in the middle of 1978 all over again. Howard Jarvis was the Tea Party circa ’78. It’s happened before in the same place for the same reasons–why wouldn’t it happen again?

          1. Starving the beast does not work. It never has and it never will. It’s been 30 years since that mantra has been used and it has never worked. Cutting taxes and leaving expenditures alone makes government benefits cheaper. What do people do when something is cheaper? They ask for more of it. The deficit exploded after the supposed small government Reagan administration. Tax cuts without spending cuts are not tax cuts, they are tax deferrals. You can rant and rave all you want about starving the beast, but it ain’t gonna work because it never has worked.

            http://article.nationalreview……williamson

    2. I absolutely agree with Mo. And the solution is obvious: Lower every one else’ taxes to the Prop.13 rate.
      Prop. 13 isn’t a problem, it’s a good start.

  9. why are the comments gone on the Missouri SWAT team article from yesterday?

    1. Didn’t that thing get up to about 700 comments? Probably blew out the threaded comment system. As we’ve seen, it’s not that stable.

      1. That’s probably it. It was going on and on.

        1. Comments have been disappearing on and off all morning. Check back, they might return like some of the others have.

          1. That’s just the acid you took this morning. The posts are there, you just can’t see them. I know your work is like watching Ray Romano watch paint dry, but you should take it easy on the hallucinogens. Stick to coke and painkillers like me.

            1. “Dude! My hand are huge! They can touch anything but themselves. (He puts his hands together) Oh, wait.”

              1. “You must have smoked some bad granola.”

                1. 700 comments? Jeez, I bailed on it in the 200’s.

  10. Apropos of nothing (except perhaps the gullibility of liberals in general and Californians in particular), there are about six inches of fresh snow outside my door. But the temperature has risen all the way to 31 degrees.

    Curse you, Global Warming!

    1. duh. Global Warming models predict that there would be 6″ of fresh snow outside your door.

    2. Didn’t you get the memo?

      We don’t call it “global warming” anymore.

      It is now “climate change”.

      That makes it easier to claim everthing that happens is man’s fault.

  11. why are the comments gone on the Missouri SWAT team article from yesterday?

    There was some serious suck in there. Maybe it imploded. Or maybe the squirrels put it out of its misery.

  12. It’s amazing how far gone some people are. How they’ll talk about screwing the taxpayer to save government largess as if it were a virtue. It gets so basic, it’s sickening…

    It’s like trying to talk to Moonies. No, I’m not here to make money for you. I’m not here to serve government needs. You’re here to serve mine.

    And right now? I need you to lay off a whole hell of a lot of people.

  13. Just for the record?

    Spending may be the problem, but what’s the solution to that?

    I’ve seen solutions ranging from “In the long run, we’re all dead” to trying to limit free speech in the guise of campaign finance reform.

    Go ahead and prattle on about how spending is the problem–I may tune in occasionally. In the meantime, limiting the state’s revenue by whatever means are available makes perfect sense to me.

    The state has already show they’d rather release convicted criminals–and some of them violent–rather than cut the budget. …which makes it pretty clear they’re willing to maximize their revenue using every tool available to them. So we should take away every tool we can!

    I’m not here to provide the State of California with a distortion free market either. Want to get rid of distortions–let’s start with privatizing the UC system? They won’t cut anything unless they have to–make them have to!

    1. It is a problem. One thing that is not a sollution is bailing them out and putting the day of reconing. The problem is that California is so disfunctional and corrupt it is in danger of becoming a third world country. They are not going to stop taxing and driving out the middle class. If it doesn’t stop, there will be nothing there but super rich who either don’t pay taxes or have so much money they don’t care, government workers and the poor. It is going to turn into Mexico. Part of me says that is how life goes let them suffer. But part of me also says that we can’t have our largest and richest state turn into a third world country. But who wants to support a federal takeover of California? Not me.

      So, I don’t see a sollution.

      1. Well, getting rid of Prop 13 is the solution that’s being proposed, and like I was trying to say up yonder (and didn’t do well) was that if the government of California is willing to release convicted criminals rather than cut more State jobs? Then starving the beast is the only solution.

        You know how who can be toughest on violent criminals is an electoral politics game both parties play? Hell, that creeps into the national debate–if you can’t keep convicted violent criminals in jail, then what is the purpose of government?

        Well California’s gotten to the point where they can’t even do that anymore–or, worse yet, they’ve decided it’s better to do that, apparently, than to cut the budget further somewhere else. If you’re willing to let violent criminals go free, do you think they’ll be willing to raise taxes to the max?

        The correct answer is “Hell Yeah.”

