This California Property Tax Loophole Must Be Fixed

8/21/2015_PropertyTaxCalifornia
Estate homes in Fairbanks Ranch, California, June 24. In 1978, California voters passed Proposition 13, which began assessing property for tax purposes at its price when it was bought, rather than its current market price. This has protected homeowners and renters. But it’s also given a quiet windfall to entrenched corporate owners of commercial property, the author writes. Mike Blake/Reuters

This article first appeared on RobertReich.org.

Corporate welfare is often camouflaged in taxes that seem neutral on their face but give windfalls to big, entrenched corporations at the expense of average people and small businesses. Take a look at commercial property taxes in California, for example.

In 1978, California voters passed Proposition 13, which began assessing property for tax purposes at its price when it was bought, rather than its current market price. This has protected homeowners and renters. But it's also given a quiet windfall to entrenched corporate owners of commercial property.

Corporations don't need this protection. They're in the real economy. They're supposed to compete on a level playing field with new companies whose property taxes are based on current market prices.

This corporate windfall has caused three big problems.

First, it's shifted more of the property tax to California homeowners. Back in 1978, corporations paid 44 percent of all property taxes and homeowners paid 56 percent. Now, after exploiting this loophole for years, corporations pay only 28 percent of property taxes, while homeowners pick up 72 percent of the tab.

Second, it's robbed California of billions of dollars to support schools and local services. If all corporations were paying the property taxes they should be paying, schools and local services would have $9 billion more in revenues this year.

Third, it penalizes new and expanding businesses that don't get this windfall because their commercial property is assessed at the current market price—but they compete for customers with companies whose property is assessed at the price they purchased it years ago. That's unfair, and it's bad for the economy because California needs new and expanding businesses.

Today, almost half of all commercial properties in California pay their fair share of property taxes, but they're hobbled by those that don't. This loophole must be closed. All corporations should be paying commercial property taxes based on current market prices.

The giant corporations that are currently exploiting the loophole for their own profits obviously don't want it closed, so they're trying to scare people by saying closing it will cause businesses to leave California.

That's baloney. Leveling the playing field for all businesses will make the California economy more efficient and help expanding new businesses. Besides, California's property taxes are already much lower than the national average. So even if corporations pay their full share, they're still getting a great deal.

Right now, a grassroots movement is growing of Californians determined to reform this broken commercial property tax system, and who know California needs more stable funding for its schools, libraries, roads and communities.

Robert B. Reich, chancellor's professor of public policy at the University of California at Berkeley, was secretary of labor in the Clinton administration. Time magazine named him one of the 10 most effective Cabinet secretaries of the 20th century. He has written 13 books, including the best-sellers Aftershock and The Work of Nations. His latest, Beyond Outrage, is now out in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause. His new film, Inequality for All, is now available on Netflix, iTunes, DVD and On Demand.