Prop 13: Gorilla in the room

This article from the LA Times, May 8, 2005, tells us the California state budget analysts were surprised once again as to the amount of revenue coming into California's state government. This time, though, it was a pleasant surprise of $2 billion more coming into state coffers.

The article fails to mention the gorilla in the room as to why California budget analysts often fail to accurately predict revenue intake: California's inequitable real property tax system for investment real property (Just to be clear: I am not speaking of private homeowners who live in the homes they own).

California relies relatively heavily on income and sales tax revenue, which fluctuates quite significantly year over year. Since Proposition 13 passed, the overall tax revenue from property taxes to California state and local governments has gone down percentage wise. If the state would just repeal a part of Proposition 13 and allow for the current market assessment of businesses, then Disneyland and other businesses that haven't moved for decades can be taxed, for example, in a more equal manner as newer businesses. This reform would greatly increase the revenue coming into the state and local governments in California. It would also allow state and local budget analysts to improve their budgeting as the more stable, year over year property taxes becomes a larger part of the revenue source budgetary pie.

A real world example of the effects of Proposition 13: Just think about this reform on property taxes paid by Disneyland, which hasn't moved since 1955, let alone 1978, the year Prop 13 was passed. There are other loopholes arising from Proposition 13 that should outrage those citizens of the state who believe in prudent budgetary and tax policies. For an excellent analysis of the inequities in the Prop 13 system of investment and business taxation of property in California, see this.

We don't hear about this in most instances because our media will report endless details regarding the most trivial matters while maintaining an iron-clad taboo against analyzing inequitable tax burdens.

There is a second revenue raiser that is rarely discussed, and if it is, is simply ridiculed as "politically incorrect" by well-off t.v. and radio pundits and reporters: Restore the top marginal state income tax rate from 9% to 11%, which 11% rate was the rate under that radical Marxist, Republican Pete Wilson. This restoration makes more sense for California than cutting programs or increasing fees (only propadganda keeps us from seeing fees as a tax).

The greatest irony is that California's Governator is thinking as short term as his hapless predecessor and is reacting to the news of the budget quarterly windfall by reversing some previous proposed budget cuts. His only "plan" is a spending cap, as if that addresses the structural crisis of the revenue boom/bust cycle.

(As I'm new to this, I did some editing!)