Stalking the Tax Man: The Pervasive Influence of the Property Tax Revolt

"Assessment Excess"

To the Editor,
In January of this year my retirement annuity was increased 1.3 percent due to the increase in the cost of living. In April of this year the city of Norfolk reassessed my property, raising it 6.87 percent. This is more than five times the cost of living percentage and will unfairly and excessively increase my property taxes.

I understand some city officials in the area may consider the hike in tax revenues by this means as tax "windfalls" or "bonanzas." We all know better. Every penny comes from someone who must live within means not derived from windfall gains.

According to figures in a recent Virginian-Pilot article, Norfolk can trim its tax rate to prevent windfalls and still receive the revenue needed for the present tax year ("Property taxes: vital seldom understood." March 29) A rate of $1.19 per $100 assessed valuation would suffice in Norfolk vs. the $1.25 now in effect. Portsmouth's rate of $1.30 per $100 could have been reduced to $1.21, according to the figures.

I hope elected officials are concerned and competent enough to reduce rates and assessments to their proper levels before concerned citizens activate a larger, angrier Norfolk Tea Party for fair taxation.

J.A. Johnson

Norfolk, VA

Virginian Pilot Ledger, May 12, 1987

Over the past eighteen months or so, the constant baying and mobilization of the Tea Party Movement has captured the attention of the American public. Conservatives, liberals, and centrists must at the very least acknowledge the social movement’s presence in the wider public sphere. However, though most observers treat the Tea Party as a modern 21st century phenomenon, a little digging reveals that the Tea Party moniker has been used by numerous groups in numerous decades to pursue various goals.

J.A. Johnson’s letter in May of 1987 illustrates the longer historical trajectory that the Tea Party label embodies in the post 1970 era. In his letter to Virginia Pilot Ledger, Johnson invoked the name of the local Norfolk Tea Party, a title that today often drives fear into the hearts of moderate conservatives and terror in the minds of liberals.

According to an October 1981 Virginia Pilot article, the local Norfolk Tea Party had formed in 1978 as a response to property taxes. Evolving from a “coalition of civic league representatives” angry over the municipality’s real estate tax, the Norfolk Tea Party gathered over 21,000 signatures protesting the city’s property tax hike. (It had been set at $1.62 per $1000 valuation, the Tea Party wanted it lowered to $1.15 per $1000.)  Though the city initially rejected the petition, the party responded by collecting over 17,000 more signatures in an attempt to force a special election so that voters could decide the issue. Though the circuit court thwarted their effort, that newspaper noted “it is generally acknowledged that the group was largely responsible for the council’s lowering the tax rate to $1.30” (Virginia Pilot Ledger, October 12, 1981).  

From 1978 through 1981, the party continued its activities in local electoral politics. The originally non-partisan Tea Party turned partisan. It backed several local candidates for city council, the House of Delegates, and the then-mayor Vincent J. Thomas. The 1981 incarnation hoped to boost the electoral hopes of one George S. Hughes. Hughes, a former Norfolk city councilman, who received the endorsement of the Norfolk branch in his attempt to secure the city treasurer position. If Hughes “reluctantly” admitted that he had sought their endorsement, he also acknowledged he knew little of the party’s intent.  “I don’t know their plans," he said.  "If they feel that (endorsement) is the thing to do, I’m sure they’ll do it.” While the paper described the local Tea Party as conservative, the group seemed willing to support Democrats, like Howard Copeland, who the Virginia Pilot identified as a “a former Tea Party lawyer, [who won] in a 1979 primary battle that enabled him to secure membership in the Virginia House of Delegates.” Still, though today’s Tea Partiers seem exclusively associated with the Republican party, Copeland illustrates the greater ideological malleability of the Norfolk Tea Party.

