There’s been a lot of talk lately about California’s Proposition 13 and the taxpayers’ revolt that caused its passage. The Nevada Policy Research Institute recently brought Jon Coupal, executive director of the Howard Jarvis Taxpayers Association, to Nevada to provide some background on how Proposition 13 came about, and some advice on how to draft our own version of tax relief. It’s worth considering.
The California Experiment
During the 1960s and ’70s in California, home prices were rapidly escalating. Because real estate was taxed on its assessed value, property taxes soared, and many people were actually taxed out of their homes, including seniors who had owned their homes for many years. Does this sound familiar?
Howard Jarvis and Paul Ganns had both fought separately for property-tax relief measures, but neither was successful. In 1977 they finally joined forces to create what became Proposition 13. This ballot question proposed rolling California property tax rates back to 1976 levels and capping future increases to 2 percent a year. Once a property changed hands, it would be re-assessed and the tax basis would be adjusted to match current market value.
Nobody took Jarvis and Ganns seriously – not politicians, the press or anyone else. But just before the ballot question went up for a vote, county assessors sent out property tax bills, and people discovered their taxes in many cases were four times what they had previously been. Proposition 13, which nobody had expected to pass, earned 66 percent of the votes and became law in 1978.
“Government is like an amoeba,” Coupal warned. “If you push it down in one place, it will pop up again somewhere else. So, how could we prevent the state from finding other ways to make up for the loss in income when property tax increases were reduced?” To avoid this tax shift, Proposition 13 also included a provision that all new taxes needed to be put in front of taxpayers, where they must gain a two-thirds vote of the electorate.
Despite the dire predictions by government officials that Proposition 13 would kill California, it has been alive and well since 1978.
Nevada’s New Law
In response to fears that Nevada property owners would revolt when they got their tax bills this summer, the Nevada Legislature passed Assembly Bill 489, which was signed into law on April 6th. This measure caps property tax increases at 3 percent annually for owner-occupied homes and 8 percent for all other property. Keep in mind that this rate is 50 percent more than the Proposition 13 rate for homeowners, and 400 percent more for commercial property.
The new law is sure to face challenges in the courts, mainly because it sets up a split tax roll. Article 10, Section 1 of the Nevada Constitution states, “The Legislature shall provide by law for a uniform and equal rate of assessment and taxation.” Sub-section 10 of this section states the Legislature may reduce taxes for single-family homes “to avoid severe economic hardship to the owner of the residence.” This year, lawmakers decided “economic hardship” applied to all Nevada homeowners caught in the rising spiral of housing prices.
More likely, they decided it would create a “political hardship” for themselves if they allowed tax bills for the 2005-2006 fiscal year to show a huge increase in property taxes. And if the law doesn’t hold up to court challenges, then the courts, not the legislators, will get the blame. They may have also hoped the new law would take some of the pressure off a potential taxpayers’ revolt, “like letting steam out of a teakettle” according to Coupal’s analogy.
But a two-tier tax system is not “uniform and equal.” Why should owners of commercial properties be denied relief from these burdensome tax increases? And what about rental properties? If taxes on apartment buildings are raised, rents will have to go up to compensate, which means renters are paying more, while homeowners aren’t.
If this new law passes challenges in the courts, we will have an unequal and unfair system of property taxes. If it doesn’t, we’ll have to start all over again looking for tax relief. In either case, it’s time for Nevadans to make plans for our own Proposition 13 to take control of taxes and put it back in the hands of the voters, where it belongs, instead of being held hostage by market forces we have no control over.
Advice for Nevada
The idea of a split tax roll is just one example of how politicians are trying to drive a wedge between the business community and ordinary taxpayers to “divide and conquer” us. If we fight against each other, we’ll both lose.
Coupal’s advice: “Members of the business community: Don’t advocate higher taxes on individuals. They are your customers. The more they pay in taxes, the less they’ll have to spend at your company. And individuals should realize that taxes on businesses are passed on to their customers in the form of higher prices.”
Assemblywoman Sharron Angle (R-Reno) and others are proposing to put a property-tax relief measure on the ballot in 2006. Let’s start now to research ways to craft a proposition that will be fair to everyone, will stand up to court challenges and will guarantee a stop to runaway taxation. Most importantly, we need to stand together.
