Ronald Reagan (AP)

The Tea Party's inspiration: A tax revolt that destroyed California

An anti-tax referendum in California started the "mad as hell" brigade -- and led to the current faux-populists


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Michael Stewart Foley
September 15, 2013 5:30PM (UTC)
Excerpted from Front Porch Politics

In California, as in most of the country, tax policy rarely showed up as a political issue prior to the late 1960s. With the economy chugging along, most Americans paid their taxes without complaint. It seemed that the American economy provided enough to go around—including to the government, which most people trusted to put the money to good use. But by 1978, anger over taxes had been building for more than a decade. Trouble began with a series of corruption scandals in which either whistleblowers or investigators found that elected tax assessors engaged in a variety of unscrupulous practices, including taking bribes to keep assessments on business properties down. In response, the state assembly passed modernizing legislation to centralize,  professionalize, and standardize assessment practices. The implementation of standardized assessment at precisely the moment when inflation, invisible and inscrutable, took home prices into the stratosphere resulted in every property, home or business, being “reassessed every three years at 25 percent of market value”—much higher than usual. Most California homeowners felt as though a phantom pickpocket had relieved them of their wallets altogether. "Bring back the crooked assessor!" bumper stickers could be seen on cars up and down the state.

Many Californians had been lured to the state by the promise of an affordable American dream, but by the early 1970s, the dream was dying. As the California journalist Peter Schrag notes, only a generation before, in the 1950s, one could buy a three-bedroom, two-bath home built in a former citrus grove for $14,000 (with a mortgage payment of $70 a month). By the early 1970s, the value of those homes had increased substantially, even before inflation sent prices even higher. “For nearly two decades it was lovely to see what had been a $12,000 tract house go up to $30,000,” Schrag later wrote. “But when it doubled again to $60,000, or tripled to $90,000, and the taxes went with it, it was fun no longer.” Inflation saw the average price of a Los Angeles single-family house jump 120 percent in value, from $37,800 to $83,200. It became common, therefore, to see property taxes on a two-bedroom house spike from $400 a year to $1,200. Suddenly, the prospect of losing one’s home, particularly for the elderly and others on fixed incomes, became very real. In states that had enacted property tax classification laws, in which business and residential property tax rates were standardized but at different rates depending on the classification, the consequences were less dire. Minnesota tax laws, for example, included thirty-one separate classifications for property taxes, and consequently, Minnesota saw no tax revolt. By the time California voters passed Proposition 13, seven other states had passed classification laws.

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Homeowners in California, as in many other states, just wanted relief—and quickly. Recognizing that the housing market and inflation drove up home prices and thus their taxes, they did not attack government so much as appeal to it to ease their pain. For many ordinary Americans, the expectation that the government was there to help them had not died. In the early 1970s, property tax protesters across America came from both the left and the right and sought either a rollback of taxes to previous rates or an abolition of them altogether. Activists lobbied legislatures most frequently for “circuit breaker” laws that would essentially graduate the property tax according to income level; thus, if assessments took a homeowner’s property tax too high relative to her income, a “circuit breaker” would cut the tax off. These laws varied from state to state, and they could be very complicated, but by 1978, thirty-one states had passed them. Most of California’s first property tax protesters sought only a rollback of reassessments, but in time the veterans of the civil rights and welfare rights movements who founded the Citizen Action League (CAL) lobbied for a circuit breaker law called the Tax Justice Act. If passed, the law would have extended the circuit breaker to anyone with household income under $30,000 a year. Unions and other progressive groups endorsed it, and some protests—such as the April 20, 1977, demonstration in Redwood City at which fifteen senior citizens burned their assessment notices—got considerable media attention. Critics claimed that the legislation was too complicated. The bill fell six votes short in the assembly in September.

By the time the circuit breaker law failed, other parties were well on their way to circumventing the legislature by getting a tax limitation referendum on the ballot. Although President William Howard Taft had long ago offered a biting critique of ballot initiatives as easily “adapted to the exaltation of cranks and the wearying of the electorate,” California required only 8 percent of voters’ signatures to get a measure on the ballot. Those who favored initiatives argued that even if they fail, they often prompt productive debate and reform; critics, however, saw them as easily abused by powerful interests.

