Proposition 15: Wrong time for a tax hike

Proposition 15 on its surface makes some sense.

The aim of the measure is to raise property taxes on larger businesses and send more money to schools and local governments. If approved by voters, it would mark the first real revision to 1978’s landmark Proposition 13 that reset property taxes to the purchase price of home or business and also capped at 2% how much government could annually increase the tax.

The rub is that many property owners pay taxes that are based on values much less than what the properties would be worth today. For those property owners who have held onto their homes or businesses for long periods, then their taxes remain relatively low.

But critics of Prop. 13 have seized on another seeming disparity: that owners of commercial and industrial properties have a huge advantage over residential property owners, because homes change hands far more often and new owners get assessed at current values. Moreover, Prop. 15 backers say that residential property owners are bearing an ever greater share of the collected property tax revenue.

So, Prop. 15 would split the property tax rolls. If the measure passes, taxes for businesses with more than $3 million in property value would be hiked to reflect the current market value, which in most cases would be higher. Owners of commercial and industrial properties with a lesser value would continue paying under the current, Prop. 13, system. Homeowners would not be affected. Estimates are that the tax hike would raise as $12.5 billion annually by 2025 — with 60% of the money going to cities, counties and special districts and the other 40% set aside for schools and community colleges.

Sounds good, right? Tax big business! But a tax on big businesses will in many cases just result in property owners passing along the increase to small businesses that lease or rent their space. To say the very least, this would create a new burden on small businesses that are already reeling from the economic effects of the pandemic. Another consequence: Businesses likely would also pass along the increase to consumers in the form of higher prices.

Authors of Prop. 15 seemed to recognize these problems and added a section that would reduce another business tax, on equipment, by $500,000 starting in 2024. But the pass-along inevitability of this measure is not the only reason we urge voters to reject it.

For instance, Prop. 15’s assumption that residential properties are sold more often and thus reassessed more frequently, and at higher values, is wrong, according to the nonpartisan Legislative Analyst’s Office. Yes, taxes paid on residential properties throughout California do comprise a bigger share of the total tax burden than they did when Prop. 13 was approved in 1978, but that’s mainly because there’s been a faster increase in the number of residential properties than commercial and industrial ones.

What this means is that the real disparity is between what longtime homeowners are paying and what new owners of residential properties are assessed — not, as backers of Prop. 15 were alleging, between business and residential properties.

Current polling shows Prop. 15 with a significant lead with voters. Major donors include teachers’ unions, public employees unions and a philanthropic organization affiliated with Facebook leader Mark Zuckerberg. Opponents include real estate and business groups, along with taxpayer advocates.

Prop. 13, however, has remained popular with voters and as former Gov. Jerry Brown, who was leading the state when the measure passed, learned, trying to overturn it was a political loser.

Backers of Prop. 15 are hoping that this is the year, when Democrats will turn out in huge numbers to try and defeat President Donald Trump, to finally roll back some aspects of Prop. 13.

But this measure doesn’t really deal with the disparities and inequities of Prop. 13.

And it’s the wrong time for another tax hike. Vote no on Proposition 15.