New York State Needs Tax and Spending Caps

Published July 3, 2008

Separated by three decades and 3,000 miles, pressure to limit government spending and taxes has moved from California to New York.

Thirty years ago in June, California citizens overwhelmingly approved Proposition 13, which cut property taxes, limited future property tax increases, and required a two-thirds vote of lawmakers to approve tax increases. It was the first statewide measure of its kind.

Today more than two dozen states have some sort of tax and spending limitation. This month the New York State Commission on Property Tax Relief issued recommendations including a property tax cap for education spending and other spending controls. It’s a remarkable development in a state notorious for its eagerness to tax the stuffing out of people.

On June 4 Gov. David Paterson stood in the front yard of a home in Williston Park and told reporters, “A property tax cap is necessary, and it’s necessary now. People are rushing to leave this state.”

They are indeed, largely because New York has one of the most oppressive tax climates in the nation. In a June 6 report on the New York tax proposals, Josh Barro, staff economist at the nonpartisan Tax Foundation, noted, “New Yorkers pay 13.8 percent of personal income in state and local taxes, the third highest figure in the country.” And they’re still rising rapidly, he wrote: “Property taxes have … been rising much faster than inflation, an average of 7 percent per year since 2001.”

The situation in New York closely resembles the fiscal nightmare in California 30 years ago, when soaring local government spending and taxes were driving people out of their homes. Lawmakers can also look to current-day Florida and Indiana, where lawmakers already this year have passed measures to cap property taxes.

Though some California lawmakers, local elected officials, and government employees attack Prop 13 for allegedly hamstringing government, most Californians apparently believe they can do a better job handling their money than local and state officials can. Thirty years after Prop 13’s passage the measure remains hugely popular, according to Arnold Steinberg of Steinberg and Associates, a California polling firm. Late last month Steinberg reported, “much of the electorate remains very familiar or somewhat familiar with it. By a margin of more than 2 to 1, the electorate would vote for Proposition 13, and, with some familiarity with this issue, this margin increases to a second ballot landslide.”

Even with Prop 13’s spending limits and super-majority requirement for raising taxes, spending in California has skyrocketed. In the 1998-99 budget year, state spending totaled $72 billion. The 2008-09 budget submitted by Gov. Arnold Schwarzenegger came in at nearly $150 billion, including a deficit variously pegged at $14 billion to $20 billion. Local governments across California have similarly spiked their spending. Imagine how much worse the situation would be without Prop 13 in place.

In New York, where raising taxes and spending is easier, property taxes statewide jumped 42 percent between 2000 and 2005 while wages grew by only 12 percent, according to a recent report in Newsday.

The problem is not too little revenue; it’s too much spending, as California governor Ronald Reagan said in 1973 while working for a failed spending limitation initiative that was Prop. 13’s precursor, and said again during his successful run for president in 1980.

That’s why Californians’ continued support for Prop 13 and Gov. Paterson’s expressed support for caps on property taxes for education in New York are encouraging. They recognize the truth behind what Reagan said.

California and New York are still basket cases when it comes to spending. But without Prop 13, California would probably be even worse off, and with the successful implementation of a property tax cap in New York, things just might get better there.

Steve Stanek ([email protected]) is a research fellow for budget and tax issues at The Heartland Institute.