The Fight for Progressive Tax Reform Continues: It’s Time to Make It Fair

By Jim Miller

When Proposition 13 was first approved by voters in 1978 it was sold as a protection for single-family homeowners. But what voters were not told is that Prop. 13 contained giant loopholes that allow big corporations and wealthy commercial property owners to avoid paying their fair share of local property taxes.

This gives tax avoiders an unfair advantage over smaller, competing businesses that are paying their part and deprives our communities of much-needed revenue. As a result, California has made deep cuts to public safety, fallen behind in student funding, and been forced to close parks and libraries.

Now the battle to reform Proposition 13 is on in earnest. As Capital and Main reported last week, a coalition of twenty-two labor and community organizations has begun the Make It Fair campaign: “Make It Fair launched an education campaign proposing to close to Prop. 13?s corporate property loopholes. So far, a ballot proposition isn’t in the works – instead, proponents are working on a legislative route and say they are in conversations with state Senators Holly Mitchell and Loni Hancock.”

Make It Fair isn’t interested in going after the entirety of Proposition 13. Indeed, it proposes to leave residential properties alone and is instead focused on simply closing a big corporate loophole. Again Capital and Main notes:

The watershed initiative became synonymous with protecting the little guy after homeowners’ property tax rates grew so high in the 1970s that people on fixed incomes couldn’t afford to pay them. But from the start, a piece of the measure has protected the not-so-little-guys.

The commercial property tax provision of Prop. 13 allows many corporate landowners to pay taxes fixed at 1975 levels, with only modest increases, anddeprives the state of more than $9 billion a year in revenues, according to a University of Southern California study. Residential taxpayers shoulder the bulk of the burden of supporting California’s recession-battered budget and infrastructure.

Will the Sky Fall?

Of course folks on the right greeted this with the usual sky-is-falling hysteria about the grave threat to the economy represented by closing corporate tax loopholes. Here in San Diego, for instance, the San Diego Union-Tribune’s hopefully outgoing editorial staff took advantage of one last chance to froth at the mouth in an editorial attacking the reform effort.

According to the people at the mouthpiece of Manchester (who owns some commercial property himself last time I checked), Make It Fair is aiming to eliminate California’s “solitary business friendly policy.” After making that case, however, the editorial oddly admits that “Loopholes that enable corporations to obtain property but keep paying previous tax rates need to be fixed,” but then immediately pivots away from the subject at hand to “what is motivating this effort,” which is the nefarious conspiracy dedicated to “making sure more money is available to pay for public employees’ salaries and retirement benefits, starting with those of teachers.”

Now anyone who has been alive and breathing in San Diego knows that the editorial staff of the San Diego Union-Tribune would blame original sin on teachers’ unions if they could find a reference to it in the book of Genesis, but beyond that, there is a good reason they want to change the subject—reforming the commercial property tax loophole in Proposition 13 makes sense and would indeed make it fair.

Your Grandma and the Corner Store vs Disneyland and Google

Currently, homeowners cannot transfer ownership of their property without being reassessed but big companies can easily avoid it. People die, but corporations never do. Hence, large tracts of land owned by corporations will continue to be assessed far below market value for decades to come, making our property tax system more and more uneven and denying billions of dollars of revenue to the state.

Also, huge legacy corporations and rich investors are able to avoid paying their fair share because assessments are capped every year at a 2 percent increase regardless of the actual rise in value of their property. Newer businesses, therefore, come into an area and will often pay far more than their competitors at the same location. This puts new businesses at a significant disadvantage, particularly small businesses.

On the point of small businesses, the Make It Fair campaign clearly states that their effort is designed to zero in on big corporations, not mom and pop operations. In fact, as Capital and Main report, they are looking to level the playing field for them by “proposing tax relief for small businesses, a move that could drive a wedge between large corporate interests that want to keep things the way they are and individual business owners who feel the system is unfair. Make It Fair estimates that 90 percent of businesses will get property tax relief under the group’s proposal.”

Why now? Didn’t Proposition 30 Fix the Problem?

After what is surely going to be a decent year for the budget this time around, nevertheless dark clouds loom. Indeed, just as the money from Proposition 30 has begun to right California’s financial ship, we know that the sales taxes from that measure are set to expire and, right behind them, the tax increases on top earners.

The fact is the Governor insisted that the tax increases in Proposition 30 be temporary hoping that the economy would pick up enough to make continuing this revenue stream unnecessary. Unfortunately, his hope has not come to pass and the expiration of Proposition 30, if allowed to happen, will hit education and public services in California hard—not just the teachers’ salaries and benefits that the SDUT loves to hate but the whole system. And that will indeed hurt students from K-12 to the University of California as well as infrastructure, public safety, parks, and vital social services.

Thus, if we don’t want to go back to the bad old days of budget cuts, hiring freezes, and general austerity from K-12 to the UC and CSU systems, we need to find a way to fill the hole in the budget that the expiration of Proposition 30 will create. Of course, the most logical course of action would be to extend or make permanent Proposition 30’s taxes on the rich and stop budgetary bleeding before it starts. But, truth be told, even this is not enough.

If we ever want to get to a place where we are not just preventing cuts but actually restoring California’s education system to what it was when it was the envy of the country, something bolder is needed. And that means taking a look at the harmful legacy of Proposition 13. As California Federation of Teachers President Josh Pechthalt puts it,

“Prop. 13 was part of a national anti-tax effort led by groups like the Howard Jarvis Tax reform group . . . Since 1979, California has lost tens of billions of dollars in uncollected property tax dollars that should have gone to public schools and vital social services.”

Just to give one stunning example, if we reform Proposition 13’s commercial property provisions, Chevron Corporation alone would pay an additional $100 million in taxes that could go toward the public good.

It Will Take A Movement

If we close the loopholes, it will bring in real long-term sustainable revenue to help make California and its schools great again. As Pechthalt puts it:

Fighting for progressive tax reform is exactly the kind of struggle we need to be a part of. Not only do we have a real need for additional funding, but it allows us toraise issues of income distribution and inequality, the vital role of government and the obligations that we have to support our children and the next generation of decision makers. It deepens bonds with our students, parents and community members . . . Taking on Prop. 13 is an issue of economic justice as well as generating revenue to fund the kind of public education and services all Californians deserve.

Chris Wilson, the Associate Director of Alliance San Diego, a local affiliate of California Calls, echoes Pechthalt’s enthusiasm for the cause of progressive tax reform and the widespread benefits it could bring both at the statewide and local levels:

Reforming Prop. 13 to close corporate loopholes will provide billions in revenue for our state. This will help us provide long-term stability in funding for education, public safety, and services vital to improving the living conditions for all Californians. With this reform we can bring an estimated $803 million to San Diego County in 2019…this is a game-changer. Imagine a future when people won’t have to choose between feeding their families and a college education for their children. This is the time…this is the fight! Alliance San Diego is excited to work with the coalition of faith groups, labor, and community organizations across the state, as well as our local partners, on reform that will provide revenue improve the quality of life for all residents for generations to come!

Certainly there will be powerful forces against us but the early polling shows that this is a fight we can win and one that could bring together a dynamic new labor-community alliance aimed at transforming the future of California for the better.

Note: Parts of this column appeared previously in the CFT Perspective