Turn Up the Heat to Kill the Car Tax

The same month that Californians celebrate the 20th anniversary of Proposition 13, the Legislature will adopt a new state budget that breaks all previous spending records, driven by an explosion of new revenues. Yet this year’s budget debate also offers the opportunity for another Proposition 13-sized taxpayer revolt. In all probability, Californians will have two choices: Abolish the abusive and hated $4-billion car tax this year, or live with it for another generation.

The personal property tax of the 1930s was particularly obnoxious. Each year, a county assessor would come to your door, inspect your personal possessions and then tell you how much you had to pay for the privilege of keeping them. The officials often were frustrated to find that on the day they came to call, they could find the refrigerator, the sofa and the family radio, but nobody seemed to own a car.

Thus the car tax was born as an “in-lieu” personal property tax in 1935. Instead of requiring an annual assessment, it is paid through the Department of Motor Vehicles.

California’s personal property tax was abolished in the 1940s, but a half-century later, the car tax remains as the last vestige of this long-ago abandoned system. Now called the vehicle license fee, it comprises virtually the entire amount that Californians pay to register their cars every year. Although originally intended to pay for local streets and roads, today it is all lumped into general spending by local and county governments.

This year, voter rebellions in Virginia, South Carolina, Utah, Georgia, Texas, Washington and Arizona are driving legislation to end car taxes. Meanwhile in California, a similar proposal is pending in the Assembly Revenue and Taxation Committee, its fate depending on whether Californians speak as clearly to their Legislature as have residents of those other states.

The California motorist bears the third heaviest taxes in the country on an average car. Overall, California taxpayers are paying about $3.6 billion more in state taxes than they would have if tax rates were simply restored to their 1991 level. That year, Californians suffered the biggest tax increase ever levied by a state in American history, including a hefty hike in the car tax, averaging $60 per vehicle. At the time, taxpayers were assured that this was a “temporary” measure just to get the government through the recession.

But today, California’s computer and entertainment industries are pumping billions of new dollars into the state’s economy, and the treasury is overflowing with revenues. If Californians cannot rid themselves of the car tax this year, when can they?

The state’s booming economy makes it possible to abolish the tax without touching the state’s school budgets or even the growth rate in the schools’ funding guarantee. The bill to abolish the tax even protects local governments from any revenue loss; it replaces every dollar lost through the car tax with an equal amount from the state’s share of existing sales tax revenues. To answer local government concerns that the replacement fund might be reduced in future years, a constitutional amendment to protect it against raids by future legislatures has been introduced.

Economic growth is so strong that even after protecting local governments and schools, state general fund spending still can grow more than 5% this year. As the car tax is phased out, smaller and smaller portions of future revenue growth will be needed to finish the job, even if the economy cools. When the car tax is fully phased out, taxpayers will pay roughly the same overall level of taxes that they did before the 1991 tax hike.

Left-wing city council members are fighting to keep this burden on California taxpayers, arguing that they don’t want to trade the constitutionally protected car tax for sales taxes that the state could take back. But the argument is specious. Under the pending legislation, the new replacement fund has exactly the same constitutional protection as the old vehicle license fund, from a revenue pool that will continue to grow with the economy. The basic objection runs much deeper: Liberals never met a tax they didn’t like.

The Legislature’s spenders don’t like cutting taxes either. At latest count, Assembly members have filed more than 700 new spending proposals with the budget committee. The Democratic leadership has taken a strong stand against abolishing the tax, despite the fact that working-class families would be the first to see the end of it. The least expensive third of California cars would be knocked off the tax rolls immediately.

Against that kind of opposition, abolishing the car tax won’t be easy-- a particular pity since the Virginia Assembly recently voted 100 to 0 to get rid of its car tax. But as the late Illinois Sen. Everett Dirksen once said, “When I feel the heat, I see the light.” California taxpayers must either turn up the heat now, or be prepared to pay the car tax until their dying day.