California Voters Should Reject a $12.5 Billion Tax Hike

Next month, Californians will have the opportunity to reject the largest tax increase in state history - a property tax proposal that would raise taxes by as much as an estimated $12.5 billion annually. Worse yet, the statewide ballot measure would dismantle taxpayer protections contained in the state constitution that limit yearly tax increases for property owners across the state. Small businesses and residents in the Golden State already suffer from excessive taxation and onerous regulations that increase the cost of living and doing business in California. Voters shouldn’t add even more tax burdens on job creators in the midst of the biggest economic collapse in modern American memory.

The ballot measure in question is Proposition 15, a proposal to radically change how localities assess property taxes by repealing key sections of 1978’s Proposition 13, which has been heralded as one of the most significant state-level tax limitation victories in U.S. history. In fact, the success of Proposition 13 inspired citizens across the country to enact taxpayer protection measures in Massachusetts, Michigan, Missouri, and other states, making the tax revolt a nationwide phenomenon. Members of my organization, the National Taxpayers Union, participated in these ballot campaigns throughout the 1980s and beyond. 

During that same 1978 election, California voters also rejected a separate, weaker ballot measure (Proposition 8) that would have permitted “split roll” taxation, meaning the state could have charged different rates for homestead and commercial properties. Voters instead opted to uphold the longstanding principle of the “unified roll” that all property must be treated the same for tax purposes. In addition, Proposition 13 limited increases in assessed values to 2 percent per year until a property is sold, imposed a 1 percent rate cap, and required local rate increases to be approved by the electorate. 

For homeowners, small business owners, and employers of all sizes, Prop. 13 has provided stability, predictability and certainty. As a result, taxpayers have a better idea of what their tax liabilities will be year after year and don’t have to worry about significant, unpredictable property tax bills. And support for the 1978 initiative has been bipartisan. In 2014, then-Gov. Jerry Brown called Proposition 13 “a sacred doctrine that should never be questioned.”

But taxpayers must stay vigilant: if tax-and-spend activists get their way this November, residential and commercial property owners would no longer be governed by the same set of rules. Passing Prop. 15 would essentially scrap important taxpayer safeguards and remove some taxation limits from commercial properties such as factories, office buildings, stores and shopping centers. Taxpayers deserve fair, neutral taxation without being singled out for punitive treatment based on the type of property they decide to own.

Specifically, the proposal would force commercial property owners to pay property tax based on current market value rather than the value of the property when it was purchased. ​Meanwhile, it would create administrative chaos for property tax collectors. Localities would also be forced to hire an army of tax assessors since every business would be mandated to be reassessed at current market value at least every three years. Residential property would continue to be assessed based on the purchase price. 

So if property taxes won’t change for individual homeowners, should they care? The answer should be a resounding “Yes.” 

The consequences of Prop 15 tax will devastate the small stores and businesses in every community. Though they are technically exempt if the property is worth under $3 million, the majority of small businesses actually lease from commercial property owners, which are obviously the intended target of the tax increase. So an $11.5 billion tax increase will raise costs on property owners, many of whom will pass along these costs to lessees. As a result, businesses will pass these higher costs on to consumers, therefore making everything consumers buy more expensive. 

For businesses that operate on already thin profit margins, like restaurants and bars, they may need to close their doors for good. Between crushing income taxes, crippling regulations, and climbing property taxes, it may not be financially viable to continue to stay afloat, which was a reality for thousands of family-run operations even before COVID-19 hit California. 

Employers desperately need help to recover from the pandemic, not more economic hardship. It may seem to be smart politics to raise taxes on faceless “businesses”, but that doesn’t make it smart policy. And while California may not have a reputation of fostering a business-friendly climate, that doesn’t mean it should continue to pile on even more harmful taxes. 

Ask any business owner and they’ll tell you Prop. 13 is working. This November, voters should send a clear message to politicians in Sacramento that they stand with small businesses by opposing split roll taxation and supporting taxpayer protections in Prop. 13.