The Public Trough: Prop. 13, Two Years Later

On June 3, California voters will once again have gone to the polls to vote on a major tax reduction initiative sponsored by Howard Jarvis—Proposition 9. The new Jarvis proposition, nicknamed “Jaws II,” would cut California income tax rates in half, thus doing for income taxes what was done for property taxes two years ago by Proposition 13. By all accounts, the measure should pass easily, once again putting California in the forefront of the tax revolt and increasing pressure on politicians in Washington to follow suit or risk the wrath of voters in November.

The relatively easy time Jarvis has had with Proposition 9, in contrast to the massive opposition mounted against Proposition 13 by the California establishment, is largely due to the fact that the predictions of gloom and doom by state government and business leaders if Proposition 13 passed have not only not materialized but were 180 degrees off the mark. It was the proponents of Proposition 13 and unconventional economists like Arthur Laffer at USC who have been proven correct.

Virtually every study of Proposition 13 done since its passage has concluded that the measure had very positive effects on the California economy. And despite the radical nature of the measure, its effect on state and local governments has largely been to slow their growth, rather than to cut them with a meat-ax. As the Federal Reserve Bank of San Francisco reported last year: “The irony of Proposition 13 —perhaps its redeeming feature—is that it neither drastically reduced the size of government (as desired by many proponents) nor led to statewide economic chaos (as predicted by staunch opponents). In fact, in its first year it strongly stimulated the state’s economy, because taxpayers experienced a permanent reduction in property taxes while the state government was spending its surplus.”

The report went on to note that during its first year Proposition 13 caused personal income in California to increase by 15 percent— one of the highest increases in the nation—while unemployment dropped much more rapidly than the national rate, despite a loss of100,000 local government jobs. Indeed, the impact of Proposition 13 was so great it actually increased state tax revenues — almost a textbook example of the “Laffer Curve” in action. (Laffer postulates that if tax rates are too high they reduce economic growth to such an extent that tax revenues fall. Conversely, a reduction in such rates would cause revenues to rise above what they otherwise would have been.)

According to a recent report by the Bureau of Economic Analysis, U.S. Department of Commerce, in the Survey of Current Business (November 1979), state tax revenues increased so strongly after passage of Proposition 13 that despite passage of a $4.3 billion bailout for local governments the accumulated state surplus only declined $1.2 billion in fiscal 1979. In fiscal 1980 revenue growth will cause the surplus to decline a mere $700 million despite another $4.9 billion in bailout expenditures. The report concludes that in fiscal 1981 the state should be able to continue the bailout from current revenues, with no net decrease in the state surplus, and that by fiscal 1982 the surplus should begin to increase again. (Of course, this does not take into consideration the effects of Proposition 9, nor of last year’s Proposition 4, initiated by Paul Gann, which limited state and local government spending.)

Perhaps the major question to be asked now is why, despite the success of Proposition 13 on the California economy and the political popularity of tax and spending limitation movements in California and other states (according to the Wall Street Journal some 36 states have been affected by post-Proposition 13 tax revolt action), the Federal Government has remained untouched. One answer is that there is no federal initiative process to force Washington to act. Another is that politicians were so quick to adopt tax-revolt rhetoric in time for the November, 1978 elections that the results did not truly reflect tax revolt sentiment, which will resurface with force in November, 1980, following two years of inaction at the federal level. And lastly there is the view that the balanced budget movement has helped defuse the tax revolt by giving liberals an out. The leaders of this movement have successfully pandered to conservatives by promising a balanced budget in lieu of tax reduction, knowing full well that the budget can just as easily be balanced by raising taxes as by cutting spending. Moreover, conservatives have been caught in the dilemma of wanting massive increases in defense spending at the same time. Unfortunately, conservatives have opted for more defense spending and a budget balanced by raising taxes, rather than pressing ahead for measures such as the Kemp-Roth bill to cut federal income tax rates by a third. If they had heeded the lessons of Proposition 13 they would know that it is not a question of either having tax reduction or a balanced budget, but of forcing government to give you both. ☐TURNING POLITICAL PHILOSOPHY INTO PUBLIC POLICY

Libertarian Political Action Cassette Recordings From Liberty Audio

103 to 108-POLITICAL ACTION WORKSHOPS with Chris Hocker, Carol and Ray Cunningham on campaign planning, issues, brochures, fundraising and image techniques. $22. (all 6 cassettes) 43-CAMPAIGN MANAGEMENT with David Boaz, Bob Baures and Gary Greenberg. 22-LOCAL PROBLEMS, LIBERTARIAN SOLUTIONS with Bill Burt, Bjornseth and Frazier. 117(California) or 190(Texas)-INTO TO LIBERTARIANISM with David Bergland. 128-COMMUNICATING LIBERTARIAN IDEAS with David Bergland (California). 192-COMMUNICATING LIBERTARIAN IDEAS with Ed Crane, Mike Emerling and David Nolan (Texas). 129-CUTTING BACK CITY HALL with Bob Poole (a must for Californians). 133-COALITION POLITICS with Eric Garris. 134-AVOIDING ILLEGAL TAX RESISTANCE TECHNIQUES with Robert Martin. 135-WHAT WE LEARNED IN 1978 with David Bergland, Ed Ogawa and Gallagher. 137-FUNCTIONING IN PUBLIC OFFICE OUTVOTED 8 TO 1 with Fred Schnaubelt. 141-HOW TO BE A CAMPAIGN TREASURER AND STAY OUT OF JAIL with Paul Rolig. 142-DRAFT AND CAMPUS ORGANIZING with California SLS leaders. 143-EFFECTIVE VOLUNTEER UTILIZATION with Sue Gross. 145-PUBLIC SPEAKING with Jim Marteeney. 193-LOCAL CAMPAIGNING panel with Vivian Baures, Ann Hammond and M. L. Hanson. 194-LOCAL ORGANIZING panel with Fred Esser, John Mason and Leslie Key. 195-BALLOT DRIVES: A RECIPE FOR SUCCESS with Ricki Strandfelt and Allan Vogel.

LAFS has many other recordings SEND FOR COMPLETE LISTS FROM: National LP Convention (LA, CA) California LP Convention Libertropolis LP Convention (NJ) Illinois LP Convention New York LP Convention Southwest Reg. LP Conference (TX) Future of Freedom (Orange City, CA)

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