Fear and Loathing of Proposition 13 : The property tax measure that’s bigger than anybody, even Macy’s

Many people, for one reason or another, are upset with Proposition 13. For although it was the opening salvo in the Tax Revolt, Proposition 13 wasn’t perfect. In fact, it created significant tax inequities. Enshrined as Article XIIIA of the California Constitution after passing overwhelmingly in 1978, it decrees that one’s property tax bill cannot rise by more than 2% a year as long as one owns the property. That’s why a lot of people support it: A person cannot be taxed out of his or her home. This means a great deal, especially at a time when politicians are scurrying around for new ways to tax.

Macy’s felt Proposition 13’s sting when it reorganized in 1986 and found its property subject to a higher rate. Macy’s suddenly had a higher property tax bill than competitors, so it sought to have the measure declared unconstitutional. But when the U.S. Supreme Court agreed to hear the case, Macy’s came in for a ton of criticism from the business community, which on the whole gets a big tax break from Proposition 13, and from homeowners, who threatened to boycott Macy’s stores. Last Friday the retailer withdrew its case. Proposition 13 was bigger than Macy’s.

It may be bigger than anyone. It will probably prove more formidable and enduring than the recommendations of the state Senate Commission on Property Tax Equity and Revenue, which will issue a report Thursday. In essence, the bipartisan commission would like to return property tax assessment to a more traditional market-value system.

That would make sense, of course. It would mean people would pay on the basis of what a property is worth, rather than paying every year on the basis of what the property was worth many years ago when it was purchased. The inequity is particularly glaring for commercial businesses that don’t change hands often. They pay only a small fraction of what they would if taxed at current market value. That’s why other businesses went after Macy’s with a vengeance and helped force it to back down.

The Supreme Court may yet rule on another challenge to the tax law, brought by a Los Angeles homeowner. So it’s still possible that the courts may do to Proposition 13 what the majority of voters almost certainly won’t: decide it’s a bad law. Indeed, the fact that it’s a problematic law won’t go away. But the measure still remains good politics--nobody wants to be under the threat of being taxed out of a home. That’s the basis of the measure’s emotional support: To the average voter, who has time for only so much complexity, everything else is the buzz of either politicians trying to tax or economists searching for an elusive utopia.