1978 California Proposition 13

Based on Wikipedia: 1978 California Proposition 13

The Tax Revolt That Rewrote America

On June 6, 1978, nearly two out of every three California voters did something remarkable: they amended their state constitution to cap property taxes, freeze home assessments at 1976 values, and require a two-thirds legislative supermajority for any future tax increases. The measure was called Proposition 13, and its shockwaves rippled far beyond the Golden State's borders.

Within two years, thirteen of thirty anti-tax ballot measures passed across the United States. Ronald Reagan won the presidency. A new era of American politics—one defined by tax revolt and government skepticism—had begun.

Proposition 13 remains, to this day, the most famous and influential ballot initiative in California history. Politicians call it the "third rail" of state politics, borrowing the metaphor from subway systems: touch it, and you die. Attempts to modify it have consistently failed for nearly half a century.

But here's the twist that makes this story so fascinating: this anti-government revolution may have been created by government mistakes in the first place.

The Perfect Storm

To understand why Californians were so angry in 1978, you need to understand what had happened to their property tax bills over the previous decade.

The 1970s brought severe inflation across the United States. Housing prices, particularly in California's desirable coastal cities, were climbing rapidly. And property taxes are calculated as a percentage of a home's assessed value. So when home values doubled or tripled, tax bills followed.

Imagine you're a retired teacher living in Los Angeles. You bought your home in 1955 for $20,000. By 1975, that same home is worth $150,000. Your income hasn't changed—you're on a fixed pension. But your property tax bill has increased sevenfold. Suddenly you can't afford to live in the home you've owned for twenty years.

This wasn't a hypothetical. It was happening to thousands of Californians.

But wait—it gets worse.

The Assessor Scandals

During the early 1960s, California experienced a series of scandals involving county assessors. These officials—responsible for determining the value of property for tax purposes—were caught giving sweetheart deals to their friends and political allies. Wealthy, well-connected property owners were receiving artificially low assessments while ordinary homeowners paid full freight.

The state legislature responded in 1966 with Assembly Bill 80, which imposed strict standards requiring assessments to reflect actual market value. The intention was admirable: fairness and consistency. The result was chaos.

Homeowners who had been paying taxes based on outdated valuations suddenly received new assessments reflecting current market prices. These weren't small increases. For many families, property tax bills doubled or tripled in a single year.

So let's review what California homeowners were experiencing by the mid-1970s:

• Inflation was driving home values higher every year
• New assessment standards meant taxes jumped immediately to reflect those higher values
• Fixed-income retirees faced the prospect of losing homes they'd owned for decades
• Meanwhile, scandals had revealed that the tax system had been rigged in favor of the wealthy and connected

A man named Howard Jarvis saw an opportunity.

The Gadflies

Howard Jarvis was a former newspaperman and appliance manufacturer who had reinvented himself in retirement as a taxpayer activist. He was loud, combative, and utterly convinced that California's government had grown too large and too expensive. He had a partner in Paul Gann, another anti-tax crusader, and together they became the public faces of Proposition 13.

The measure they championed—officially titled the People's Initiative to Limit Property Taxation—did three revolutionary things.

First, it rolled back property assessments to their 1976 values. If you'd bought your home in 1960, your taxes would now be calculated based on what the home was worth in 1976, not what it was worth in 1978. This provided immediate relief to homeowners watching their tax bills spiral upward.

Second, it capped annual assessment increases at 2 percent, regardless of how much property values actually increased. In a state where home prices were rising 10, 15, or 20 percent annually, this was an enormous protection. Your home might double in value over five years, but your property tax bill could only increase by about 10 percent.

Third—and this is often overlooked—it required a two-thirds supermajority in the state legislature for any future tax increases, and a two-thirds voter approval for local special taxes. This wasn't just property tax reform. It was a structural change to how California could raise revenue of any kind.

The Acquisition Value System

Here's where Proposition 13 gets philosophically interesting—and controversial.

Under the new system, your property tax is based on what you paid for your home, not what it's currently worth. Economists call this an "acquisition value system," and it creates some remarkable disparities.

Picture two identical houses next door to each other in San Francisco. One was purchased in 1980 for $100,000. The other was purchased in 2020 for $1.5 million. Under Proposition 13, the 1980 buyer might be paying property taxes based on an assessed value of around $200,000 (the original value plus 40 years of 2 percent annual increases). The 2020 buyer is paying taxes based on $1.5 million.

Same house. Same neighborhood. Same public services. But one owner pays roughly seven times more in property taxes than the other.

The Supreme Court of the United States examined this system in 1992, in a case called Nordlinger versus Hahn. A woman named Stephanie Nordlinger had purchased a home in Los Angeles and discovered her property tax bill was five times higher than her neighbors who owned comparable homes but had lived there longer. She argued this violated the Equal Protection Clause of the Fourteenth Amendment.

She lost.