Howard Jarvis had no difficulty enlisting such interests even as he succeeded in casting himself to the public and media as an everyman. Born in a Utah mining town, Jarvis came from a hardscrabble background and built his fortune from scratch. An accomplished athlete, he played semiprofessional baseball and fought twenty-one professional boxing matches before he bought a small newspaper that he expanded (while he was still in his twenties) into a chain. Following the Second World War, he built his fortune in California after starting an appliance factory; when he sold the factory in 1962, he devoted himself to Republican Party politics full-time, describing himself as a “rugged bastard who’s had his head kicked in a thousand times by the government.” Richard Reeves called Jarvis “the last angry man.”

Jarvis tried for years to get a tax reform initiative on the ballot, but it took until 1977 for him to succeed. He joined forces with Paul Gann, a former car and real estate salesman from Sacramento who had started People’s Advocate as a neighborhood crime watch group that in time turned its attention to taxes; Gann, too, had failed to get enough signatures for a ballot initiative. By 1977, the year that CAL’s circuit breaker law just missed passage, times had changed. Inflation, a still-troubled economy, and Governor Jerry Brown’s failure to deliver on promised tax relief set the stage. Gann and Jarvis split the state—Gann took the north and Jarvis the south—and started gathering signatures one more time. They relied primarily on volunteers to collect signatures, but they also benefited from the help of chambers of commerce, real estate agents, and apartment owners (the latter urged tenants to sign with predictions of higher rents if the initiative did not pass). Jarvis became executive director of the Los Angeles Apartment Owners Association and used the association’s mailing list to solicit signatures. By December 2, Jarvis alone had collected more than enough—over a million—signatures just in the south. The vote on Proposition 13 was set for June 6, 1978.

The allure of Proposition 13 lay in its simplicity. As written by Jarvis, Proposition 13 would roll back property assessments and freeze them at 1975 levels; the values could then be raised by only 2 percent a year (to account for inflation), and properties could be reassessed only at the time of sale or transfer. All property would then be taxed at a flat 1 percent of its new value, whether based on the annual 2 percent increase or on its recent sale price. Maybe most important (and perhaps most overlooked), Proposition 13 would prohibit any government body—local or state—from raising any new taxes without a two-thirds vote of the governing body. In effect, this new system would mean that an average Los Angeles homeowner paying $2,200 on a $70,000 home in 1977 would see his taxes rolled back to $700 a year, only to rise thereafter at 2 percent per year. That kind of math appealed to a lot of anxious California homeowners.

By brushing off criticism, Jarvis largely succeeded in obscuring the fundamental unfairness of the initiative. He slapped away charges that Prop 13’s biggest beneficiaries would be landlords and business property owners who anticipated a savings windfall of $3.5 billion out of a total loss of local tax revenue of $5.5 billion. That is, homeowners, on whose behalf the initiative had allegedly been written, stood to save only $2 billion of the total $5.5 billion in savings. Moreover, since residential properties change hands more frequently than business properties, reassessments at market value were much more likely to happen on homes than on commercial property. Such revaluations of homes, critics pointed out, would also lead to blatantly inconsistent taxation of homeowners living in the same neighborhood where one house might be taxed on its 1975 value, but the house next door, recently sold to a new neighbor, would be taxed on its new market value. Finally, few Californians seemed to grasp that with less property tax to deduct on their federal income tax returns, a significant chunk of their property tax savings would be flipped to Uncle Sam in the form of higher income taxes. Jarvis dismissed any such critique as a “crock of manure” and called his opponents “liars,” “dummies, goons, cannibals or big mouths.” Gann, for his part, balanced Jarvis’s caustic declarations by casting his statements in front porch terms, calling on Californians to “dream the American dream of being safe and secure in our homes.”

Some of those who saw Proposition 13 as irresponsible mobilized to put alternatives before the voters. Since the circuit breaker bill had failed, a bipartisan group of state legislators proposed a constitutional amendment that would allow a Minnesota-like classification system. The legislature passed the amendment in February 1978. In order to ratify it, the amendment went on the ballot as Proposition 8, in direct competition with Proposition 13. Complicating matters further, state senator Peter Behr introduced a bill that would cut property taxes for everyone by 30 percent and expand circuit breaker provisions for senior citizens—but only if Proposition 8 passed.

