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Professor Joel Fox: "Can Proposition 13 Survive California's New Appetite for Taxes?" | Los Angeles Times

Op-Ed:  Can Proposition 13 survive California's new appetite for taxes?

By Joel Fox | November 17, 2016 | Los Angeles Times

California’s reputation as an anti-tax mecca took a beating at the polls with the passage of three statewide taxes and hundreds of local taxes. Here’s betting that a battle over the Holy Grail of the tax revolt, Proposition 13, is on the horizon.

Because of changing demographics and attitudes in left-leaning California, a once-centrist state is seeing altered stances on a number of issues, from gay marriage to immigration to marijuana legalization. The tax issue is no different. Voters embraced tax limitations and spending limits over the past four decades, but they overwhelmingly supported tax increases this election.

While the three statewide taxes — continuing an income tax, increasing a tobacco tax and establishing a marijuana tax — saw a majority of voters support levies on narrow groups of taxpayers, local tax increases on sales and property taxes through bonds and assessments were more widely applied. Of the 430 such measures on the ballot Tuesday eight out of ten passed,  according to the California Local Government Finance Almanac.  

Given that success, tax advocates may try to use ballot measures to tackle two looming state issues: massive unfunded public pension liabilities and healthcare costs.

According to the Stanford Institute for Economic Policy Research Pension Tracker, California’s pension debt is almost $300 billion, based on the state’s expectation of 7.5% investment returns. Using more realistic investment estimates, the debt is close to $1 trillion. The state must either curb pension costs or increase taxes to cover them. 

In addition, California has embraced the Affordable Care Act more fully than any other state. If the Trump administration in Washington makes changes to the act that cut back on those who rely on the health insurance plan, the state could try to step in to cover expenditures and seek new taxes to pay the costs. 

Further, if Democrats control a two-thirds vote majority in the Legislature — possible, but votes are still being counted — the election results might embolden a push for even more tax increases. There is already talk of the need for new transportation dollars plus chatter about raising taxes on candy, snack food and soda, now bolstered by three soda taxes voters approved in the Bay Area.

For many years now, those who think the state programs should grow have expressed a desire to take on Proposition 13 and its tax cap provisions. Most of the discussion has been about raising taxes on commercial property. However there also have been whispers about undoing all of Proposition 13, including removing protections on residential property over time. 

Surveys show that Proposition 13 still enjoys strong support from voters, but fewer and fewer residents remember the revolt against spiraling property taxes in the late 1970s that put the proposition on the books in the first place. Altering Proposition 13 to raise more taxes would be the ultimate test of the voters’ attitude toward the anti-tax spirit that has imbued California for more than a generation. Those defending Proposition 13 and the tax revolt are preparing to fight to keep it in place. Millions have been pledged by business interests to defend Proposition 13 if a measure to raise commercial property taxes makes the ballot. 

The 2018 ballot may not see such a measure since that is a gubernatorial election year and it is unlikely that Democrats would want to see a divisive tax measure on the same ballot. However, 2020, a presidential election year promising a larger voter turnout, is another story. 

Voters’ willingness to tax themselves last week may signal that the state’s famous tax cutting measure could be undone. Or the spate of tax increases may serve as a red flag warning to voters, and moves to pile on more tax increases could well re-energize allegiance to Proposition 13.

Joel Fox, former president of the Howard Jarvis Taxpayers Assn., heads the Small Business Action Committee, co-publishes the website FoxandHoundsDaily.com and teaches at Pepperdine University’s School of Public Policy