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Uncle Milton, Prop 13, and the "least bad" taxes

by: Brian Leubitz

Sat Aug 08, 2009 at 18:31:53 PM PDT


Joe Matthews has an outstanding column up at Fox & Hounds. It seeks to isolate the question of property taxes, and whether Prop 13 is the best resolution. And to address this question, Matthews pulls out the ol' WWMFD question - What would Milton Friedman Do?

Matthews has an interesting position from which to comment, primarily because he conducted an interview with "Uncle Milton" in 2004, just two years before his death. He has some pretty choice quotes from that interview on the question of Prop 13:

When the subject turned to Prop 13, which he had strongly supported in 1978, Friedman said he thought the measure had proven to be "a mixed bag." He did not regret his vote for Prop 13 because it had sent a tax-cutting message that was important for that time.
*  *  *
But as a matter of current policy, he said, Prop 13 was problematic. "It's a bad tax measure because the property tax is the least bad tax there is," he said. "Think of the original and indestructible properties of the soil. The least dangerous and harmful tax is a tax on something of which there is an inelastic supply." He argued that protecting Prop 13 was far less important than cutting other taxes, particularly on the income and sales we need more of.

See, the thing with the Republican Party today is not they are principled conservatives ideologically opposed to progressive goals.  That sort of logical consistency would block much good progressive legislation, but it wouldn't have lead us to the free-fall in which we currently find ourselves. Protecting Prop 13 no longer has anything to do with conservative goals or low-tax policy, but it has everything to do with a mindset.  From Matthews:

Yes, it's conventional wisdom that raising property taxes is politically impossible in California. But why is that true? It's true because California's conservatives and Republicans have become a party of no. If a proposal increases taxes in any way, they're against it. In doing so, they ignore the teachings of an economist that they claim to revere.

For more than a generation, conservatives have protected the "least bad tax" to the exclusion of all else. So even as income and sales and all kinds of taxes - with their negative effects on the economy - grow (they're up again this year), the Prop 13 tax limits remain sacred.

Principled conservatism is frustrating, but you can predict principled conservatives. You can work with principled conservatives.  However, you can't work with a Zombie Death Cult, hell bent only on their own bizarre politics while entirely ignoring good policy
Brian Leubitz :: Uncle Milton, Prop 13, and the "least bad" taxes
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Uncle Milton, Prop 13, and the "least bad" taxes | 27 comments
asdf (5.00 / 1)
Many people will stop reading this comment because I'm about to drop the 'f' bomb. But take a look at fascism.

It links to an article that makes the very cogent point that fascism differs from communism, socialism, classical liberalism, modern liberalism, anarchism, tory conservatism and just about every other ism in that it doesn't even purport to be based on any kind of intellectual foundations. In fact, the point is that it is antiintellectual. Thinking just gets in the way of the nationalist (or whatever group) ideal. It gets in the way of dominance.

Personally, I think the modern conservative movement used the facade of a few late 20th century intellectuals--including Friedman, Ayn Rand, et al.--to cover a thinly veiled unity of corporate and racial interest. (This libertarian group's intellectual forebears was so far out of the mainstream in the 1940s because they, among other things, actually opposed World War II) It just so happens that those intellectuals' ideals tend to skew the rules of the game in favor of the people who already are "haves" (as opposed to say, John Rawls, who wants to set the rules of the game without reference to a starting position) and so it was always just a marriage of convenience.

Sure, there were some people who had a strong intellectual affinity for the kind of elegant mechanical workings of the invisible hand and social Darwinism, but it would never have gained traction as a political movement if it didn't (arguably coincidentally, arguably not) favor the "ownership society" of whites and corporations.

Because this attachment was only--like I said--a marriage of convenience, once the so-called conservative intellectual principals started working against this arrangement (see, for example, Barry Goldwater's pro-abortion and pro-gay rights views towards the end of his life) and the out groups started winning from time to time even by these rules that gave them a reverse handicap from the beginning, and the tether between the right wing and these intellectual principles became threadbare.

