Prop 13's Shifty Licks

TRB

March 12, 1992|By TRB

WASHINGTON. — California's Proposition 13 of 1978 was the start of the middle-class tax revolt that has dominated American politics ever since. Fourteen years later, the middle class tax burden is higher than ever. But a lucky few have done OK.

That plotline was built into Prop 13 from the beginning. A voter initiative, it limited property tax to 1 percent of assessed value. It also rolled back assessments to 1975 levels. It limited increases to 2 percent a year. But -- and this ''but'' has now brought Prop 13 before the Supreme Court -- assessments rise to market value whenever a property changes hands.

In California's overheated real estate market, the result is dramatic inequities. Stephanie Nordlinger, who brought the Supreme Court case, bought her Los Angeles home in 1988 for $170,000, so she pays $1,700 a year in taxes. Her neighbors in nearly identical houses pay less than $400. Over a decade, a recent buyer in Santa Monica will pay almost $51,000 in property tax while a longer-resident neighbor will pay $3,000. The owner of a Beverly Hills mansion pays less than the owner of a tiny bungalow.

The unfairness here is of a particular sort increasingly characteristic of American society. Prop 13 was not, as advertised, a tax freeze. It was a tax increase with a grandfather clause. After the Civil War, Southern states imposed strict rules for voting, to exclude blacks, but exempted anyone whose grandfather had voted, to include whites. Now a ''grandfather clause'' means any exemption from some change in the rules for those already aboard.

Prop 13's ''welcome stranger'' provision -- as the tax increase for new arrivals is known -- is literally a grandfather clause, since it allows property owners to pass property to their descendants without losing their low assessments. It also allows homeowners older than 55 to take their assessments with them when they move.

Although Prop 13 was a great right-wing crusade and rent control is regarded as a left-wing cause, the politics and economics of the two policies are actually similar. Both reward those in place at the expense of new arrivals. Both distort the market by encouraging people to hold property they no longer need. Both are defended as helping the poor, but give much of their benefit to the affluent. Yet conservatives are egging on the Supreme Court to find rent control unconstitutional, while they root for dismissal of this challenge to Prop 13.

The Social Security system is a giant grandfather clause, providing current retirees a return on their invested dollar far greater than today's workers are promised -- let alone what we will actually receive.

Sometimes grandfather-clause arrangements are useful as a way grease the gears of change. Those with the most power to stand in the way of necessary changes -- be they higher taxes or lower wages -- are in essence bribed not to interfere. More often, though, grandfather clause arrangements clog the wheels of change -- discouraging people from freeing up unneeded homes, encouraging stasis.

What will the Supreme Court do?

Recent precedents look pretty good for Ms. Nordlinger. A 1982 opinion by Justice O'Connor threw out a law giving every Alaskan $50 per year of residence from the state's oil royalties. This unconstitutionally discriminated against recent arrivals. Then in 1989, Chief Justice Rehnquist wrote a decision invalidating a ''welcome stranger'' tax assessment system for coal mines in West Virginia.

California argues Prop 13 is different from these precedents since it discriminates against all new homebuyers, not just out-of-staters, and since it is official state-wide policy, not just the work of one lone assessor. The strongest argument is that the state has chosen to tax ''acquisition cost'' rather than current value. California's property tax, in other words, is just a large sales tax spread over a number of years, and not discriminatory against anyone.

The hardest ''equal protection'' cases to make are those where victims of a discriminatory government policy are not some identifiable group like blacks or women, but some seemingly random collection of individuals. But the plaintiff's brief argues convincingly that Prop 13's discrimination in favor of established homeowners and against new purchasers is not just random, but ''the old, old story of a politically dominant majority privileging itself at the expense of an inchoate and politically unrepresented group.''

Whatever the Supreme Court decides, the net effect of Proposition 13 has not been to reduce the tax burden so much as to shift it to future generations. That's a metaphor for the tax revolt in general.

TRB wrote this commentary for The New Republic.

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