Make Prop. 13 fair
Some good could come out of the disaster, however. For 25 years, since the passage of the property-tax-cutting Proposition 13 in 1978, California has operated with a patently unfair taxation system, one that allows identical properties to be taxed at vastly different levels. With this crisis, lawmakers have an opportunity to correct Prop. 13 to make it fair and raise much-needed revenues in the bargain.
The best thing about Prop. 13 is that it capped the property tax rate at 1 percent of assessed valuation. That has given property owners the security of knowing their taxes will never exceed a certain amount.
But the worst thing about Prop. 13 is that it taxes property not in terms of its real value, but in terms of its value when it was purchased. That’s because it calls for property to be reassessed only when it’s sold. Otherwise, it allows only a 2 percent annual increase in assessed value. As a result, the owners of a house sold yesterday for $300,000 can expect to pay $3,000 annually in taxes, while their next-door neighbors, who bought their identical house 15 years ago for $120,000, will pay taxes on a valuation of about $175,000, or $1,750. That’s just not fair.
And, because business properties are bought and sold less frequently than residences, businesses enjoy, on the whole, far lower property tax rates than homeowners. That’s not fair, either.
With the state looking at an abysmal $30 billion shortfall and its painful impacts, it’s time to make bring fairness to California’s property tax system—and raise revenues—by repairing Prop. 13.