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PROTECTING PROP 13 FROM AB 362

The State of California boasts the highest tax rates in almost every policy area except one, property taxes.

The reason we have a stable property tax rate is because of Prop 13. The passage of Prop 13 in 1978 established a 2% cap on annual property tax increases and stabilized what had been, up until that point, a rollercoaster of unpredictable annual property tax increases. While California continues to charge the highest income tax, sales tax, and gas tax rates in the nation, preventing Sacramento politicians for increasing property taxes is an essential protection for homeowners and businesses in California.

Recently Assemblymember Lee introduced AB 362, which requires the California Department of Tax and Fee Administration (CDTFA) to study the idea of replacing the current property tax system with a “land value tax.” A land value tax – a system in which the estimated current market value of land is taxed, but buildings and other improvements are not – would dismantle Proposition 13 protections that have provided tax certainty for property owners and revenue stability for local governments for more than four decades. 

One of the stated goals of a land value tax is to create a strong incentive for developing land by taxing property at such a high rate that the owner cannot afford to keep the property unless it can be used to generate enough revenue to cover the annual tax bill. This would encourage commercial development and reduce private sector open space.  Property owners with high-value land – for example, near California’s beautiful coastline – would be forced to “pave paradise and put up a parking lot” to develop income-generating activities. (Source: CalTax)

Polling has consistently shown that voters support Proposition 13, a June 2018 survey by the Public Policy Institute of California found that 57 percent of Californians believe that Proposition 13 turned out to be beneficial for residents, receiving support from every age group and nearly every racial demographic.

• Land Value Tax Would Result in Tax Increases on Homeowners and Higher Costs for Consumers. The likely result of a land value tax is that the large property tax hike on businesses would lead employers to relocate to less expensive states, taking valuable jobs with them – leaving homeowners to bear more of the burden of paying for local government – or increase consumer prices to cover the cost increase. 

Either way, Californians would see their costs increase and job opportunities decrease. Proposition 13 ensures that local governments and school districts receive stable and growing property tax revenue to fund schools and other vital services. The Commission on the 21st Century Economy studied California’s tax structure and found that Proposition 13 provides the most stable and reliable form of revenue, and that local governments are ensured continual and long-term revenue growth under the current property tax system.