In 1978, California voters passed Proposition 13, which set property taxes at 1 percent of purchase price and limited increases in assessed value to 2 percent. Only when the property was sold could the property be reassessed to market value. Proposition 13 allows businesses to avoid such reassessment if no single entity acquires majority ownership in the property. As the Los Angeles Times recently noted, computer magnate Michael Dell did that in 2006 when he bought the Fairmont Miramar Hotel in Santa Monica. He brought in three partners and none held more than 49 percent ownership. So the property remained at the 1999 assessment and Dell saved about $1 million a year in property taxes.
Christopher Thornberg of Beacon Economics told the Times “He [Dell] didn’t do anything wrong. He’s saying to California: Look, idiots, I just robbed you blind, and it’s your own fault.” That comment is revealing.
If Mr. Dell took $1 million out of the general fund then one could say he robbed the state. In reality, he will pay less tax than he would have before Proposition 13, which state legislators are now targeting. It has escaped their notice that perhaps the tax-limitation measure encourages business owners to buy property, hire more workers, and boost the economy.
The notion that lower taxes somehow rob the state is far from the only abuse of language in current discourse. When bureaucrats get a 7 percent budget increase instead of 12 percent, they protest a budget cut. In the rare event that government lowers income taxes, politicians portray that as a gift. Actually, it only allows workers to keep more of what they have already earned.
In his first stint as governor Jerry Brown opposed Proposition 13 then after it passed proclaimed himself a “born-again tax cutter.” Now through Proposition 30 he has made California the highest-tax state. Even so, California legislators still seek to shake down the workers for more of their hard-earned money.
Meanwhile, Los Angeles County cried foul over Mr. Dell’s hotel deal and hiked the property taxes. The case wound up in court and a judge ruled that Dell had acted lawfully. The county knew that from the beginning but remained willing to waste more taxpayers’ money by filing an appeal.