The Tax Revolution That Gave Us Today’s Government Mess
Twenty-nine years ago today, on June 6, 1978, California voters approved by a two-to-one margin a revolutionary ballot initiative known as Proposition 13. Aimed at curbing the growth of state government, the measure slashed property taxes by an average of 57 percent, limited property-tax rates to one percent of market value, capped the annual growth of property assessments at 2 percent, and outlawed any future state tax hikes that didn’t receive two-thirds support in the legislature.
Widely interpreted as a “modern Boston tea party,” Proposition 13 marked the beginning of a massive antitax revolt. Between 1978 and 1981, voters in Delaware, Hawaii, Idaho, Louisiana, Massachusetts, Michigan, Missouri, Nevada, South Carolina, and Texas drove through similar revenue rollbacks, turning an aggregate $8 billion surplus at the state, county, and municipal levels into a $6 billion deficit. What had begun as a local phenomenon spurred a national craze for tax cutting and deficit spending. Ronald Reagan’s landmark budget reconciliation package of 1981 slashed marginal tax rates and, in combination with large increases in defense spending, contributed to some of the largest budget shortfalls in American history. The “spirit of 13,” it at least seemed, had real staying power.
California’s tax revolt had roots going back to 1957, when 6,000 citizens attended a protest meeting at the Los Angeles Coliseum to register their discontent with property-assessment hikes in the San Gabriel Valley that had increased homeowners’ tax bills by as much as 50 percent. Those were the days when California seemed the embodiment of the American dream. Its schools were first-rate, its public universities were well-funded and practically free, and its corporate and technological sectors were booming.
In the era of Proposition 13, conservative political activists painted a different picture of California, as a miniature socialist state where taxes were stiflingly high and government waste ran rampant. In fact, California’s residential property taxes had been relatively low in the two decades following World War II. Since tax assessors were elected officials, they had a political incentive to impose a disproportionate share of the revenue burden on business owners and keep down levies on homeowners, who constituted the great majority of voters.
After a major kickback scandal involving assessors erupted in the early 1960s, the state passed a law in 1966 that established a strictly uniform assessment rate, and this shifted back more of the tax burden to homeowners. Still, taxes in California did not immediately become a serious political issue. Antitax ballot measures failed in 1968, 1972, and 1973, and even Ronald Reagan, who reinvented himself as an antitax conservative in the mid-1970s, raised income and sales taxes by more than 50 percent during his eight years as governor, from 1967 to 1975.
Not until the mid-1970s, spurred by a combination of high inflation, rising unemployment, and “bracket creep”—an inflationary phenomenon that saw wage earners bumped up into higher income-tax brackets even as their real earnings decreased—did a popular tax backlash begin to emerge. Leading the charge was a veteran antitax activist, Howard Jarvis, who was a retired small businessman originally from Utah (and a Mormon who broke with tradition by smoking cigars and drinking liquor). Jarvis initiated the Proposition 13 campaign. During his 15 years as an antitax agitator, he tended to sound a populist, rather than anti-state, message. “We’ve got teachers who belong to this organization,” he said in 1970, “and labor people. We’ve got a great number of Negroes. [We] don’t have any oil company money and no title insurance money. No bank money and no land speculators.”
Striking a similar chord, an antitax organization based in Los Angeles described itself as composed of “working businessmen” opposing the “non-creators, the non-builders, those who sit back fat and lazy.” In Massachusetts, the key organizer of the antitax efforts suffused the movement with strong social-justice rhetoric. In other words, until the late 1970s, the antitax movement presented itself as pitting the producing class against the moneyed class. It was all about redistributive fairness, not small-government conservatism.
In 1977, however, Jarvis reinvented himself as “an out of the closet libertarian,” according to one historian, grounding his antitax message in a general broadside against all government spending, including spending on schools, parks, libraries, and social services. The new message resonated—or so many observers believed. Newsweek declared that Proposition 13 sent a clear, simple message: “California to Liberal Government: Drop Dead.”
Yet although polls confirmed that voters supported massive cutbacks in government spending, citizens spent the next decade railing against the actual effects of the tax revolt. In Massachusetts, local communities were forced to make steep and highly unpopular cuts in schools, fire and police departments, and public works. California fared better at first, as its public sector was cushioned by a large budget surplus. But as the 1980s wore on, the state’s schools, universities, and infrastructure began to buckle under the strain, and citizens responded angrily.
In effect, voters wanted to revolt against government but not against the government services they had come to rely on. “The real issue wasn’t money,” Barbara Anderson, the executive director of Citizens for Limited Taxation, told the Washington Post. “It was control and attitude. People were fed up with the attitude of government toward them.” The experiences of Vietnam and Watergate had greatly frayed trust in public institutions. “Politics has gone from the age of ‘Camelot’ when all things are possible to the age of ‘Watergate’ when all things are suspect,” Morris Udall, the Democratic Arizona congressman, observed. It was, as U.S. News and World Report put it, an “age of nonheroes.”
It really was a trying time for faith in government. In the same 16-month period when Richard Nixon’s administration crashed and burned over Watergate, a former Republican congressman from Pennsylvania pled guilty to mail fraud and obstructing justice, a Democratic congressman from New York was indicted for funneling government contracts to an underworld crime figure, the lieutenant governor of California was indicted on perjury charges, a highly respected former governor of Illinois, Otto Kerner, received a three-year sentence for accepting bribes, and a former governor of Oklahoma went to prison for extortion. And between 1978 and 1980 the FBI conducted a sting operation in which agents posing as Arab businessmen offered cash bribes to 31 elected officials. One senator and five House members took the bait. By the late 1970s, public trust in government, and in the people who ran government, was at an all-time low. The tax revolt that began in California and spread nationwide was a product of voter disgust.
It has left a long and complicated legacy. In order to understand why George W. Bush, the most conservative President in modern times, has signed into law the largest expansion of government entitlements since Lyndon Johnson—and sanctioned some of the deepest budget deficits in American history—it is essential to go back to Proposition 13 and the tangled web of motivations that lay behind it. It was a revolt against government but not against the things government provided. It was one of the main causes of our current political climate, in which office-seekers can neither propose raising taxes nor endorse meaningful spending cuts.