Is California really a low property tax state?
To hear progressives tell it, California’s property tax is way too low and needs to be increased to fund the critical needs of schools and local governments. But the notion that Proposition 13 – enacted 40 years ago – has somehow “starved” local governments is nothing more than urban myth. In virtually every year since 1978, the growth in property tax revenue has exceeded the combined growth in inflation and population.
While the consistent growth in property tax revenue is indisputable, that has not deterred Proposition 13’s detractors from arguing that, relative to other states, property owners in California aren’t paying their “fair share.” Eschewing for the moment what constitutes “fair,” a part of the debate involves whether California is a high or low property tax state. And it is here that the saying “lies, damn lies and statistics” comes into full play. The reality is that there are many ways to measure tax burden and most can be manipulated to support some desired narrative.
Those who argue that California’s property tax burden is too high might be tempted to point out that California collects far more property taxes than any other state. That is true, but it is also intellectually dishonest. Our size and population is what generates the tax revenue and aggregate dollars collected simply do not reflect a fair measure of tax burden.
One measure, certainly more accurate than total dollars collected, is per capita property tax collections. This is simply aggregate property tax revenue collected divided by population – a relatively easy calculation. Using this metric, it is clear that California is not a low property tax state. The authoritative Tax Foundation ranks California 17th highest among the fifty states, which puts us almost in the top third in burden.
Those advocating a heavier property tax burden point out – accurately – that California’s one percent tax rate is, relative to other states, on the low side. But reliance on the tax rate is flawed for its own reasons. First, California property is very expensive. A 2,200 square foot home in a Houston suburb might have a market value of $200,000 while a similar home in San Francisco could be worth $2 million. A tax rate three times California’s one percent could nonetheless result in a lower tax burden for a resident of the Lone Star State.
There is one aspect of relying on property tax rates for comparison with other states that is very revealing. Prior to Proposition 13, the average property tax rate in California was about 2.6% — higher in some counties, lower in others. Imagine what California homeowners would be paying now at that rate applied to current values. The cumulative hit to all property owners over 40 years would have approached nearly a trillion dollars in additional property taxes.
In response to that argument, detractors of Prop 13 say that some sort of property tax relief was inevitable in the late 70s because of political pressure. But, given California’s highest-in-the-nation income tax rate and highest-in-the-nation state sales tax rate, the notion that our elected leadership would have provided citizens with effective property tax relief is speculative at best.
Proposition 13 has been remarkably successful in providing a reasonable property tax for millions of California homeowners. It has also provided businesses and homeowners alike with extraordinary predictability in future tax liability. It has provided local governments with a stable, ever growing source of revenue in a manner that provides a hedge against economic recession.
The one thing that Proposition 13 has not done is to “starve” schools and local governments.
Jon Coupal is president of the Howard Jarvis Taxpayers Association