--- title: "California's Proposition 13 Continues to Shape State Finances Ahead of New Ballot Measure" url: https://newscentral.site/california-s-proposition-13-continues-to-shape-state-finances-ahead/ language: en publisher: "News Central Site" section: "Business" published: 2026-10-31T19:41:13.000Z updated: 2026-10-31T22:51:51.612Z id: 8dba6ccc-c88c-4de8-b0bc-24c96ed3837d source: "Fortune https://fortune.com/2026/10/31/california-billionaire-wealth-tax-prop-40-revenue-prop-13-texas-taxes/" attribution: "Link to https://newscentral.site/california-s-proposition-13-continues-to-shape-state-finances-ahead/ and name News Central Site when you quote or summarize this story." --- # California's Proposition 13 Continues to Shape State Finances Ahead of New Ballot Measure A contentious ballot measure in California aims to address the state's reliance on income taxes, which can be vulnerable to fluctuations in the stock market and the fortunes of the wealthy. California's Proposition 13, passed nearly five decades ago, is still casting a long shadow over state finances as voters prepare to weigh in on another contentious ballot measure. The 1978 initiative capped property taxes at just 1% of assessed value and limited annual hikes to 2%, forcing the state to find alternative sources of revenue. In response, California's income-tax structure became increasingly progressive, with a top marginal rate of 13.3%. When combined with federal tax rates, this can push the total effective tax rate for high earners above 50%. The reliance on income taxes has made state revenues vulnerable to fluctuations in the stock market and the fortunes of the wealthy. A significant portion of California's revenue comes from the top 1% of earners, who contribute up to half of all state income. However, this group often relies more on investments and assets than on earned income, allowing them to minimize their tax liability through clever financial planning. The current billionaire tax proposal aims to target ultra-wealthy residents with assets exceeding $1 billion, imposing a one-time tax equivalent to 5% of those assets. Proponents claim the measure could generate up to $100 billion in revenue and help offset federal cuts to health spending. While the billionaire tax has garnered significant attention, some argue that it is not the most effective way for California to address its fiscal challenges. Instead, they point out that reforming Proposition 13's property tax caps could yield even greater revenue gains, potentially more than the proposed wealth tax. California's ultra-rich would still be among the world's wealthiest even if they were subject to a wealth tax, say supporters of the proposed policy. However, opponents have raised concerns about the potential impact on economic growth and startups, which could be forced to sell significant portions of their companies due to increased tax burdens. This, in turn, may lead to a net loss of revenue over time as wealthy individuals flee to other states with more favorable tax environments. According to Princeton economist Owen Zidar and University of Chicago Booth School of Business economist Eric Zwick, the state's property tax structure is riddled with inefficiencies that could be addressed through reform. They argue that targeting Prop 13, the 1978 law that rewrote the rules of property ownership in California, would yield more significant revenue gains than a wealth tax. Prop 13 has contributed to rapidly increasing home values in California, which have risen faster than property taxes, resulting in an average effective property tax rate of just 0.8%. This is estimated to generate $100 billion in revenue for the state by fiscal 2025. California's residential property taxes are significantly higher than those in Texas, where homeowners pay an average of 2% on their properties. If California were to match this rate, its overall residential property tax revenue would more than double. This shift could also have a positive impact on home prices, which could decrease by around 13%. However, this is not without controversy. Property taxes in Texas have recently become a contentious issue during the midterm election season, with many Texans complaining about the burden of these taxes despite the state's lack of an income tax. The high property taxes in California are largely due to Proposition 13, which restricts annual increases in assessed values. However, broadening the tax base could be challenging, especially if it leads to significant increases in property taxes for some homeowners. The state is already planning to spend $540 billion this fiscal year, highlighting the need for a more comprehensive approach to taxation. Experts argue that relying on a small number of wealthy individuals to fund the state's needs is unsustainable. Instead, they suggest broadening the tax base by introducing a real estate tax that would allow hundreds of thousands of high-income earners to contribute more. Introducing a real estate tax could be a more effective way to raise revenue in California than implementing a wealth tax on billionaires. This is according to economists Laura Tyson and Lenny Mendonca, who point out that six billionaires who would have owed a significant portion of the proposed wealth tax's expected revenues left the state before it was set to take effect. Tyson and Mendonca argue that implementing a wealth tax could lead to a "tidal wave of litigation due to its untested method of taxation on all assets. This, they warn, would make the promised funding unreliable. They believe an alternative approach is needed to address the issue of capital income feeding wealth. Raising taxes on capital income, such as corporate profits and capital gains, could be a more effective way to increase revenue, according to Tyson and Mendonca. This could be achieved through higher tax rates or closing loopholes like carried interest, which they describe as egregious". --- Source: [Fortune](https://fortune.com/2026/10/31/california-billionaire-wealth-tax-prop-40-revenue-prop-13-texas-taxes/) Published by News Central Site: https://newscentral.site/california-s-proposition-13-continues-to-shape-state-finances-ahead/