Once it became mainstream within the conservative movement to reject science--global warming, environmental issues, etc.--the alarms should have sounded. Now, not only is the movement untethered from any intellectual foundation, it is based on rejecting them. Conservatives know they are lying--or bullshitting--about Obamacare killing Trig Palin. But that's why they cheer it.

You can be the judge of whether this portends an f-word uprising or not. Personally, I think these people are in the process of jumping the shark, but pointing out their hypocrisy vis-a-vis their supposed intellectual founders...well, it's just par for the course since retard Bush became their leader.

? (0.00 / 0)
I have no idea why that strikethrough is there, but it is not intended.
[ Parent ]
Prop 13 (0.00 / 0)
So what's a good liberal to do? I've been one for my whole life; quit the Democtatic Party some years ago because they weren't/aren't liberal enough...and yet I support Prop 13. Fiercely.

At the time of the vote on 13, I didn't see any other way to stop the legislators from draining the citizens dry. They didn't seem to have the interests of the citizens at heart and my only thought at the time was to remove this far too easily accessible source of cash from their grasp. I feel exactly the same today. The legislators haven't changed and so, consequently, neither have I.

What I wanted at the time (and still do) was a fair tax on corporate property. But how can that happen?

The problem, is the fact that the corporations have the same status and protection afforded a citizen. When it comes to property taxes, the citizen and the corporation stand together. A mistake that happened a long time ago and I don't know how we can remedy that. But someone should be thinking about it instead of condemning Prop 13 which was meant to protect the homeowner.

Two things (5.00 / 1)
First, if you believe that in 1978 government was "draining the citizens dry" and believe that still goes on today, you're either not actually a liberal or you have been taken in by conservative framing that as a result has you espousing right-wing talking points and policy proposals.

Second, you claim Prop 13 was "meant to protect the homeowner." Well, which one? If I wanted to buy a house on the street in Orange County where I grew up, I'd share that street with someone paying a 1976 tax rate, and my parents who pay a 1994 tax rate. First-time and young homeowners don't get any protection at all from Prop 13 because it helps exclude them from the market entirely. The homeownership rate in California had already dropped to 60% in 2006 - which was at the height of the bubble when access to home loans was still extremely easy.

There are any number of other ways to write the property tax rules to prevent tax bills from throwing people out of their homes without also causing the massive problems of Prop 13. But nobody wants to even explore those because, instead of having a rational discussion about the matter, you have a bloc of Californians who irrationally insist that Prop 13 be treated as a sacred cow, never to be touched or changed.

And while you think that attitude will protect your home, it also protects the corporate exemptions you rightly criticize here.

As long as we view Prop 13 as an 11th Commandment we're never going to address the problems with property taxes, state budget, public services, or homeownership rates.

You can check out any time you like but you can never leave

[ Parent ]
Liberal or Not (0.00 / 0)
Perhaps you presume too much. I'm 69 years old so I have some experience with how politics work. And yes, I am a liberal; of the bleeding heart variety, thank you very much. And I am not afraid to tax myself. I vote yes for every school tax or bond issue and every tax or bond issue that improves our infrastructure. Not typical of an elder, I know.

But the real 'sacred cow' that I was talking about were the corporate exemptions. Make those go away and Prop 13 will go away as well. But do you know of a single legislator on either side of the aisle that would touch that cow? Of course not.

[ Parent ]
Without debating whether Prop 13 is keeping citizens from being (5.00 / 1)
drained dry, there are two easy and obvious reforms to Prop 13 that do not involve raising property taxes on the homeowner.  

First, institute a split roll system -- separate tax rates for residential and commercial property.  The emotional justifications for Prop 13 -- senior citizens being forced out of their homes -- do not apply to corporate land.  Corporations live forever, and land that they've owned since 1978 hasn't been reassessed since the Jimmy Carter era.  For example, the land under Disneyland hasn't been reassessed since 1978, and thus California Adventure pays far more in property taxes than Disneyland does.  The split roll would raise an estimated $5-6 billion/year for the state.  For more information, search Phil Ting and/or "close the loophole" on this site.

Second, get rid of the 2/3 requirement.  It shouldn't be easier to amend the state constitution to deny the right to marriage than to raise taxes.