Naturally, the next question that arises revolves around this early Tea Party incarnation and the tax revolt of the 1970s.  The 1978 Norfolk tax revolt, as represented by Tea Party efforts, emerged as part of a larger process. Robert Self notes as much when he points to the pervasive influence of California’s Prop 13 property tax referendum: “Immediately identified not as a tax revolt but the Tax Revolt, Proposition 13 … along with the anti-statist (and antipolitician) political groundswell that underwrote it, was quickly exported around the nation in a wave of imitative ballot measures and state legislation from Massachusetts to Oregon” (Self, Prelude to the Tax Revolt: The Politics of the “Tax Dollar” in Postwar California”).  Clearly, the Norfolk Tea Party petition serves as one example of the very process Self documents. For Self, the leaders of the 1978 Tax Revolt were motivated by the failure of the “grand compromise” suburbia had established with the federal government. The conflict between business elite support for the perpetual “growth machine” and residents’ desire to focus on quality of life and minimized costs had been dodged through the combination of “federal subsidy and local tax policy” (Self, 147).  However, by the 1960s and 1970s, this compromise no longer sufficed. Homeowners rejected the explanations of state and municipal politicians. As Self summarized, “the tax revolt was thus one manifestation of a return in Suburban California to a classic growth machine politics that postwar liberalism had temporarily displaced” (147).

Self’s insights remain salient, but UCSD Sociology Professor Isaac Martin has also waded into the debate with his 2008 work, The Permanent Tax Revolt: How Property Tax Transformed American Politics. Like Self, Martin sees the property tax revolt as a transformative process. While Martin notes that by the 1970s the tax revolt had shifted right, in its initial form it featured political views from the left and the right. Conservatives and liberals had begun to question taxes in 1950s and 1960s, but each had different reasons for their skepticism. Moreover, the UCSD professor builds on aspects of Self’s argument that Self notes but fails to pursue.

For Martin, the tax revolts of the 1960s and 1970s reshaped American politics. The idea of “tax limitations” became embedded in political discourse, placing tax cuts “permanently on the political agenda.” (13) The apparent success of property tax limitations convinced politicians like Ronald Reagan that tax cuts provided a useful electoral strategy. Republican leaders, lobbyists, and the burgeoning rank and file embraced the tax cut approach, forcing moderates and the party as a whole to “redefine the GOP as the party of tax cuts” (14).

Fundamentally, the early “tax rebels,” as Martin labels them, sought not to prevent the state from collecting taxes but rather to reinstate a tax privilege that had been removed in the early 1960s under the auspices of good government. Martin points out that what early tax rebels really wanted was the restoration of “fractional assessment.” Describing fractional assessment as an example of an informal tax privilege imposed and maintained through custom, Martin notes that even though many states had no provisions for its implementation, nearly all employed it. Thus, fractional assessment came to function as a “kind of hidden social policy” (7).  How significant was this social policy? According to Martin, studies illustrate that the electorate and their representatives view “tax subsidies for homeowners as substitute for direct social programs like Social Security (8).  By the 1960s, this meant fractional assessment provided more benefits than all other social policies save Medicare and Social Security. Moreover, as the government provided subsidies to suburban development through highway appropriations and the like, the values of homes rose, thus, theoretically raising property values and assessments. The standardization of assessments through modernization removed this tax privilege from numerous groups, but especially politically valuable ones.

How did fractional assessment work? Fundamentally, fractional assessment operated as a clear political process. Though divided between elected and appointed officials, assessors were hardly property experts. “They typically lacked training in appraisal methods, and even where they were capable of appraising property accurately, the political imperatives to avoid blame for tax increases trumped the constitutional imperative to assess property at its full market value,” notes Martin (27).  Predictably, assessors' “assessment ratio[s] varied widely from place to place” so that the system lacked uniformity. Additionally, fractional assessment spread its benefits asymmetrically and inequitably. Poorer homeowners and businesses endured higher rates of fractional assessment; as Martin suggests, “the system was unfair to any taxpayer who was not lucky or savvy enough to get a good assessment” (28).  As one can imagine, this system failed to provide the necessary revenue to growing municipalities. Not only did assessors purposely keep the “measured tax base small,” they under-assessed properties. Reflecting the model of Charles Tiebout, local municipal leaders competed with one another to draw new residents to their communities. Having lower assessments provided one means to attract new homeowners. As housing values rose, in part due to government expenditures, so too did housing prices. By the 1960s and 1970s, the tax privilege that fractional assessment provided had grown, not shrunk.

Efforts to reform or modernize the property tax system emerged in eras prior to the 1960s. Arguing that the nation missed a prime opportunity to reform the system during WWII, Martin traces the emergence of a reform movement to modernize this tax base in the post war period. Modernization entailed a “centralization, professionalization, and standardization of tax administration” (26).  Basically, this meant county assessors would now have to take a formalized test to illustrate competence and were now required to impose a “common preference standard. County assessors would henceforth appraise all taxable property uniformly at its market value and assess all property for tax purposes at 25 percent of that value with no exceptions” (26).  Early postwar attempts to reform the system in California failed. First, the modernization movement featured a wide array of city officials both supporting and opposing modernization. Officials who dispensed tax privileges as political benefits viewed modernization as a threat. In contrast, those who lacked the ability to level fractional assessments wanted to curb their influence since reforms would bring more revenue their way. Second, state officials feared raising taxes while modernization foes used assessments as a political resource.