The Court ruled that California had a legitimate interest in neighborhood stability and protecting longtime residents from tax-induced displacement. The acquisition value system was constitutional.

Where Did All The Money Go?

In the year after Proposition 13 passed, property tax revenue to local governments dropped by approximately 60 percent. This was not a subtle change. Schools, fire departments, libraries, and parks suddenly had dramatically less funding.

California's state government stepped in to fill some of the gap, fundamentally changing the relationship between Sacramento and local communities. Before 1978, local governments raised their own money and made their own spending decisions. After 1978, the state became the middleman, collecting taxes and redistributing them to localities.

Consider what happened to community colleges. Before Proposition 13, community college districts could levy their own property taxes for various purposes—healthcare benefits for employees, childcare programs, community services. The North Orange County Community College District, for example, had taxed local property owners to fund a comprehensive health plan for all employees.

After Proposition 13, community colleges lost much of their independent taxing authority. State funding went from providing 38 percent of community college revenue to 78 percent. Local control became state dependency.

The Bigger Picture on Taxes

Did Proposition 13 actually reduce California's tax burden? The answer is more complicated than you might expect.

In 1978, Californians had the third-highest tax burden in the nation, paying about 12.4 percent of their income in state and local taxes. By 2012, that had dropped slightly to 10.9 percent—still the sixth-highest in the country.

The reduction in property taxes was largely offset by increases elsewhere. California now has the highest marginal income tax rate in the United States. It ranks among the top ten states for corporate taxes and sales taxes. The state didn't become a low-tax paradise. It just shifted which taxes were high.

Here's a number that might surprise you: by 2003, inflation-adjusted property tax revenue to California local governments had actually exceeded pre-1978 levels. How? Population growth. New construction. Property changing hands and being reassessed to current market values. Even with the 2 percent annual cap, the money eventually came back.

The Howard Jarvis Taxpayers Association—named for one of Proposition 13's champions—estimated in 2009 that the measure had saved California taxpayers $528 billion in aggregate. That's an enormous number, but it doesn't account for the services not provided, the infrastructure not built, or the schools not funded.

The Serrano Paradox

One of the stranger theories about Proposition 13 involves a court case called Serrano versus Priest.

Before the 1970s, California school funding was almost entirely local. Wealthy districts with expensive homes raised more property tax revenue and therefore had better-funded schools. Poor districts with modest homes had less money. The quality of your child's education depended largely on where you could afford to live.

In 1971 and again in 1976, the California Supreme Court ruled that this system violated the state constitution's equal protection guarantee. Schools across California needed to be funded more equitably, which meant redistributing property tax revenue from wealthy districts to poor ones.

Some scholars have theorized that this redistribution helped fuel the Proposition 13 revolt. Property owners in affluent areas realized their tax dollars were no longer primarily benefiting their local schools. Why pay high taxes if the money was going somewhere else?

But here's the paradox: surveys show that voters who supported Proposition 13 were not more likely to oppose the Serrano decision. In fact, they were generally supportive of school funding equalization. They just didn't want to pay higher taxes to achieve it.

Not Just a Rich People's Revolt

A 2020 study published in the Journal of Policy History challenged the common narrative that Proposition 13 was driven by wealthy property owners trying to protect their assets. The author, Joshua Mound, argued that the tax revolt had deeper roots in working-class and middle-class frustration.

Here's his argument: During the 1960s, the Kennedy and Johnson administrations cut federal income taxes, particularly for high earners. This was supposed to stimulate economic growth. But at the same time, state and local governments were raising their own taxes—sales taxes, property taxes, fees—to fund expanding services.

The result was a "pocketbook squeeze" on ordinary Americans. Federal taxes went down for the wealthy, but state and local taxes went up for everyone. The overall tax system became more regressive, meaning it took a larger percentage of income from lower and middle earners than from the rich.

By 1978, Mound argues, voters were fed up—not with taxes in principle, but with what they perceived as an unfair system. Proposition 13 was their revenge.

The Education Explosion

One context that's often forgotten in discussions of Proposition 13 is how dramatically California's government had expanded in the decades before 1978.

In 1900, California had exactly one public university: the University of California at Berkeley. It had a handful of "normal schools"—two-year programs for training teachers—in Chico, Los Angeles, San Diego, and San Francisco.

Then came the community college movement.

California was a pioneer. In 1907, the state legislature authorized high schools to offer college-level courses, allowing students to begin higher education without leaving home. By 1915, the United States had nineteen junior colleges. Eight of them were in California.

In 1960, the state adopted its Master Plan for Higher Education, which promised to establish community colleges within commuting distance of nearly every California resident. This required building twenty-two new colleges on top of the sixty-four already operating. By the time they were renamed "community colleges" in 1967 and organized into the California Community Colleges system, they represented an enormous expansion of public education.

