Americans have a reputation for disliking taxes, especially those they pay directly. Few are as consistently unpopular as property taxes. That discontent has fueled reform movements in a dozen states. In 2026, voters in Florida, North Carolina, and Oklahoma are considering exemptions or property tax limits, while lawmakers in Indiana, Montana, and Texas have debated deeper reductions or outright abolition. The revolt, much like the tax revolts of the 1970s, is driven by high inflation shrinking the dollar’s purchasing power as well as rising home values, and tax bills that often outpace household incomes.
Today’s revolt reflects a breakdown in the relationship between what taxpayers pay and what they believe they receive. While the past tax revolts saw brief success, governments quickly found workarounds to continue growing government. Simply abolishing or capping one tax does not guarantee that government will shrink.
Unless reforms restrain spending and scope of authority, taxpayers will still pay through higher taxes, transfers from federal and state governments, fees, or debt. Lasting relief, therefore, requires a set of binding rules that “starves the beast” of both revenue and responsibility.
The Tax Revolts of the 1970s
As the tax revolt spread across the country in the 1970s, California became its most prominent battleground. The movement had been building in the Golden State since the 1960s, when voters increasingly rejected local school levies and bond measures they considered burdensome, unpredictable, and unfair. California’s ballot initiatives of 1978 and 1979 marked the tax revolt’s high point.
In June 1978, voters approved Proposition 13, adding Article XIII A to the state constitution, which cut property-tax payments by roughly 60 percent, capped the basic property-tax rate at 1 percent, and limited annual assessment value growth.
Voters tried to close the gap a year later by adding Article XIII B, or the Gann Limit. The Gann Limit tied appropriations growth to population growth and cost of living and required excess revenue to be refunded. For a time, the combination mattered: California rebated $1.1 billion in excess revenue for fiscal year 1986–87.
Later initiatives weakened the spending constraint. Propositions 98 and 111 redirected excess revenue, widened the room under the limit, and expanded exemptions to the limit. By the mid-1990s, Prop 13 still limited property taxes, but the Gann Limit rarely forced lawmakers to choose between lower spending and taxpayer rebates.
California’s experience highlights the rules’ central weakness: they constrained specified taxes and appropriations while leaving other revenue, spending, and borrowing relatively unchecked.
Governments adapted through an expansion of “off-budget enterprises” (OBEs) such as road, airport, water, and sewer authorities. Often financed through revenue bonds that did not require voter approval, these entities could create patronage and obscure liabilities outside the ordinary budget. Their employees, contractors, and beneficiaries had concentrated incentives to defend them, while the cost of subsidies or bailouts was dispersed across taxpayers. Additionally, governments can use laws and regulations to mandate that these entities charge assessments or fees that serve as a workaround to tax caps.
State and local governments also grew more dependent on federal transfers since the 1990s. Such aid separates the government that spends from the government that taxes, weakening voters’ ability to connect services with costs. Because federal money and OBEs fell outside tax and expenditure limits, government could reproduce a restricted burden through transfers, compulsory charges, special entities, or debt. A fiscal rule’s effectiveness, therefore, depends on the scope of authority it constrains.
The Reason for Fiscal Rules
The lesson from the 1970s tax revolts is that governments respond to the incentives created by fiscal rules and exploit the choices the rules leave open. A restriction applying to only one tax or section of the budget may provide relief while redirecting fiscal activity elsewhere.
Conventional public finance assumes that government must collect a given amount and asks which tax can raise it most efficiently. Geoffrey Brennan and James Buchanan ask a prior question: What taxing and borrowing powers would citizens choose to give government if officials could use those powers to pursue their own political objectives?
The whack-a-mole problem is exactly what Brennan and Buchanan’s framework is meant to expose. If one fiscal tool is limited while the others remain open, officials can readily turn to alternatives. This is demonstrated in their model of a “revenue-maximizing Leviathan.” Without any constitutional rules constraining government, those public officials operating “Leviathan” will happily take as much tax revenue as possible for their own discretionary ends. Additionally, a poorly-written rule enables public officials to find loopholes that allow them to maximize revenue. Rules designed only for benevolent officials serve little purpose. Sound rules must also protect citizens when politicians, bureaucracies, and organized interests seek to expand their command over public resources.
Property taxes are central to this substitution problem because they are unusually attractive to governments and creditors. Real property is immobile, comparatively easy to identify, and difficult to conceal. These characteristics can reduce economic distortions and give local governments stable revenue but can also give government considerable power over taxpayers who cannot easily move their homes or reverse investments made under earlier fiscal expectations. The same tax base that appears inelastic can also appear easily exploitable.
The municipal bond market shows how the tax and borrowing sides of the problem connect. Some investors warn that property taxes could weaken local credit, increase revenue volatility, and raise borrowing costs. Higher borrowing costs following reform may thus represent both a genuine burden and a measure of fiscal discipline.
From the bondholder’s perspective, the property tax is valuable because it’s stable, difficult to avoid, and supported by an immobile base. From the taxpayer’s perspective, those same characteristics make it an unusually powerful instrument for fiscal extraction. The revenue source that appears the most efficient under a fixed-revenue assumption may also give a revenue-seeking government the greatest capacity to tax and borrow. In other words, capping a tax without also constraining spending and scope of authority pushes fiscal pressure into state aid, fees, authorities, or new debt. The bill changes, but the burden does not.