The demographics of the “tax rebels” might serve as a source of surprise. Though historians and others frequently conflate the 1970s tax revolt with suburban populations, Martin illustrates that in its initial stages, the tax revolt movement consisted of rural, metropolitan and urban supporters. Even in the 1960s, the movement’s support crossed ideological boundaries. Politically, leftists like George Wiley, executive director of the National Welfare Rights Organization (NWRO) embraced the property tax’s abolition as tightly as conservatives like Howard Jarvis. However, Martin explains that though homeowners on the left and right opposed property tax because each deemed it a threat, the meaning of the threat differed. “From the right some complained that it was a tax on property, and therefore punished those who worked hard and saved money," Martin says. Meanwhile the left "complained that [the tax] was regressive and that poor communities had to charge high tax rates to pay for the same public services that wealthy communities could get more cheaply” (75).

While tax revolts proliferated locally in the 1960s, they failed to coalesce into a social movement until modernization had been imposed. Like numerous other recent scholars, Martin views the 1970s as decisive in regard to the tax revolt’s emergence as national movement.  The Permanent Tax Revolt pinpoints three reasons for this: 1) the common target of modernization enabled the formation of coalitions across county boundaries (removing assessors from the equation led many to realize the state was the target of their collective ire); 2) modernization standardized assessments so that protesters now “confronted … the same threat at the same time” (58); 3) under modernization assessments now “meant more than a one time cut in your informal benefits.”  New regulations required assessors to constantly maintain current values. This meant taxes rose with housing markets. “Homeowners, in short, saw that their tax privileges might be permanently reduced or altogether revoked," Martin says.  "Homeowners mobilized in proportion to the threat they faced” (58).  Likewise, the early 1970s represented property tax opponents' greatest opportunity to do away with the tax permanently. The movement found allies among elites. Many elites believed the property tax “to be in crisis,” and facing upcoming elections, the focus on property taxes provided an easy political strategy. For example, Nixon’s 1972 re-election campaign depended on reaching suburban voters. In the face of rising housing values, few issues captured the passions of suburban homeowners more than property taxes. Still, though the 1970s represent a burgeoning movement about to go national, it did not reach its apex until 1978.

So if the abolition of the property tax enjoyed popular and elite support, why does the property tax persist? Martin states simply, “Federalism foiled the American tax rebels” (86). How so? One of the strengths of Martin’s work is the use of comparison. From introduction to conclusion, Martin harnesses examples from Europe and Britain (and of course numerous comparative examples from within the US). This use of comparison helps refute ideas about American exceptionalism. In most cases where modernization impinges on a tax privilege, revolt has followed. These examples illuminate many of the points he makes regarding American property tax controversies. Here, Martin notes the success of Scotland’s unitary government in abolishing property taxes. However, in America, the flexibility of federalism meant Nixon could not impose a property tax ban. Property taxes were the responsibility of the state. Thus, states acted on their responsibilities by enacting numerous tax relief reforms. Martin notes that three reforms dominated this process: circuit breaker laws (favored by the left), classification laws (favored by the right), and tax limitation laws (favored by the center). In sum, these reforms acted as new “tax privileges,” as “the 1970s saw a burst of innovative policy making to provide homeowners with security from rising taxes and rising prices” (95).  The Scottish government lacked the flexibility to enact such reforms.

Martin’s conclusions challenge recent studies on federalism and fiscal policy that argue federalism impedes innovation “by multiplying veto points.” In this way, Martin acknowledges the contributions of these studies, but encourages scholars and policymakers to consider federalism’s “second face.”  Federalism “also appears as a structure of access points that encourage policy proposals from political outsiders … [it] blocked [Nixon’s] plan to abolish the property tax – but it encouraged the proliferation of other property tax relief policies” (96).  In part, this also explains why England did not embrace property tax cut. As a result of federalism’s flexibility, states were able to put reforms into practice such that many tax innovations had been operating under the watchful eye of the public. When Ronald Reagan, influenced by Prop 13’s electoral success, began advocating for property tax cuts, he appealed to state policies then in existence. When Margaret Thatcher attempted a similar feat, she failed. Unlike Reagan, Thatcher had pinned her hopes on an untested and relatively unknown new policy that Martin describes as “catastrophically unpopular” (144).  Thus, American conservatives now view tax cuts as the veritable Holy Grail, while Britain’s Tories see only electoral disaster.

