Panel Paper: Four Decades of Prop 13: Property Tax Knowledge and Attitudes in California

Thursday, November 2, 2017
New Orleans (Hyatt Regency Chicago)

*Names in bold indicate Presenter

Ronald Fisher1, Robert Wassmer2 and Zachary Kuloszewski1, (1)Michigan State University, (2)California State University, Sacramento

The research objective is to assess the understanding and perspective of California citizens about property taxation, including how the tax functions given the many legal constraints and citizen beliefs about the distributional impact of the tax. Because of its unique history with the tax, California is perhaps the most interesting place to explore knowledge, attitudes, and support concerning property taxation.

Proposition 13, adopted in 1978 with nearly two-thirds support of California voters, decreased the amount of property taxes paid on residential and business property by limiting effective rates and changed the property tax assessment and levying process. Because of the effects of Proposition 13, California’s reliance on and level of property taxation is relatively low, with the overall effective property tax rate in California 35th among the states. There has been a resulting increase in sales taxation. Although discussions to revise Proposition 13 have occurred regularly, none has gained substantial support.

We utilize information from the CalSpeaks Survey to better understand citizen opinion about Proposition 13 and citizen support for the property tax. Key issues include: (1) do California citizens today understand the provisions of Proposition 13 and the implications for how the property tax operates in California, and (2) given that knowledge, what is the perspective of California residents about the incidence or progressivity of the property tax? Of particular interest, of course, is the view about the incidence of the property tax relative to other potential revenue sources, including sales taxes and user fees.

The survey results reveal that about 55 percent of California residents understand the general provisions regarding property tax rates and assessment methodology imposed by Proposition 13. Given that, slightly less than one third (31 percent) believe that the property tax is progressive (imposes a greater burden, i.e. a greater percentage of income, for a typical high-income person).

Whether the property tax ultimately is a regressive or progressive tax has been the subject of substantial research by economists, tax professionals, and policy analysts but remains a controversial issue. A primary question analyzed is what affects individuals’ perceptions about property tax progressivity. Particular attention is given to the influence of knowledge of the property tax process in California, the economic status of the individual, and the political persuasion of respondents.

Do people who understand the property tax process in California better (more accurately) tend to believe that the tax favors lower-income or higher-income taxpayers relatively more? Do homeowners or those with higher income tend to think of the property tax as relatively progressive compared to other citizens? Independent of tax knowledge and economic status, are individuals’ perceptions about property tax incidence tied to political views or preferences, perhaps because taxpayers rely on general beliefs when the specifics are unknown?

Ultimately, the expectation is that perceptions about property tax progressivity will affect taxpayers’ preferences for relying on property taxes relative to other revenue sources. In addition to academic interest in assessing property taxation, this analysis may guide policy makers in how to improve local public finance.

Full Paper: