Proposition 13 ‘“ Split Roll Taxes

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The Enactment of the Split Roll Tax Property Tax in California
Introduction
Tax is a compulsory levy that must be imposed on citizens because it is the chief source of revenue for the federal, state and local governments. The money collected from taxation is used in running the capital and current expenses of the government. Given its importance, taxation has been treated with lots of caution. In California, different forms of taxes are levied on citizens. These include property taxes, income taxes as well as custom duties (Pearson and Janey 281). As a state, California is in the process of changing its policies governing property taxes. This paper argues against the introduction of split roll tax, but supports the continued use of Proposition 3 in the determination of property taxes within its jurisdiction.
Consequences of Split Roll Tax Property Tax
The implementation of Split Roll Tax Property Tax will be a direct amendment of the Proposition 13, the tax regime introduced in 1978 to levy equal taxes on the residential and commercial property within the state. By changing it, the Californian property owners will no longer has to be uniformly taxed on their property, but be discriminated based on the types of property owned. For this reason, the split roll taxation system needs to be opposed because if implemented, it can adversely affect the state in the following ways:
Unfairness: Unlike the Prop. 13, split roll system will impose different taxes on properties.

If successfully adopted, the system will lessen the tax burden on residential and agricultural property owners while increasing the burden on commercial property owners. Meaning, those who own commercial and residential properties will not be subjected to equal taxation any ore. Instead, only those who have commercial property will contribute more taxes. This is discriminatory and should not be accepted. There is no way people can be discriminated based on the type of property they own. The “Don’t tax you, don’t tax thee, tax that fellow behind the tree” system is unfair because everyone needs to be accorded equal treatment before the law (Kenyon, et al 28). The US constitution protects Americans from any form of discrimination. So, implementing the split roll system will be a violation of the constitution.
Burden on Small Businesses: Under the Prop. 13, all property owners contribute equal amount of taxes to the government. However, with the implementation of the split roll system, commercial property owners will have to contribute more taxes. This will heavily burden small business owners most of whom use leased and rented properties. When taxes on such commercial properties are hiked, these traders will have to contend with increased lease charges on the sops, parks and commercial buildings they rely on for trading. As a result, there will be more burden to them than it already is (Kwak and Mak 64). The increased costs of operations will translate into low profits for these entrepreneurs. Unfortunately, those who can not fit will be forced to shut their doors and quite the businesses to look for alternative and sustainable ventures.
Unemployment: Because of the inability of small business owners to cope up with increased taxes, they will be compelled to take measures aimed at reducing the costs of operations. Amongst these will be the laying-off of their workers. Therefore, under the new legislation, very many Californians will have to lose their employment opportunities. It will be reasonable for business owners to use such measures to help in coping up with the increased taxes which might render their businesses unsustainable. In fact, it is predicted that when the condition becomes unsustainable, up to 400,000 people will be rendered jobless in California. Unfortunately, additional job losses will be a very bad experience to California which currently ranks as the state with the third largest highest unemployment rates in the whole country (Aaron and Gale 123).
Burden to Consumers: Obviously, the increase of taxes levied on small business owners will affect consumers as well. For the overburdened traders to compensate for the increased taxes, they will have to pass the burden to their clients. The first way through which this will be achieved is by hiking the prices of goods and services offered to the customers. When this is done, the traders will manage to sustain their businesses and be able to meet al their expenses. Therefore, it should be noted the implementation of split roll tax system will not only burden commercial property owners, but consumers. In other words, it should be understood that the new tax regime will pose a very bid burden on the ordinary Californian citizens as well (Pearson and Janey 278).
Barrier to Economic Growth: One of the long-term negative consequences of the split roll tax is that it will slow down the rate of economic growth in the state. The imposition of higher taxes on commercial property will kill small businesses in the state. It will do this by scaring away investors who might be interested in putting their money in such kind of business activities. Also, existing small traders who can not survive will be forced to collapse. Actually, this will negatively affect the state’s economy because it will be a barrier to expansion of such business operations within the state (Kwak and Mak 77). On the other hand, the changes introduced to the assessment of property will affect the economy further. The pegging of the assessment of property on their market value can be disastrous during economic recessions as experienced during the 2008/2009 fiscal year when the state lost $86 billion on property taxes.
