It is interesting that Arnold's new man said it's time to raise property taxes in California. He is right, of course, for a variety of reasons, and not simply because it's a way to increase revenue.
Prop. 13 was a popular, and understandable, revolt against local property taxes. I'm actually sympathetic to it in the same way that I'm sympathetic towards rent control - in practice they don't operate much differently. In a time of booming property values, homeowners, some of modest means, were increasingly unable to afford to pay the associated skyrocketing property tax bills. So, the ballot initiative was passed to put a stop to it. The basics of prop. 13 is that it fixes the assessed value of your house for tax purposes at its purchase price, plus some small allowable increase per year.
It's discriminatory in the same way that rent control, particularly rent control with vacancy decontrol, is. Existing homeowners get the benefits of it - their property values can skyrocket (in the case of the beach communities, I mean SKYROCKET), while their property taxes remain flat. New and wannabe homeowners are at a great disadvantage, as a new assessment kicks in once a home changes hands. It has the same distortionary effects as rent control does, substantially reducing the mobility of individuals. Mobility is harmed because individuals who move will have to pay higher taxes on new homes versus their existing ones. The net effect is that beach communities in California are increasingly populated by old people.
Anyway, there are volumes which can be written about the effects of Prop. 13, but this is one aspect I often see left off so I thought I'd share...
