Since its adoption in 1978, Proposition 13 has been granting tax certainty and brings ease of mind to California residents. Before, property tax increased proportionally to the increase in property values. Since then, under Prop 13, tax rates on homes and businesses decreased by about 57 percent. Residents and business owners have relied on Prop 13 for tax certainty and consistency.
At the State Board of Equalization meeting last month, the board discussed the property tax laws, benefits, and hindrances, which arise from Prop 13. With current shifts in support for the proposition, some politicians are seeking to increase tax revenue through a split roll measure. This reform would maintain the proposition’s tax standards for households and small businesses, while taking protective measures away from commercial and industrial properties.
Those in support of a split roll reform claim that Prop 13 is one of the main drivers of wealth inequality in California because large corporations benefit significantly. Therefore, the tax revenue, which is neglected under Prop 13, would be directed towards education under the split roll. They argue that the large scale earnings of major corporations allow them to take this financial blow with fewer casualties than other property owners, justifying the tax.
In the Board of Equalization meeting, Chris Wilson said, “Chevron could pay $100 million more statewide on land alone.” The tax dollars in question would have an immense impact regardless of the legislation. It’s just a matter of whether that money stays with the citizens or is taken to the government. This conflict between wealth and inequality has fueled the fight against Prop 13.
The split roll would have the most significant impact on small businesses and the working class. As mentioned by California Alliance of Taxpayer Advocates board member Wes Nichols, the split roll would have the most detrimental impact on small businesses, which are “the engine of the economy.”
While those in support of split roll claim that Prop 13 creates unfair benefits for the most wealthy companies, the companies with the most money are not the only ones who would benefit. The new construction industry would experience a late period of growth increasing rent for small businesses.
It is reasonable to assume that companies will do what they can to maximize profits and minimize expenses. When new costs are suddenly imposed on businesses which already operate on microscopic margins—as many of these corporations do—the survival of the company and the well-being of the employees fall in conflict.
This could lead to pay cuts and layoffs on a massive scale. Regardless of positive intentions, the split roll is plagued with negative externalities.
Increasing government revenue doesn’t necessarily guarantee positive shifts in legislation or overall well-being. Los Angeles recently passed a similar bill which “they are going to have to fix over and over again,” said California Business Roundtable President Robert Lapsley. Despite a large number of tax revenue which would be received from the split roll, for many reasons, the measure would do more harm than good.
For the past few decades, Prop 13 has been a constant security blanket for households and businesses, and it has been greatly appreciated while in operation. Removing or altering the elements of this legislation would result in more collateral damages than benefits.
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