[ Parent ]
That's because... (7.00 / 3)
...both Republicans and movement conservatives are driven primarily by the desire to defeat and destroy liberals and progressives. They want to lay waste to our ideas, our politicians, and our organizations and institutions.

Theirs is not an intellectual movement, nor is it a movement that values consistency and logic. The only unifying thread they have is the motivation to smash anything to their left.

You can check out any time you like but you can never leave

prop 13 redo--not so much (0.00 / 0)
Unless you can show me how I can afford to keep my house -- bought in 1983 -- under a Prop 13 revision, even a longtime progressive, such as myself, is going to be very skeptical of any change.
I am not saying I would oppose it, but I want to KNOW the impact on affordability of taxes on my house. I have worked for 35 years and been unemployed for 15 months. I am NOT prepared to see my taxes double triple or go up fourfold.

I am sure there are progressive solutions, including deferral until sale, or death. But this is a real issue that cant be ignored, regardless of what renters and recent homebuyers think. That is, unless you are prepared to risk splitting off folks such as myself.
I would prefer to support a reform, but not at the risk of my home.

And that's the problem (0.00 / 0)
Older people vote, in much greater numbers than young people. They are more likely to own a home and appreciate what Proposition 13 provides, which is property tax stability. The protection should really have been directed to homeowners who qualify for the homeowner's exemption, but if you rope corporations into the proposition, you get their campaign contributions. So, when you create the split roll, you'd expect tremendous opposition. On the other hand, I would be happy with imposing a maximum cap on property tax increases of 10% or so until the new fair market value for commercial and industrial property was reached. Any split-roll type solution will have to be phased in anyway, or some small business owner will go out of business due to a triple or quadruple tax bill.
[ Parent ]
That's the problem (0.00 / 0)
People have a talismanic connection to Prop 13 - they are convinced it keeps them in their homes and is their only protection against an enormous tax bill.

And so folks are never willing to discuss this rationally - to explore how the 49 other states deal with the issue, to look at the whole range of options for property tax reform, including circuit breakers, pegs to income and employment status, protections for those on fixed incomes, etc.

There are ways to both fix Prop 13 and ensure you can afford to keep your house. But if you're skeptical of any change, then we'll never be able to explore those options.

You can check out any time you like but you can never leave

[ Parent ]
fix this first (5.00 / 1)
fix this first:

our so-called progressive income tax:

people earning 47k
pay 9.3%
people earning $1 million
pay 9.3%

then it goes up a 1% and runs forever......

That certainly needs to be done (5.00 / 1)
But let us not forget Prop 13's numerous other effects that distort land use, skew the distribution of wealth, promote big box development, and lock out younger and first-time homebuyers.

You can check out any time you like but you can never leave
[ Parent ]
Apparently it's true (0.00 / 0)
that the only good tax is one that someone else pays.
[ Parent ]
not listening (0.00 / 0)
if you look at it that way, you will get nowhere.
I am happy and willing to pay taxes, but I am not going to vote for something that could throw me out of my house.
I am talking about winning votes, not sticking your tongue out at folks who want you to have a better strategy.
[ Parent ]
No, you're spinning (5.00 / 1)
Prop 13 talking points straight from the original campaign:  Poor retired nuns will be thrown out of their homes by the vicious tax man!  You have a huge asset in your home if the actual tax rates would go up so radically that you would be tossed out based on property taxes alone.  And I'm supposed to feel bad?

As someone looking for a house, who will have to pay the nice high taxes brought on by the runup in property prices (benefiting the older homeowners) over the last few years, I am absolutely stoked to subsidize the services received by earlier investors for a much lower price, while they enjoy the untaxed runup in asset value of their homes, which they did nothing to create.

I happen to agree with the progressive tax argument you're making (though I'm fortunate enough that I would be voting to hurt myself, possibly badly), but the howls of current homeowners against loosening the skeletal grip of Prop 13 don't get much sympathy from me, I'm afraid.

[ Parent ]
still not listening (0.00 / 0)
You are not listening.
For some reason you think I  want you to sympathize with me.
Why should you, at your own expense?
I understand that.
But You want my vote.
I am telling you to think about how you can get me to vote when you are asking me to threaten the one asset I have that is secure. You are asking me to vote against my self interest.

