Calif. Prop. 13 Discussion Shows How Easy it Is to Mislead When Talking About "Fairness" in Taxes

Trying to cast businesses in California as creating a tax burden for residents requires a certain amount of deliberate contextual blindness

Thanks to California's incoming Democratic supermajority, Sacramento leaders are taking a closer look at Proposition 13, the well-known ballot initiative the limits property tax increases.

California has some of the highest taxes in the nation. It tops in sales taxes, income taxes and gas taxes. Even with the restrictions of Prop. 13, California's property taxes rank 15th in the nation.

Changing Prop. 13 would be a pretty tough sell, but it looks like state Democratic leaders are going to give it a try by invoking the idiosyncratic, subjective concept of "fairness" as it applies to taxes. The Contra Costa Times helps pass along the talking points:

"It is time for a fix, because Proposition 13 is broken," said Assemblyman Tom Ammiano, D-San Francisco, who plans to introduce a bill next year aimed at forcing businesses to pay higher property taxes.

The landmark 1978 measure rolled back property taxes and capped yearly increases until a property is sold, but critics say one of its unintended consequences was shifting more of the Golden State's property tax burden from businesses to homeowners.

In addition to Ammiano's bill, two constitutional amendments heading to the Legislature would allow voters to approve local parcel taxes for schools and libraries on a 55 percent vote, rather than the 66.7 percent now required.

In a recent poll by the Public Policy Institute of California, 58 percent of registered voters said they favored a "split roll" property tax, in which commercial properties would be reassessed annually or semiannually according to their market value, while taxes on residential properties would continue to be capped at 2 percent annual increases. And since Democrats took full control of the Legislature in last month's election, some legislators have suggested that it's time for a so-called "split roll."

The reporting includes some lovely graphs showing the change in the tax burden in their readership area as a larger percentage of property taxes come from residents rather than commercial properties.

But there's a lot of context missing from the story. What percentage of the property owned within these counties is commercial or industrial? Why is it operating on the assumption that a closer tax burden percentage is fairer? If 67 percent of percent of San Francisco County is residential property, wouldn't a 67 percent residential property tax burden also be fair?

Furthermore, the reporting completely ignores the extremely important context of the other costs of doing business in California, costs that are driving businesses out of the state. In addition to having the highest sales taxes in the country, only eight other states have higher top corporate tax rates than California. How have business closures impacted these numbers? And what percentage of government revenue funds services meant for residents as opposed to business? And what percentage of government services "meant for businesses" is actually the bureaucracy designed around extracting more fees out of them?

Obviously Ammiano wants California voters to consider one idea of fairness – "It's unfair when somebody pays less taxes than me." When you can get folks into that mindset, you can game the numbers to make it look like California business are getting some sweet deal from Prop. 13, when in fact everything else about the state is conspiring to get that money in other ways.

California's tax receipts (pdf) are 10.8 percent less than projected for November 2012, off everywhere except in sales taxes. Even worse, government expenditures are 4.9 percent above what was budgeted for the month. Even if the state's projections had been on the mark, the state is still spending more than it is taking in. And despite the projection failures, the state is still taking in more revenue than it did last year.