Pushing the limit.

• Author: Hayward, Steven

California's Proposition 13 remains the most famous tax revolt since the Boston Tea Party. Despite apocalyptic warnings from every establishment bastion of sense and sensibility, Prop. 13 passed in a landslide in June 1978 and propelled the nascent tax revolt into a national force, culminating in the election of Ronald Reagan and the supply-side income tax cuts of the early 1980s. The big-government establishment, addicted to ever more spending programs, has gnashed its teeth bitterly about Prop. 13 ever since. Repealing 13 has become the Holy Grail of "good government" reform in California.

Today, amid California's continuing economic catastrophe, Proposition 13 is in trouble. The state and local governments face huge budget deficits--more than $10 billion a year at the state level for each of the last three years--and the attack on Prop. 13 is being pressed with new vigor. Critics who charged back in 1978 that the initiative was "a gift-wrapped time bomb" claim that the bomb has now gone off.

To cut its own deficit, the state government has reduced aid to local government--aid it began providing in the aftermath of Prop. 13--by more than $2 billion this year. In response, local governments are threatening drastic cutbacks in basic services, including police and fire protection. San Francisco, for instance, lost more than $100 million in state aid, leading to local tax increases and an estimated 1,500 layoffs. Between reduced state aid and lowered revenue from other sources, Los Angeles County has had to cut its budget by nearly $1 billion.

Prop. 13's critics resumed their fierce attack on the occasion of the initiative's 15th anniversary in June. State Sen. Alfred Alquist (D-San Jose), the octogenarian chairman of the Senate Finance Committee, bemoaned the loss of over $150 billion in revenue since 1978. Peter Schrag of the Sacramento Bee calls the local government cutbacks "the 15-year deferred anguish of Prop. 13." He argues that "there is almost nothing in this state that hasn't been affected [by Prop. 13], mostly for the worse."

Like Bill Clinton crusading to undo Reaganomics partly through a revisionist history of "the last 12 years," California's big spenders are hoping to use the current crisis to undo Prop. 13 and tarnish the legacy of the tax revolt it helped to inspire. The chief vehicle for this purpose is a sales tax hike slated for a special election in November. The ballot initiative contains some fine print designed to eviscerate Prop. 13's supermajority vote requirement for local tax increases.

The debate over Prop. 13 in California is important not only to those states that copied some aspects of Prop. 13 for themselves (such as Massachusetts, Michigan, and Oregon) but also for what it can teach us about the way big government reacts spontaneously to tax limitation--like a host organism acting to isolate and kill a bacterial parasite. The lesson in a nutshell is: Tax limitation without serious spending control is not enough to stop the growth of government. Government has become like the outer-space creature in The Blob, absorbing every blow against it and growing relentlessly larger. The only solution for the Blob was a deep freeze; the same is required to limit government spending.

The key to settling this controversy is to understand what Proposition 13 did and didn't accomplish. Prop. 13 cut the property tax rate by more than 50 percent, capping it at 1 percent of assessed valuation. Perhaps more significant than the rate cut, Prop. 13 stipulated that assessed valuation can rise at only 2 percent a year, far below the rate of market-value appreciation in California over most of the last 15 years.

These limits mean that a homeowner is not subject to the capriciousness of inflation, market price surges, and aggressive tax assessors. He can predict with certainty what his tax burden will be as long as he...