You need to be smart; not emotional.
I did not borrow money and turn my home into an ATM. I have a fixed-rate mortgage. It is time to be paid off in 6 years, when I reach retirement age.
I dont have a public pension.

Stop being reactive and think about how to create a reform Prop 13 campaign that I can support.
Cruikshank seems to have the start of that.

[ Parent ]
For a "progressive" (5.00 / 1)
you're sure willing to complain a lot about taxation.  I understand the need to craft a campaign that will pander to people's self-interest.  But don't kid yourself that you're doing anything except spouting the original talking points from the Prop 13 campaign and acting in your own self-interest.

I vote against my own self-interest all the time (almost every election, actually), because I think it's the right thing to do.  If I were to vote my (short-term) self-interest like you're saying you'll do on this topic, I'd be a Republican -- low taxes, no services for the poor, screw the working class.  

You're cloaking your self-interest as tactical advice, and framing it in Jarvisite anecdote.  It's hard to give you credit for your "progressivism" when you're doing that.

[ Parent ]
still not listening (0.00 / 0)
You are still not listening. I am not doing talking points or spinning, I am asking you to build a prop 13 reform that can deal with people who are in my situation.
you cant be this obtuse, can you?
[ Parent ]
You are not listening. (5.00 / 1)
You are claiming that "your situation" means that if you are actually taxed on the asset value of your home, your home is worth so very much money that you would be thrown out.  

First of all, you don't know that.  If your house assessment has increased by the annual percentage permitted, your home is probably not that far undervalued relative to a lot of homes in the state right now unless you're in one of the areas that have kept their asset bubble prices.  Further, please come up with some statistically meaningful number of tax evictions of poor old people with massive asset value in their homes in those states that aren't crippled by anti-gummit Jarvisite restrictions on revenue.  

Second, you're not doing any productive work yourself, you're just expressing (and promulgating) fear by repeating the Jarvis talking points from 1978.  You also show no interest in intergenerational justice because you're so worried that your taxes might go up on the extremely valuable asset you've stumbled into because of the runup in CA housing values, even while your neighbor who was unlucky enough to be younger than you will be paying exactly those taxes, on top of paying a much much larger mortgage than you are paying.  

So, to the extent your point is "people are poisoned by this fear of property taxes, and that needs to be accommodated", it's a valid one, which I have acknowledged, though not as politely as you would like.  To the extent your point is "don't throw me out of my house, I'm poisoned by fear and will vote selfishly even though I'm a good liberal, I promise!", it's not a valid one.  Because you have decided that in your own self-interest, you want to pull the ladder up.  That's effectively what Prop 13 does -- pulls the ladder up by crippling the state, creating an entire class of people who are crippled by fear, and pushing the tax burden off on new market entrants.  

[ Parent ]
you convinced me (0.00 / 0)
Golly, you sure sold me, jsw.

now, go take that level of political sophistication and charming jargon, and see if you can run a successful statewide campaign based on this attitude and sensitivity toward winning the votes of all those other folks who have been in their homes for 20+ years.

Good Luck.

[ Parent ]
Agreed (0.00 / 0)
Principled conservatives also support things that liberals support as well such as choice, gays in the military and the legalization of drugs.  Let people lead their lives as they wish.

The inconsistency of the new conservatism is mind boggling.  Especially when these guys talk about individual freedom and their right to do what they please but they talk about Government impinging upon those rights.  What about the corporations that impinge on our rights?

The thing that both the free market and government share is that corrupt people corrupt systems.  

But it's impossible to argue with people who refuse to see these connections, that deny that private insurance gets between doctors and their patience all the time, deciding a course of treatment based on the bottom line rather than what is best for the patient.  They DENY this exists.

I've had the most absurd arguments in the past few days about things like cash for clunkers and the massive tax breaks to small business people who bought huge SUV's on my dime.  Oh but you know, it's okay if those people create jobs.

HUH?  How do people get to those jobs?  They have to DRIVE to those jobs, so they don't deserve breaks?

I've come to the breaking point, to how absurd it all is and how it's about profit, the I've got mines and nothing else.  The market can't solve every problem just as Government can't solve EVERY Problem.