        Putting California on the federal budget won’t help matters either–that’s exactly the opposite of the strategy that works. The one that works is when you starve the beast–not giving it more money to feed on…

        And what’s being argued–loudly, everywhere in California–is getting rid of one of the lynch pins of starving the beast–Prop 13. We need more things like Prop 13, not less. That’s the solution.

        Starve the freaking beast. Right now he’s hungrier than usual–good. That’s a good thing. That’s the solution in action. They’re slicing the budget, in part, because of the effects of Prop 13. That’s what it’s supposed to do. That’s a good thing.

        The right time to cut taxes further is now.

        1. If California were its own country and it was harder to leave and got to better places, starving the beast would work better. But the problem is that anyone who has any sense can leave. That denutes the voting pool to idiots and leeches. It is like Mexico. One of the reasons why Mexico has never really fixed its insane system is that so many people who would want change just give up and move to the US. California is the same way only you don’t need to be an illegal immigrant to move to a more sane state.

          I think they are going to have some kind of complete governmental breakdown out there. I think it is going to get really bad. The public employees unions would rather see the place turn into Mexico City than give up one dime in benefits.

          1. Well they’re gonna have to choose.

            And we’ve been here before. Howard Jarvis, in his infinite wisdom, saw this comin’ from thirty years away–actually, he just saw the same exact thing happening in real time in 1978…

            See the Reason cover up top! California has been here before… Part of the solution is national. Californians pay out way more in Federal taxes than they get back in services. California was the main beneficiary, I believe, that way when Reagan slashed income tax rates…

            That all arose because of this. Cavanaugh talks about the upside to the downturn in the economic cycle a lot–it’s an important point. The government–State, Federal, Greek, whatever–only cuts its own budget when it’s absolutely necessary. …when there’s nothing else it can do.

            Keynes counted on that to counteract the liquidity trap! This feature of government is something that pretty much only partisans argue about. We’ve seen it before–the last time it was this bad, we got Reagan into office. …and we’ll see it again.

            Government slashing its budget isn’t necessarily a bad thing. …if you like small government. In fact, if you like small government, this kind of thing is absolutely necessary. It’s a built in feature of the economic cycle–thank God!

            1. That whole “pay more taxes than get back in services” is a bit of a misnomer. To make sure that it evened out you would have to have the federal government budget by state equity concerns rather than operational concerns. Granted, that might not be that much worse than doing it by pork like they do now. But it is still a bad idea. The fact is that military bases are better off in places like Texas and Georgia than they are in California where the land is expensive. Also, why put a big government finance center in high rent LA, when you could put it in cheap rent Indianapolis? Also, there is no way to make up for the money that a state like Florida, which is full of old people, gets. Do you really want to tell old people in Florida they get less SS because we can’t have Florida getting more federal money than California?

              There are always going to be imbalances.

              1. I’m not saying it should be balanced out; I’m saying that because Californians pay a disproportionate share of income tax revenues, when Reagan, or someone else, slashes marginal income tax rates at the Federal level, it benefits Californians disproportionately.

                As for where things are located and what that has to do with the economy–well you know I’m an LA based commercial real estate developer/investor, right?

                There are a number of factors at work. One of the, especially for LA/Long Beach, is proximity to Asia. There is a ton of trade that comes into the US via the Port of Long Beach. It’s huge.

                There’s also an entertainment industry that sells billions worth of intellectual property both domestically and internationally. There’s an infrastructure that’s built up around that of thousands of entrepreneurial firms doing everything from special effects and sound to catering and publicity. There’s the music industry.

                You’ve got the same thing going on in Silicon Valley with the tech industry and the same thing going on in biotech from San Diego and up into Irvine and Orange County. …some of those entrepreneurial biotech firms may be starved of investor dollars in the wake of ObamaCare, but those jobs aren’t going overseas.

                There’s also the access to cheap immigrant labor…and what that meant to the construction industry…

                California didn’t have the benefit of the biotech industries and Silicon Valley in 1978, at least not as mature as it is now. And there’s a halo effect to that. California is a testament to how hard it is to kill entrepreneurship. They can afford to have some of the most business restrictive laws because these entrepreneurs are so prolific there.

                Things may get worse before they get better, but if we slash the capital gains taxes and stop trying to fund static government largess at the expense of entrepreneurial activity, California will be the envy of the world again. It’s just a matter of time.

          2. Now this is the part where you usually tell me I’ve gone off the rails, John…

            …but you might consider this in the context of kinda our ongoing discussion about partisanship. One group of partisans may be a little more reluctant to increase spending than the other, and there may be differences between one group of partisans and another in terms of what they’d spend our money on…

            …but in the end, all that really matters is that there are people like you and me who are quick to say “enough” when the government wants the taxpayers to bail them out of their overspending. That’s where the rubber meets the road.