Undoubtedly, the acknowledged epicenter (or the example most often employed) of the property tax revolt remains California. Prop 13 plays a central role in Robert Self’s metropolitan history of postwar Oakland, American Babylon, and likewise, Martin pays homage to the Golden State’s devotion to tax limitation, positioning Prop 13 as a catalyst for other movements in Michigan, Massachusetts and New York. In Massachusetts, Prop 13 “inspired conservative groups to take interest in the property tax issue,” resulting in the coming together of three separate camps of Massachusetts conservatism, who collectively helped push through Proposition 2 ½ in the state legislature.  (Prop 2 ½ “established a 4 percent limit on the annual growth of local taxes, but exempted all school districts and any local governments that voted to override the cap” [115].)  In Michigan, moderates saw Prop 13 as the proverbial “writing on the wall.” Sitting Governor William G. Milliken, a moderate Republican opposed to property tax cuts, defeated a 1976 attempt to impose tax limitation, but in the wake of California’s decision did not think a second victory appeared imminent. Miliken agreed to a less severe 1978 tax limitation out of fear of more drastic legislation. Finally, New York’s political leadership settled on a hybrid combination of tax limitations and classification. For liberals in the Empire State, Prop 13 demonstrated the power of public support. Many liberals justified their support of tax limitation on the argument that tax limitations would help the middle class but also significant numbers of low income homeowners.

Why did Prop 13 reverberate so widely? Martin points to three reasons. First, the symbolic power of Prop 13 sparked a belief, among proponents of property tax limitations, that opposition to property taxes had the support of the broad public.  Second, California’s sheer size suggested that the nation’s largest state and future electoral kingmaker represented broader opinion. After all, Martin notes, a 1972 Washington state constitutional amendment that tightened the state’s “existing, statutory property tax limit” garnered very little attention six years earlier. Finally, because California liberalism was seen as the dominant political culture in the state, the victory of an economically conservative fiscal policy like Prop 13 drew greater media attention than otherwise might have been the case, thus, magnifying its importance. Moreover, politicians and protesters around the nation took note that property tax limitation appeared to be a “viable solution to the property tax crisis” (111).

The right’s appropriation of property tax cuts emerged in the wave of legislative and electoral victories the revolt inspired. Conservatives used property tax limits as a central part of a larger package of conservative ideas. In many ways, property tax limits helped conservatives paper over differences while also energizing their base. Supply side economics encouraged a larger dedication to tax cutting. Ronald Reagan and his heirs argued that by cutting taxes, more money flows into the economy thus expanding the tax base and “thereby actually [increasing] federal revenues” (130).  As Martin argues, tax cuts as political tradition is a fairly new development. Tax cuts came to dominate political discourse in direct relation to the property tax revolt. "Tax limitation policies, watered by the Reagan Revolution, and flowering in the heart of the Republican party,” incubated a burgeoning new language of politics, the lexicon of tax cuts (145).

Over the 33 years since its approval, the discourse that has grown around Prop 13 often obscures its larger effects. First, the doomsday scenario that many state officials, conservatives and liberals alike, feared never came to fruition. The budget shortfalls failed to impact local municipalities as severely in Prop 13’s early years, because budget surpluses were used to patch up fiscal holes. As the Economist explains in a recent survey on California, “the state had a budget surplus and decided to bail out local governments by passing to them roughly the amounts they had lost in property tax revenues” (Economist, “Prop 13: War by Initiative”, April 23, 2011).  Moreover, this paradoxically resulted in a “permanent financing mechanism” that meant all future property tax revenues had to flow through Sacramento. In this way, “cities, counties and school districts thus lost their funding independence. Instead of local governments setting their own taxes they became tentacles of the state octopus.” Not exactly what a freshly scrubbed Reaganite conservative dreamt.