I'm so frustrated it's not even funny anymore.

OC Progressive
Progress, not perfection!

What We Have Here Is a Failure to Communicate (0.00 / 0)
Nobody has painted a clear picture of what repealing Prop 13 would look like.  Does it mean assessing homes at 1% of market value on an annual basis?  Then property tax revenues would have been nearly as volatile as income tax revenue the last few years.  Does it mean assessing at 2% (3%, 5%, 7%, etc) of purchase price?  That doesn't change the structural problem, it simply means government gets more money to paper over the problem for another decade or two.  

Our good friend the property owner raises a valid and critical point.  Just how will Prop 13 repeal be implemented for existing homebuyers?  Any proposal that leads to immediate massive tax increases will be DOA.  I also believe people will remember the property bubble of the past decade, and will calculate how any proposal we put forward would have affected them during the housing boom.  

Right now I would settle for a split-roll on all non-residential property, with some sort of safeguard for small businesses, and restoring the right of local government to pass and adopt property taxes of their own.  Yes we can collect the parcel tax, but if cities, countied and school districts could place millage taxes on the ballot as well, we might reclaim local control.

Well put (0.00 / 0)
I don't agree with Friedman that property tax is the least bad tax. For one thing, you still owe it even if your income goes to zero. That creates significant financial hardship for a homeowner who's just lost a job and/or is having health problems.

(On the other hand, it works great for cars, which are a liquid asset and depreciate.)

I far prefer income tax, and then save to solve the volatility problem.

I also agree that having the assessed value of your home fluctuate annually not only creates revenue volatility, but it creates substantial anxiety for the owner. Do I like paying top-of-the line property tax in my neighborhood? No. But, on the other hand, I also know it's not going up by $1k this year because my neighbor sold his house at a brilliant profit. I knew what I was getting in to.

Finally, regular reassessments create cost - because someone has to value EACH home - and conflict.

Some property tax is appropriate, but I'd rather have a minimal property tax and a high income tax.

Fry, don't be a hero! It's not covered by our health plan!

[ Parent ]
You're making a *lot* of assumptions (0.00 / 0)
about how often homes are assessed for property taxes, what the basis for that assessment is, whether hardship waivers could be granted, etc.  

I have a (very small) piece of property in a rural state.  It was just reassessed for the first time since the lots were drawn -- that's at least 5 years ago, near as I can tell.  And it was reassessed not based on one lot in the neighborhood, but based on the overall increase in property values in the area and the services that the developer brought into the subdivision as a whole.

And as far as depending on volatile taxes and then saving... almost every state in the country is hosed, because the political system is biased against that in profound ways.  California "returned" "excess funds" to the taxpayer by lowering taxes in good-revenue years.  Whoops!  

[ Parent ]
And / Or... (0.00 / 0)
One could flatten out inequities the residential property tax rolls by reducing the actual rates and bringing all of the massive asset-value increases into the assessments, and then go on from there -- this is actually a perfect time to do that, given what's happened to residential housing prices.  But that will never happen, because people have got theirs, and new entrants be damned.  That's the beauty of Proposition 13 -- it creates a path-dependency for unwinding it that's just about as effective as (maybe more effective than) the path-dependency for getting public funding for elections from politicians who get all of their money from the very interests who resist public funding.
[ Parent ]
Will apartments be considered "commercial" property? (0.00 / 0)
I'd hate to put the burden on renters. Even If we restrict property tax increases to strictly commercial property, the cost will be passed along to consumers.

There will be objections to that, but a Value-Added Tax will have exactly the same effect. Salaries will have to go up, too, but life will net out being be a little more expensive for everyone.

My feeling is that life should be a little more expensive for everyone. And in exchange, life should be safer, cleaner, healthier, less-polluted, more just, less uncertain, and more compassionate.

We're a "commonwealth" society as well as an "ownership" society.

Well, of course that assumes (0.00 / 0)
that there's a 100% pass-through of taxes to consumers in order to retain the same level of profits.  That's not typically the case.
[ Parent ]
Uncle Milton, Prop 13, and the "least bad" taxes | 27 comments
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