The Anti-Tax Psychosis
Thirty years later, Prop. 13 remains politically untouchable
Tax revolts are nothing new in America.
It’s a country, after all, that owes its independent existence to a tax revolt. You want a tax revolt? Here’s a tax revolt: Code Pink, the women’s peace movement, is currently spearheading a movement to persuade 100,000 taxpayers to refuse, en masse, to pay the portion of their taxes that goes to funding the war in Iraq.
Prop. 13, though, was – and remains – something a little different. In effect, if not entirely in intention, it marked the start of a calamitous 30-year cycle in American politics in which it was deemed that the business of government was to get smaller in every department except for national defense, in which it was deemed that personal control of finances was more important than social programs and public infrastructure, in which the income gap between rich and poor grew alarmingly and squeezed the middle classes out of much of their hard-won sense of financial security.
Its impact was felt way beyond the borders of California. Within five years of its passage, it had spawned copy-cat tax restriction measures in roughly half the states. It opened the way to Ronald Reagan’s tax cuts in the wake of the 1981 recession – a policy that jump-started the economy enough to win him re-election by a landslide three years later, but also dumped on the poor, plunged the country into an unsustainable cycle of debt and, as interest rates rose, played a major role in creating the Third World debt crisis.
The increasing political untouchability of Prop. 13 in recent years has only exacerbated the anti-tax psychosis. Pete Wilson still felt politically able to raise taxes when he was governor in the early 1990s, but Arnold Schwarzenegger, a Republican considerably more moderate on most issues, has gone through contortions worthy of a circus act (and continues to do so now) to avoid doing the same thing.
At the national level, we need look only at George W. Bush’s extraordinary chutzpah in cutting taxes, mostly for the very wealthiest, at a time when the economy was struggling and government spending was going through the roof because of the wars in Afghanistan and Iraq. Dick Cheney notoriously took the Republican victories in the 2002 midterms as a license to push for more tax cuts, not less, arguing: “This is our due.”
You’d think we would have learned something by now. The orgy of deregulation and cancellation of government programs in the Reagan-Bush years led directly to the 1991 recession. A very similar orgy of fiscal starvation and deregulation under George W. Bush – starting with the mortgage market – is leading us into another recession right now.
Here’s the source of the problem, and why the argument is fundamentally wrong. Most Americans, now as in 1978, don’t earn a whole lot. They don’t, unlike their European counterparts, have access to free health care or higher education as part of their tax deal. So something like a rapid jump in property taxes, tied to increases in market values, can be very threatening to families on a tight budget.
The legitimate argument that property taxes should be made more predictable, especially for people struggling to afford home ownership in the first place, was effectively hijacked, however, by the proponents of Prop. 13 and its many imitators. The real effect is not to provide relief for marginal taxpayers but rather to strike a devil’s bargain with rich individuals and corporations. They get to keep a much larger chunk of their own change, and in return the state is starved of crucial funds for education, public health, and other vital services.
In other words, home ownership has become something of an exclusive club. Once you’re in. you’re in. But the societal costs – the shift in tax burden towards the poorer end of the spectrum, the loss of services 816
facilitating upward social mobility, and the income disparities created by a whole host of tax and deregulation policies of which Prop. 13 and its ilk are just one – make it significantly harder for anyone left outside the club to join. And it makes the business of government, in and of itself, a whole lot harder.
The catastrophic impact of Prop. 13 on education in this state are well known and documented elsewhere in this issue. But here and in other states, the tax cap has also vastly increased the volatility of state revenues generally. Since the state can’t rely on significant increases in property tax revenue in good years, it has to fall back on income tax, which is much more dependent on the business cycle. Hence the sort of budget crisis that this state, and many many others, have seen in the past seven years.
When the economy is doing well, the state can survive. When it dips, everything from teacher salaries to university and community college fees to the number of available hospital beds is suddenly open to serious question. The budget volatility in and of itself makes it impossible to run a proper school system, say. The loss of funding arising from budget cuts only makes a structurally lousy situation worse.
These are all facts well known to a large number of economists, but they barely get any airing in the mainstream media. A database search of U.S. publications yields nothing but expert endorsements for property tax-capping measures from people like Arthur Laffer, one of the original architects of Prop. 13 who once said that the societal impact of market-indexed property taxes was worse than mass murder. It takes a lot of searching to find any published counterweight to his arguments from the likes of George Akerlof, the Nobel Prize-winning Berkeley economist who hates Prop. 13, or Kent Sims, a prominent Bay Area economic consultant who I’ve quoted in this column before.
We all know what happened when Warren Buffett dared to criticize Prop. 13 during the 2003 recall election. (He contrasted his modest Omaha home, where his property taxes had increased almost $2,000 that year, to his $4 million Laguna Beach mansion, where the rate increased just $23. Clearly, he could afford more.) Arnold Schwarzenegger, whom he was advising at the time, threatened to make him do 500 sit-ups.
The topic has been almost as big a taboo in other states, too. In some states like Oregon and Washington, rival political movements and the courts have gone some way to prevent some of the more radical anti-tax plans from becoming law. In others, like Colorado, new initiatives have effectively stifled government further by mandating certain levels of spending – mainly on education – without undoing property tax caps. That leaves legislators trying to draw up a budget with next to no room to maneuver on anything.
Idaho, meanwhile, has tried to mitigate the impact of its loss of property taxes with an exemption on grocery sales taxes intended to provide tax relief to the overburdened poor. But anti-tax ideologues in the state legislature and the governor’s office have so far stood in the way.
Politically, the message to struggling taxpayers is insidious mainly because it raises voter ire over the wrong target. Tax revolts make government itself the bad guy – a self-fulfilling prophecy because the loss of revenue does indeed diminish the quality of government. The real bogeymen people should be furious at are corporations and the very wealthy who have effectively earned themselves tax exemptions and passed on the cost to the rest of us. Anyone wanting to work to repeal Prop. 13 and its imitators would do well to craft a populist message around that notion. The modern era of corporate greed is now 30 years old. It’s time for the plunder to stop.
Published: 01/23/2008
DIGG | del.icio.us | REDDIT