            One of the problems with partisanship is that it makes people reluctant to say “no” when it’s their guy in power whose solution to the economic downturn is gouging the taxpayers for their future earnings…

            At that point, I don’t care what you want to spend the money on, and I don’t care if one partisan’s more reluctant about gouging me than another. All I care is that the bastards want to gouge me–and they can all screw themselves. …because I didn’t consent to any of this.

            I didn’t vote for any Democrats. I didn’t vote for any Republicans. Don’t point the finger at me–I ain’t the one.

            1. I don’t disagree with you. There are plenty of government establishment Republicans who are part of the problem. It is very hard to take over an organization with the purpose of diminishing its size and importance. It just goes against human nature. I think a lot of well intentioned people go to government looking to tame it and end up being seduced by it. It is a real problem.

              1. We agree.

        2. Well California’s gotten to the point where they can’t even do that anymore–or, worse yet, they’ve decided it’s better to do that, apparently, than to cut the budget further somewhere else. If you’re willing to let violent criminals go free, do you think they’ll be willing to raise taxes to the max?

          The correct answer is “Hell Yeah.”

          Putting California on the federal budget won’t help matters either–that’s exactly the opposite of the strategy that works. The one that works is when you starve the beast–not giving it more money to feed on…

          We could bail them out, but with the stipulation that they lose statehood.

  14. Wow, the whole thing is kind of absurd isnt it?

    Lou
    http://www.anonymous-web-surfing.cz.tc

  15. How about a UK election thread later today?

  16. The state has already show they’d rather release convicted criminals–and some of them violent–rather than cut the budget.

    Some of those guys are scary; we’d rather keep the dope smokers, cuz they’re easier to intimidate.

  17. The Limeys are having an election?

    1. Yeah, the election is today (general and local councils). Hung parliament is the predicted result.

      1. I don’t think anything about the British can be described as “hung”.

        1. Um, did you mark your territory and beat your chest today too?

          1. Why? Is it Thursday already?

      2. hung parliament? Jack Ketch back in business!!! Will it be televised?

        1. More seriously, time and best site for following results? bbc I assume?

        2. Heh. 🙂

          Polls close at 2200 BST, Rob. I suspect that results will be coming in around that time. BBC will be pretty good. The timesonline.co.uk website, the Telegraph, and the Guardian will all be worth checking out too.

  18. you’re arguing with frenemies and/or child-pundits
    And they will ignore the entire thing by arguing “those numbers aren’t adjusted for cost of living”.

  19. http://www.businessinsider.com…..914d930000

    Now, these are people who won the lottery and got millions – tremendous good luck – who than frittered away all that money.

    Now, replace ‘individuals’ with ‘gubermint’ and ‘millions’ with ‘trillions’ and you have our situation.
    No matter how much money you have, some people can spend all of it and more, stupidly.

  20. Screw fiscal restraint! Throw the rock on the pedal and ghost ride that bus off the cliff now! I’m sick of death from a thousand cuts!

  21. Mo has madea good point. Proposition 13 really did immense har, partly by reducing people’s mobility. Yes, taxes and spending have gone up; yes the state government, and various local governments, are infected with spendthrifts; and yes, I think that taxes ought to be lower.

    But it matters greatly what is taxed. California has imposed higher income and sales taxes, while keeping down property taxes. The property tax is partly a tax on land, and that’s the only good tax we have. Without taxation of land rents, speculative bubbles really take off, and housing becomes unaffordable. This can’t go on forever, and sooner or later, the bubble bursts, resulting in a financial crisis.

    Look, anything local government does that’s worth doing makes the locality a better place to live and work, so people will pay more to live there. Land prices are capitalized land rents, so they go up. The fair way to finance government is to tax land, since worthwhile governmetn expenditures are reflected in higher land rents and land prices. Read Henry George, my children, read Henry George.

  22. Property-tax revenues in the state have increased from $4.9 billion to $47 billion in the 30 years since Proposition 13. Adjust those figures for inflation and population growth, and property-tax revenues in California were 87 percent higher in 2009 than they were in 1979, chiefly because of rising property values.

    This is a good article. Thanks.

    What’s wrong with this Harold Meyerson fellow? What’s wrong with these people? Fucking bullshit child-pundit fucking bullshit fuck. Fuck a duck. Wow.

  23. Proposition 13 is one of the most stupid and selfdestructive fiscal creations ever made.
    funded on non market based land taxation and price distortion of the real state market.
    revenue colection in calsfornia comes cheifly from taxes on wages profits and sales rather than from property taxation.
    Creating on of the most anti business enviroment in the nation thanks to propp 13.

Please to post comments

Comments are closed.