We understand. No one likes tax increases, especially folks on fixed incomes. But before they invoke the ghost of Howard Jarvis and rally to put a tax limitation amendment like California's Proposition 13 on the ballot, Utahns should take a deep breath and think about the unintended consequences that Prop. 13 has visited on the Golden State since 1978.
Yes, it limited property taxes to no more than 1 percent of assessed value. The statewide average before Prop. 13 was 2.7 percent. It froze the assessed value for a property at its 1975-76 level, plus 2 percent per year compounded. When a property is sold, the market value becomes the assessed value. That has resulted in huge tax disparities. Taxpayers in a home they bought recently may pay three or four times as much in taxes as their neighbor in an identical home next door he bought in 1978.
Prop. 13 also required that new taxes or increases in existing taxes (except property taxes) receive approval of two-thirds of the state legislature (for statewide taxes) or two-thirds of the electorate (for local taxes). This has made it difficult for cities to raise taxes for new infrastructure.
Prop. 13 also distorted land-use policy. Local governments came to rely on sales taxes, and cities sought to lure big-box retailers for the sales-tax base. Cities also came to rely more heavily on the tax-increment financing created by redevelopment agencies, which sometimes trample property rights.
Finally, because Prop. 13 provided a loophole for commercial property, there has been a property-tax shift from commercial to residential property.
Utah traditionally has relied on a balanced tax policy supported by three legs: income, property and sales taxes. It would be shortsighted to saw off one of those legs now.
The spike in Utah real estate prices is beginning to reverse itself because of the credit crisis, and there are less drastic ways than Prop. 13 to provide property tax relief. It would be unfortunate if Utahns were to stampede to a simplistic fix just as the business tide is running in the opposite direction.
