The Magazine

Have I Got a Proposition For You

California's tax revolt, 30 years on.

Jun 9, 2008, Vol. 13, No. 37 • By ARNOLD STEINBERG
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Thirty years ago, this week, California voters started a taxpayer revolt that quickly spread to other states, helped set the stage for President Ronald Reagan's income tax cuts, and inspired an entire generation of diehard opponents of big government. While the rest of the country slept through the Carter presidency, hundreds of thousands of Californians participated in a true grassroots petition campaign to place an initiative on the June 1978 ballot. And then they voted for this historic measure, Proposition 13, to amend their state constitution to limit property taxes.

Prop. 13 limited (a) taxes on real property to 1 percent of value, and (b) increases in property taxes to 2 percent annually. In simple terms, a home worth $500,000 could be taxed up to $5,000, and, in the event that the value of the home went up, those taxes could increase by no more than $100 (i.e., 2 percent of $5,000) in year one, then $102 (2 percent of $5,100) in year two, and so forth. For good measure, Prop. 13 went beyond property tax reform--for an increase in local general taxes, it required the approval of local voters, and for an increase in state taxes, it required a two-thirds majority in the state legislature. The logic was compelling. Howard Jarvis, Prop. 13's creator, felt that if you limited property taxes but did not otherwise inhibit government, it would raise other taxes promiscuously.

Early on, I urged my client, Attorney General Evelle Younger, a candidate for governor in the Republican primary that June, to endorse Proposition 13. I argued that even if it lost, it would win handily among Republicans, and he needed them in the primary. And if it won, it would probably do so broadly, and he needed to expand his base for the general. One of Younger's impressive primary opponents, San Diego mayor Pete Wilson, like most mayors, opposed Proposition 13 as fiscally imprudent.

Partly because of his support of Prop. 13, Younger won the June 6 primary. Against my counsel, he then took an immediate vacation to Hawaii. Meanwhile, Governor Jerry Brown, who had campaigned vigorously against Prop. 13, turned on the proverbial dime: He immediately, wholeheartedly embraced its implementation. By Election Day in November, confused voters credited Prop. 13's opponent, the Democrat Brown, with championing lower taxes and, accordingly, reelected Governor Moonbeam.

For most California Republicans, though, 13 turned out to be a lucky number. In November 1978, a host of young Republican candidates ("Prop. 13 babies") won seats in the state legislature and then advanced politically as conservative prospects improved. Republicans George Deukmejian and Pete Wilson (who always supported Prop. 13 after 1978) were elected governor and reelected (1982, 1986, 1990, 1994). Fast forward to the 2003 recall of Democrat Gray Davis. During the campaign, challenger Arnold Schwarz-enegger brought Warren Buffett for a staged fiscal summit. The billionaire investor made big news in urging a remake of Prop. 13; fearing implosion of his campaign, Schwarzenegger publicly disowned Buffett, who quickly disappeared from Schwarzenegger's entourage. The Terminator could not hint at terminating Prop. 13.

For all its subsequent popularity, Prop. 13 was never an electoral certainty. Howard Jarvis had tried and failed with similar measures. And Prop. 13 at first seemed headed for defeat. Big business allied with politicians in both parties, along with police, firefighters, teachers, and all the usual suspects in a lavish campaign to kill it. They provided a "moderate" alternative, Proposition 8, that would have trumped 13 if it had received more votes. But just weeks before Election Day, home-owners across the state received their reassessments, which were substantially higher and thus foretold huge property tax hikes. Then a late revelation of a sizable state budget surplus undercut the main rationale for opposing Prop. 13--that the state needed revenue. In the end, voters repudiated the hysterical anti-Prop. 13 ad campaign which suggested that, if not the world, then the state's government would come to an end if deprived of higher property tax receipts.

Jarvis's campaign focused on home-owners, but business has been quite the beneficiary as Prop. 13 treats business and residential property the same. Yet the state's largest corporations led the charge against Proposition 13. They bought into the argument that, if Prop. 13 passed, government would be so starved it would be unable to provide basic services. California, the line went, would become a statewide ghost town, bereft of such public necessities as policing, firefighting, and schooling. Corporations would leave, new enterprises would not start or move here. Employment would fall, so consequently would public revenue, in an endless cycle of decay.