David R. Doerr

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"Car Tax" Revolt has Familiar Ring of Taxpayer Appeal
By David R. Doerr

Some would say, "Been there, done that." Yogi Berra would call it "dejavu all over again." In any event, there are astonishing parallels with the current "car tax" uprising and two other California tax revolts of the past quarter-century.

In 1978, California voters were fed up with rapidly escalating property taxes and more than 64 percent of them approved Proposition 13. Four years later, voters again took to the initiative to repeal a fast-growing inheritance tax. Proposition 6 of 1982 also was backed by over 64 percent of voters.

The root causes of both initiatives were the same: Rapidly rising property values. The inflation in real estate values from the mid-1960s until 1978 translated into higher and higher property taxes on paper gains in the value of property. In a five-year period, from 1972 to 1977, real estate prices more than doubled in Southern California.

The same increasing property value, when it became part of an estate, created an inheritance tax liability for many where before there was none. For others, the tax dramatically increased. In the decade of the 1970s, inheritance and gift tax collections almost tripled.

The property tax on vehicles (the state's 2 percent vehicle license fee, or VLF), has been surging upward recently as values of motor vehicles increase. While the VLF is "in lieu" of a property tax, vehicles are taxed at double the rate of property subject to Proposition 13. In addition, the Legislature upped the ante by increasing the VLF in 1983 and 1991 by adjusting the depreciation schedule for vehicles.

Predictably, as tax bills on motor vehicles grow larger and larger, the public is increasingly looking for relief. For some, the tax on vehicles is now greater than the tax on their homes!

In the cases of both Propositions 13 and 6, the Legislature was slow to react. The 1977 Legislature failed to agree on a property tax relief plan. By 1978, when the Legislature offered homeowners a 30 percent tax cut with no controls on the increases of individual property assessments, it was "too little, too late." Likewise, the inheritance tax revolt caught Sacramento by surprise.

Legislation passed in 1980 exempting spouses from the tax and increasing tax thresholds for other categories of taxpayers decreased the inheritance tax by 27 percent. Again, this action was "too little, too late."

The car tax revolt has also caught the Legislature by surprise. In this decade, until this year, only one bill (AB 2888, Cortese of 1996) was introduced to reduce the VLF. And it was not taken seriously.

There are other similarities: During both the Proposition 13 and the car tax repeal debates, there was a growing surplus in the state's treasury. (Proposition 6 was enacted when the state was facing a deficit, however.)

Further, unlike the sales tax, which is paid in dribs and drabs on purchases, and the income tax, which is generally paid through withholding, the car tax is paid in a lump sum, straining resources at time of payment. This was similar to the inheritance tax and the property tax (which is paid in two installments for those not paying the tax through their mortgage).

Now, Assemblyman Tom McClintock has introduced AB 1776 to repeal the $3 billion-a-year tax (about $185 annually per vehicle). A similar bill in the Senate was proposed by Ray Haynes. If the Legislature fails to act, Mr. McClintock vows to take the repeal plan to the people with a ballot initiative. Will history repeat itself once again?