Similar expansions were happening across state government. By 1978, 14.7 percent of California's civilian workforce consisted of state and local government employees—nearly double the proportion from the early 1950s. State and local spending per $1,000 of personal income was 8.2 percent higher than the national average.

For anti-tax activists like Howard Jarvis, this growth was precisely the problem. Government had become too big, too expensive, and too removed from the people paying for it. Proposition 13 was meant to starve the beast.

The Housing Crisis Connection

Nearly half a century later, Proposition 13 is being blamed for something its authors never anticipated: California's housing shortage.

The logic works like this. Under the acquisition value system, longtime homeowners pay far less in property taxes than recent buyers would pay for the same home. Selling your home and buying a new one means giving up that tax advantage and paying current-market-value taxes on your new property.

This creates a powerful incentive to stay put.

Imagine you're a retired couple in a four-bedroom house. Your children have grown and moved away. You don't need all that space anymore. In most circumstances, you might sell the big house and downsize to a smaller place, freeing up the family home for a young family that needs the room.

But if you've owned that house since 1985, you're paying property taxes on an assessed value of perhaps $300,000, even though the home is now worth $1.5 million. If you sell and buy a smaller place for $800,000, your property taxes will more than double. The financial math encourages you to stay in a home that no longer fits your needs.

Multiply this by millions of California homeowners, and you have a significant reduction in the housing supply. Fewer homes come on the market. Prices rise. Young families can't afford to buy. The housing crisis deepens.

This is what economists mean when they describe Proposition 13 as creating a property subsidy that increases the longer you own your home. The longer you stay, the bigger the gap between what you pay and what a new buyer would pay. The bigger the gap, the stronger your incentive to never move.

The Two-Thirds Trap

Perhaps the most consequential aspect of Proposition 13 has nothing to do with property taxes at all.

Remember that third provision—the one requiring a two-thirds supermajority in the legislature for any state tax increase? This has shaped California politics for decades.

In most democracies, a simple majority can raise taxes. If 51 percent of legislators agree that more revenue is needed for schools or roads or healthcare, they can vote to raise it. But in California, a minority of just over one-third can block any tax increase indefinitely.

This has made California's budget process extraordinarily contentious. During economic downturns, when tax revenues fall and demands for services rise, the state has limited options. Cutting spending is possible with a simple majority. Raising taxes requires convincing two-thirds of legislators, which often means making significant concessions to the minority party.

Local governments face similar constraints. Special taxes—dedicated levies for specific purposes like homelessness services or road repair—require two-thirds voter approval. General obligation bonds require two-thirds approval. This makes it remarkably difficult to fund new initiatives, even popular ones.

A court case in 1987, Altadena Library District versus Bloodgood, established that this two-thirds requirement applies even to citizen initiatives. If voters want to tax themselves for a specific purpose, they need a supermajority to do it.

The Property Tax Rollercoaster

One wrinkle in the Proposition 13 story came during the 2008-2009 financial crisis.

California's housing market crashed spectacularly. Home values dropped by 30, 40, even 50 percent in some areas. Under the original terms of Proposition 13, there was no mechanism for assessed values to decline. They could only go up (by a maximum of 2 percent annually) or stay the same.

But in 1978, the same year Proposition 13 passed, voters also approved Proposition 8—a different Proposition 8 from the controversial same-sex marriage ban that came thirty years later. This earlier Proposition 8 amended Proposition 13 to allow assessed values to be reduced when market values fell below the assessed level.

During the Great Recession, this provision was triggered statewide. The California State Board of Equalization announced an estimated reduction in property tax base values due to negative inflation—the first time this had happened since Proposition 13 was enacted.

It was a reminder that California's property tax system, despite its rigidity, could still respond to dramatic market changes.

A Permanent Revolution

Proposition 13 was supposed to be a protest. A statement. A one-time correction to an out-of-control tax system.

Instead, it became permanent.

The measure is embodied in Article XIII A of the California Constitution. Changing it requires either another constitutional amendment—which itself requires voter approval—or a complete constitutional convention. Neither has happened. Neither seems likely to happen.

Politicians who have tried to modify Proposition 13 have generally failed. In 2020, Proposition 15 would have required commercial and industrial properties (but not residential homes) to be assessed at current market value. It lost, 52 percent to 48 percent. The third rail still shocks.

And yet the debate continues. Housing advocates argue the acquisition value system must be reformed to unlock more housing supply. Education advocates point to decades of school underfunding. Local government officials complain about their dependence on Sacramento. Commercial property owners, many of whom have held buildings for decades at artificially low assessments, resist any changes.

Forty-six years after Howard Jarvis and Paul Gann convinced Californians to cap their property taxes, the state is still living with the consequences—intended and otherwise. The taxpayer revolt they launched didn't just change California. It changed America's entire relationship with taxation, government, and what we owe each other.

Whether that revolution was a triumph of democracy or a catastrophic mistake depends entirely on whom you ask.