Blow to the Retirees: The new tax regime will be disastrous to the Californian retirees because they have heavily invested in real estate. When commercial properties are heavily taxed, they will lose value because many people will not consider buying them. Under the umbrella body California Public Employees’ Retirement System (CalPERS), retirees have put many properties across the state. For instance, in 2012 alone, CalPERS invested up to $5.3 billion on property in California. These have been rented by traders who use them for commercial purposes. So, when the split roll tax is implemented, the business will lose value. As a result, they will suffer a great deal. It will lead to the decline in the market price of such properties thus making them unable to return the money invested on them.
What should be done?
Having clearly explained the weaknesses of the proposed split roll taxation, it is clear that it should not be introduced in California as it will cause harm to the commercial property owners, small businesses, consumers and the government. The inequalities to be introduced by the proposed changes will not help, but contribute to the destruction of the Californian economy (Bankman and Caron 117). Even though its proponents link it to the improvement of the economy, the truth is that split roll system will cause more damages to the same economy. Causing pressure to the small traders will only promote unemployment and prevent investors from bringing their money into the state. If this continues, it can eventually lead to the collapse of the economy.
So, to address all these challenges, an alternative tax system should be implemented in the state. First, the current Prop. 3 should be upheld because it is more beneficial than the infamous split roll. Unlike the proposed split roll system, Prop. 3 will help in promoting equality and fairness in the state. By stipulating that commercial and residential properties to be levied equal amounts of taxes, Prop. 3 surely help in encouraging fairness in taxation (Pearson and Janey 279). So, by adopting it, there will be no discrimination of tax payers in the state. In other words, both the commercial and residential property owners will bear equal responsibility without any of them getting disadvantaged. At the same time, there will be no unnecessary tax increment which might in turn burden property users as well as the ordinary consumers to whom such burden is transferred by the constrained traders.
Prop. 3 remains the best alternative for California because it is more consistent and predictable than the split roll system which is subject to changes depending on the prevailing conditions in the economy. If it continues to be used, Prop. 3 will ensure that there is a restriction on property assessment as well as annual tax increment. Such kind of consistency is commendable because it gives traders an opportunity to plan their operations (Kwak and Mak 74). By knowing the exact amount of property taxes to pay, traders and property owners will not be inconvenienced at all. There will be no unnecessary changes that might make it challenging for traders to readjust their estimates in the course of the financial period.
The state should not change its tax laws, but stick to a more uniform and neutral tax system. By adopting a system like flat tax, the state will find it much easer to levy taxes to use it offering essential services like education, health, water, sewer, police and public works. Under flat tax regime, everyone will be required to pay equal taxes on their revenues regardless of their income. If this is system is adopted, the state will not face any resistance from any quotas. This is due to the fact that it will not disadvantage anyone, but will be fair to every tax payer in the state (Bankman and Caron 118).
Conclusion
California should not amend its constitution to adopt the split roll tax system. The Proposition 3, as it is currently, stands a better chance of helping the state to raise enough taxes to use for meeting its expenses. Although it is accused of burdening commercial property owners, Proposition 3 is good because it promotes neutrality, fairness and equality amongst all the tax payers. Even if the increase of commercial property taxes is becoming a common trend in the country, California should not do it (Aaron and Gale 111). It is a politically-motivated unsound initiative that should not be passed into law. It has nothing to offer rather than crumbling the ailing Californian economy.
Works Cited
Aaron, Henry and Gale, William, (Eds.) Economic Effects of Fundamental Tax Reform. New York: Brookings Institution Press, 1996. Print.
Bankman, Joseph, and Caron, Paul. “California Dreamin’: Tax Scholarship in a Time of Fiscal Crisis.” UC Davis Law Review 48 (2014). 113-121.
Kenyon, Daphne et al. Rethinking property tax incentives for business. Cambridge: Lincoln Institute of Land Policy, 2012. Print.
Kwak, Sally, and Mak, James. “Political Economy of Property Tax Reform: Hawaii’s Experiment with Split‐Rate Property Taxation.” American Journal of Economics and Sociology 70.1 (2011): 4-29.
Pearson, Trever, and Janey, Wang. “Property Tax Reductions and the Effects on County Revenue and Expenditure Structures in California.” (2012): 273-288.