Proposition 13: Unintended Effects and Feasible Reforms

Abstract

This paper explores the causes and consequences of Proposition 13, focusing on its effects on horizontal equity among homeowners, household mobility, and the fiscal structure of state and local government. Horizontal inequities arise because a household's property tax liability depends on the purchase price of its property, not the market value. If property values rise over time, a homeowner in a recently purchased dwelling will pay more taxes than a homeowner who purchased an identical dwelling some time earlier. Proposition 13 and its implementing legislation decreased the relative importance of the property tax, transformed the property tax from a local tax into a statewide tax, and was a contributing factor in the decrease in the overall burden of state and local taxes.

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