If California matched Texas on taxing property, it would raise more revenue than the billionaire tax

Key Points:

• California’s Proposition 13, passed in 1978, capped property taxes at 1% of assessed value and limited annual increases, leading the state to rely more heavily on income and capital gains taxes, making its tax system highly progressive with a top rate of 13.3%.
• The proposed Proposition 40, a billionaire tax requiring residents worth over $1 billion to pay a one-time 5% tax on assets, aims to raise $100 billion to offset federal health spending cuts but faces criticism for potentially harming economic growth and prompting wealthy residents to leave.
• Economists Owen Zidar and Eric Zwick argue that repealing Prop 13 and increasing property taxes would be a more efficient and stable way to raise revenue, as California homeowners currently pay lower property taxes compared to states like Texas, despite rapidly rising home values.
• Critics, including former economic advisers Laura Tyson and Lenny Mendonca, warn that Prop 40 could trigger significant legal challenges and encourage wealthy individuals to relocate, advocating instead for higher taxes on capital income, corporate profits, and inheritance to address wealth inequality.
• California’s narrow tax base, heavily dependent on the top 1% of earners, creates volatility in state revenue, and experts suggest broadening the tax base beyond billionaires to include other wealthy residents through more effective real estate taxation.