A knock-down, drag-out campaign ensued. If anything, the “No on 13” coalition of teachers, unions, consumers, and good government groups that promoted Prop 8 had more of a grassroots base than the Prop 13 campaign, but that did not stop the media from suggesting the opposite. The press cast Jarvis as leader of a populist uprising and Prop 8 as a government driven face-saving but too-late effort. Ultimately, Jarvis prevailed. Operating out of the Los Angeles Apartment Owners Association offices, he raised more than $2 million—most of it from apartment owners—and spent it on expensive television ads and direct mail appeals designed to scare already frightened homeowners. A famous television spot featured a jack-in-the-box playing “Pop Goes the Weasel”; as a hand wound the handle and the music played, a voiceover warned that “the politicians have a surprise for you, but they didn’t want you to know about it until after the election.” When the box popped open, it delivered the revelation that property taxes were about to go up by 100 percent for home homeowners. In one notorious tactic, Jarvis used public records to target homeowners with a direct mail appeal that came in an official-looking envelope, as if from the assessor himself. Inside, Jarvis wrote that he was “shocked to learn” that the recipient’s property taxes would double from (here a computer inserted the recipient’s actual tax figure for 1977) in the next three years. Despite such underhanded tactics, by April, public opinion polls showed the two propositions running just about even, with some evidence that support for Proposition 13 was beginning to fade.

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The turning point came unexpectedly. A new reform-minded assessor in Los Angeles, Alexander Pope, had just completed his first assessment, covering one-third of L.A. County homes. Rather than let taxpayers wait until they got their tax bills at the usual time in October, he announced on May 16—just weeks before the vote on the ballot initiatives—that property owners could visit his offices to learn their new assessments. Then all hell broke loose. It turned out that Jarvis’s predictions were not so outrageous after all: the average increase in L.A. County assessments was in fact over 100 percent. Television news cameras captured images of people weeping, screaming in anger, despairing that they would now have to sell their homes because they would not be able to pay the taxes. It did not help that the state of California was flush, with a nearly $6 billion surplus; in the minds of the majority, it seemed the state could weather Prop 13’s steep tax cuts.

On June 6, 1978, Californians voted for Proposition 13 by nearly a 2– 1 margin, giving it 65 percent of the vote. “Tonight was a victory against money, the politicians, the government,” Howard Jarvis crowed. “Government simply must be limited. Excessive taxation leads to either bankruptcy or dictatorship.” But as the journalist Robert Kuttner noted shortly thereafter, public opinion polls “did not confirm widespread erosion of public support for government.” Save for welfare, “California voters did not want to see public services reduced.” Moreover, polls showed that voters distrusted “all remote institutions—big business, big labor, as well as ‘big government,’” and that the overwhelming majority simply thought in terms of preserving and protecting their own economic wellbeing. They understood that “something in the tax system was giving them a good screwing” and they just wanted it to stop.

To call the tax revolt antigovernment is to miss the point. Voters did not approve Prop 13 because they favored tax limitation over, say, classification; rather, they voted for 13 because it offered the most relief, and fast. If CAL’s circuit breaker bill had passed nine months earlier, or if Pope had not opened the new assessment figures for public viewing, or if Governor Brown had simply used some of the state surplus to provide tax relief, Proposition 13 would have died on the vine. Anger at the state came second to immediate relief from personal economic hardship. Perversely, Jarvis’s pseudo-front-porch tactics prevailed, and in so doing perhaps signaled the eventual demise of front porch politics.