If Martin focuses on how California paced the nation, the Economist notes the pervasive influence of Prop 13 on the state’s internal politics. Referendums became less regulated and more common. Prior to Prop 13, the initiative/referendum process was viewed as a “safety valve”; after, it became “an industry and a circus.” Large interests intervened and bankrolled the process (see the controversial Prop 8 from 2008). The qualification process changed as well. Gathering signatures no longer fell under the purview of individuals committed to a cause, as "signature gathering became an industry and access was determined by money."  Paid professionals now corral thousands of John Hancocks and then sell them to organizations and interests who need them for ballot qualification. The costs of sponsoring initiatives have soared. Prior to Prop 13, initiative spending amounted to about 9,000,000 per election.  Ten years later, the typical initiative campaign cost 127,000,000. As one observer noted, “any billionaire can change the state constitution. All he has to do is spend money and lie to people.”

Perhaps, the largest misconception regarding Prop 13 regards who the real beneficiaries are. Traditionally, supporters frame the debate as “the little guy versus the established powers” (Economist, “How voters decide: What do you know?”, April 29, 2011). However, few seem to realize that Prop 13’s tax reduction includes businesses such as large firms, trusts, and hedge funds which own commercial property.  Does this count as David and Goliath?

Martin points to the results of Prop 13 by pointing to school appropriations. By far, education spending ranks as California’s largest expenditure. As of 2010, spending on schools accounted for 34.5% of the state budget (Economist, “The People’s Will”, April 29, 2011).  Though it took time to take effect, Prop 13 did lead to education problems. Martin acknowledges that studies have illustrated that “property tax limits like Proposition 13 reduced spending per pupil, lowered teacher qualifications, increased class sizes, and – the acid test for skeptical economists – reduced test scores” (141).  Prop 13 proponents argued they only voted to cut taxes, not to diminish services that those taxes funded. The Economist pointed out that in response Californians simply passed more initiatives to restore the very funding they had cut. The British periodical reflected that this was an “irony [that] often eludes Californians” (Economist, “Education: A Lesson in Mediocrity”, April 29, 2011).  To be fair, the failure of public education in California cannot be pinned to one factor or reason alone, but Prop 13 did not do the state’s students any favors.

For some, Martin’s argument fails to address issues regarding distrust of government (Vietnam, Watergate, stagflation) or the kind of economic changes that unfolded in the 1970s that historians such as Bruce Schulman have suggested transformed America from a savings society to an investment economy. This transformation increased the importance of exchange value and increased the home’s role as site for capital accumulation. Matthew Lassiter, Kevin Kruse, and the aforementioned Self focus on how a white taxpayer/homeowner identity emerged to contest integration through the language of race-neutral middle class respectability. Without mentioning race, homeowners in Charlotte, Atlanta, Oakland, and Richmond promoted their middle class consumerist interests through this identity. Martin’s work thickens our understanding of this development. In The Permanent Tax Revolt, homeowners seek to reinstate their tax privilege, one earned by their taxpaying/homeowner status. Lizabeth Cohen points to similar developments, “during the last two decades, a new combined consumer/citizen/taxpayer/voter has gained influence in a Consumerized Republic, where self-interested citizens increasingly view government policies like other market transactions, judging them by how well served they feel personally” (Cohen, A Consumer’s Republic, 9).  As Reagan appropriated the language of the people against uncaring, ignorant government officials, deregulation emerged as a populist tool to engage voters. Cohen furthers this point, noting that the ensuing deregulation contributed to exaggerating these developments such that by the 1990s, “the market relationship became the template for the citizens’ connection to government …. [bringing] a consumer mentality to their relationship with the government, judging public services and tax assessments much like other purchased goods, by the personal benefits they derived from them” (397).  One can see how Martin’s interpretation complements this model. Still, as Cohen points out, this consumerism did not guarantee equality, as occupation and housing segregation greatly limited the access to resources for minority communities. Prop 13 illustrates this clearly, as Self notes that Oakland endured greater difficulties than the surrounding metropolitan communities.

In the end, the property tax revolts of the 1970s may have subsided but their influence persists. One of Martin’s larger points is that social movements have lasting consequences. The language of tax cuts and the institutionalization of property based tax relief remain bricks in metropolitan governance. Moreover, Prop 13 reshaped national and local politics, while enabling the right to unite disparate arms of its ideology through the talisman of property tax limitation. Accordingly, even if its origins prove more diverse, the last two decades of Republican dominance emerged in relation to the tax revolt movement. One wonders if today's Tea Party can hope to have the same kind of influence. God help us all.

Ryan Reft