The Permanent Tax Revolt: How the Property Tax Transformed American Politics.

Sheffrin, Steven M.

THE PERMANENT TAX REVOLT: HOW THE PROPERTY TAX TRANSFORMED AMERICAN POLITICS

By Isaac William Martin (Stanford, CA: Stanford University Press, 2008, 264 pp., $21.95 paper)

WHAT DROVE VOTERS to enact Proposition 13 in California? Sociologist Isaac Martin offers a unique and valuable perspective. According to Martin, homeowners enacted Proposition 13 to protect a benefit they were receiving, "fractional assessment." This term is normally used by tax professionals to refer to systems of property taxation in which one or more classes of property are officially assessed at a fraction of true market value. Prior to Proposition 13, California did not have an official system of fractional assessment, as the state constitution required taxation at full market value for all classes of property. But, according to Martin, assessors would typically underassess residential property, and thus homeowners enjoyed an informal benefit.

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Although Martin emphasizes his notion of fractional assessment, including providing estimates of its benefits in an appendix, this really is not the central issue and distracts the reader from the key idea. What was at stake with Proposition 13 was a redistribution of the tax burden toward homeowners. In principle, fractional assessment should not matter. Consider a system in which local governments desire to raise a fixed amount of revenue to provide local services--what economists call a revenue-based system. In this system, it clearly would not matter whether there is, say, 100 percent assessment of market value and a 1 percent rate or 50 percent assessment of market value and a 2 percent rate-in either case, the revenue raised by local governments would be identical.

The principal contribution of this book is to demonstrate effectively that prior to Proposition 13, the fragmented structure of local government did not fit the model of a revenue-based property-tax system. Instead, it was closer to a tax-rate-based system, in which increases in assessed value lead to higher revenues, at least over short periods of time. Martin shows that as property values rose rapidly in the 1970s as part of the general inflationary environment of the decade, the property-tax system came under stress. Within each county there were multiple authorities with the power to raise or lower tax rates--city and county governments, school districts, and multiple special districts--as well as independently elected assessors. There was no overall coordination between these multiple authorities. Thus, as inflation rose and the assessors reassessed properties on differing time frames and with different methodologies, the result was a sharp increase in tax bills and shifts of the tax burden toward homeowners. It was these shifts, often idiosyncratic and unpredictable, that drove the passion of the tax revolts.

Martin traces the political and social factors that led to the populist outcome of Proposition 13 and contrasts it with experiences in other states facing property-tax disruptions and with experiences in other countries. In his epilogue, he argues that taxpayers take collective action to maintain tax privileges if they protect these privileges from major shocks to income. While changes in taxation and even tax reform are possible, for these changes to be successful the process must reflect the deep-seated need for taxpayer security.

REVIEWED BY STEVEN M. SHEFFRIN, PROFESSOR OF ECONOMICS, UNIVERSITY OF CALIFORNIA, DAVIS, AND COAUTHOR OF PROPERTY TAXES AND TAX REVOLTS: THE LEGACY OF PROPOSITION 13