In Proposition 13’s aftermath, local government saw more than $6 billion in funding evaporate. The state moved to use its surplus to offset the losses, but even so, municipalities cut services and laid people off. San Francisco closed twenty-six schools, laid off a thousand teachers, and doubled the mass transit fare to fifty cents. Officials made wholesale cuts to state mental health and developmentally disabled programs, dumping patients into “rooming houses and inadequate nursing homes.” Some cities lost their school bus systems and others saw summer school and arts, music, and sports programming cut. Writing twenty years later, Peter Schrag lamented that whereas the state’s schools had been “among the most generously funded in the nation,” they were now “in the bottom quarter among the states in virtually every major indicator—in their physical condition, in public funding, in test scores.” Universities that had once been tuition free became expensive, and the state’s infrastructure—the freeway system that had once been the envy of the nation—was “now rated among the most dilapidated road networks in the country.” In the meantime, the big winners were the big corporations and commercial property owners: Pacific Telephone saved $130 million; Pacific Gas & Electric, over $90 million; Standard Oil, $13 million in Contra Costa County alone. As critics predicted, the federal government collected 22 percent more in income taxes than it would have if homeowners had been able to claim higher property tax deductions on their federal tax returns; similarly, the state got 14 percent more than it would have before Prop 13. And renters felt hoodwinked. Forty-seven percent of the state’s renters, scared by predictions of higher rents if Prop 13 were to fail, voted for the measure, only to find that with the turnover of rental properties, new owners passed their higher tax on to tenants in higher rents.

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After Prop 13, democracy in California got knocked off its axis. In a sustained circumvention of representative government, the referendum came to represent “the people.” Since Proposition 13, the California state assembly has been largely circumvented by ballot initiatives on nearly every major issue facing the state. As many commentators have noted, referenda only appear populist. They are in practice driven by interest groups with big money, and as one scholar found in a nationwide study, the side that spent the most prevailed 78 percent of the time (though it is worth noting that the November 2012 election saw Californians overturn the two-thirds requirement for a tax increase). Ballot initiative contests rely on very expensive campaigns that pay pollsters, advertising and publicity experts, signature gatherers, and direct mail specialists. The problem with this kind of fake populism is that, as Schrag notes, it is not aimed at improving civic engagement. In that way, such causes are the very opposite of grassroots causes, all the more damning because they can be easily made to look like one. And that may be the most valuable lesson. The managers of these campaigns recognized as early as 1978 that a broad-based grassroots image affords a level of authenticity and legitimacy that a “special interest” media campaign does not. The crisis of rising property taxes certainly fits the definition of a front porch political issue, but aside from a mass turnout at the polls, it did not lead to even a small-scale front porch political mobilization. What is important in understanding American politics in that era is that it looked as though it did.

The appearance of the people expressing their will en masse drove the national tax revolt narrative that soon swept the nation. Roughly two-thirds of the states had already passed some kind of tax reform law by 1978. In California, they did it by popular vote. In other states, likeminded tax crusaders, seeing a new and sexy way to achieve political change, quickly moved to mimic Jarvis. In Idaho, for example, the retired insurance salesman Don Chance—“the perfect Idaho counterpart to Howard Jarvis,” according to one observer—drafted a nearly exact copy of Prop 13, “complete with misspellings and references to provisions that didn’t exist in the Idaho constitution,” to qualify it for the ballot. It passed by a 60–40 margin.

In Massachusetts and Ohio, citizen groups mounted a variety of tax reform efforts, sometimes with a much broader base of support than in California, but ultimately they were overtaken by the corporate-backed tax revolt fever. For decades, municipalities in the Commonwealth of Massachusetts had taxed industrial and commercial property owners at higher rates than homeowners. In 1979, however, the State Supreme Judicial Court ruled that the system was unfair and ordered that business properties be taxed at no more than 25 percent of their assessed value (the average for residential property). The sudden reduction in commercial and industrial property tax revenue left cities and towns facing huge budget shortfalls, and the only way to make up for it was to raise property taxes on everyone, including homeowners. By 1980, municipalities in Massachusetts (aka “Taxachusetts”) took in 53 percent of total revenue from the property tax, second only to Alaska.

 

Excerpted from "Front Porch Politics: The Forgotten Heyday of American Activism in the 1970s and 1980s" by Michael Stewart Foley, to be published in September 2013 by Hill and Wang, an imprint of Farrar, Straus and Giroux, LLC. Copyright © 2013 by Michael Stewart Foley. All rights reserved. 


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