Brennan and Buchanan further distinguish political outcomes from the rules that produce them. Proposition 13 delivered substantial property-tax relief, but it was only a partial fiscal constitution. Its history shows that reformers must evaluate a rule according to the behavior it predictably encourages, including activity likely to migrate beyond its boundaries.
A Fiscal Constitution for Property Tax Reform
Today’s reformers should therefore look beyond the amount removed from the homeowner’s first bill. The relevant question is whether new rules reduce government’s total claim on taxpayers while making the remaining burden more predictable and accountable. Economist Vance Ginn offers some workable solutions.
First, property tax limits should be paired with a limit on total spending or revenue. Otherwise, local governments may replace lost collections with other taxes, state aid, compulsory charges, or borrowing. A workable limit could allow growth with inflation and population while requiring voter approval for amounts above that ceiling. Emergency overrides should be narrow, temporary, and subject to automatic expiration.
The property tax rule itself should restrain levies and assessments. When assessed values rise faster than the permitted levy, tax rates should automatically fall. New construction can be treated separately to finance the cost of genuine growth. This offers relief without reproducing Proposition 13’s acquisition-value system, under which similar properties can face dramatically different tax burdens based on purchase date.
Second, the rule’s perimeter must extend beyond the ordinary budget. Special districts, public authorities, dedicated funds, public-private partnerships, lease obligations, and recurring subsidies should appear in a consolidated fiscal report. Debt repaid from taxes or compulsory charges should face approval and disclosure requirements comparable to general obligation debt. New debt service should not become an unlimited exemption from the spending limit.
Third, local governments should raise a meaningful share of what they spend. Permanent state backfills weaken the connection between the officials who authorize services and the taxpayers who finance them. State transfers may remain necessary to address differences in local tax capacity, but its formula should not automatically preserve every locality’s previous spending level. Otherwise, state officials collect the money while local officials continue spending it.
Fourth, reform must distinguish a genuine user fee from a disguised tax. A fee should finance an identifiable service, reasonably reflect its costs, and be dedicated to that purpose. A compulsory charge financing general government should be treated as a tax regardless of its label. Revenue bonds for a self-supporting water system are different from bonds supported by recurring tax subsidies or implicit bailout guarantees.
Finally, reform should be prospective and gradual. Existing covenants and pledged revenues should be honored, with a clear timetable for future changes. Abrupt abolition could destabilize local credit and make legitimate capital projects unnecessarily expensive. Protecting existing creditors, however, does not require unlimited borrowing authority forever.
Brennan and Buchanan’s contractarian approach supplies a final test: Would citizens accept these rules before knowing whether they would use many or few local services, whether they would hold municipal bonds, whether they would be homeowners or renters, or residents of growing or declining communities? Rules passing that test are more likely to be general, durable, and resistant to manipulation.
Eliminate the Burden, Not Just the Bill
Property taxes are politically vulnerable because taxpayers can see them. The annual bill places the cost of local government in front of the homeowner in a way that withholding, state transfers, debt, and embedded charges often do not. Reformers should not mistake making the bill disappear for making government less costly.
The earlier tax revolt demonstrated that citizens could impose meaningful limits on government. It also showed that governments will reorganize their finances around whatever choices remain.
The new property tax revolt’s success should, therefore, be measured by whether the total burden becomes smaller, more predictable, more visible, and more closely connected to the government spending the money. The goal should be to prevent government from recreating that tax under another name.
Thomas Savidge is a research fellow at the American Institute for Economic Research.
The municipal bond market shows how the tax and borrowing sides of the problem connect. Some investors warn that property taxes could weaken local credit, increase revenue volatility, and raise borrowing costs. Higher borrowing costs following reform may thus represent both a genuine burden and a measure of fiscal discipline.
From the bondholder’s perspective, the property tax is valuable because it’s stable, difficult to avoid, and supported by an immobile base. From the taxpayer’s perspective, those same characteristics make it an unusually powerful instrument for fiscal extraction. The revenue source that appears the most efficient under a fixed-revenue assumption may also give a revenue-seeking government the greatest capacity to tax and borrow. In other words, capping a tax without also constraining spending and scope of authority pushes fiscal pressure into state aid, fees, authorities, or new debt. The bill changes, but the burden does not.
Brennan and Buchanan further distinguish political outcomes from the rules that produce them. Proposition 13 delivered substantial property-tax relief, but it was only a partial fiscal constitution. Its history shows that reformers must evaluate a rule according to the behavior it predictably encourages, including activity likely to migrate beyond its boundaries.
A Fiscal Constitution for Property Tax Reform
Today’s reformers should therefore look beyond the amount removed from the homeowner’s first bill. The relevant question is whether new rules reduce government’s total claim on taxpayers while making the remaining burden more predictable and accountable. Economist Vance Ginn offers some workable solutions.
First, property tax limits should be paired with a limit on total spending or revenue. Otherwise, local governments may replace lost collections with other taxes, state aid, compulsory charges, or borrowing. A workable limit could allow growth with inflation and population while requiring voter approval for amounts above that ceiling. Emergency overrides should be narrow, temporary, and subject to automatic expiration.
The property tax rule itself should restrain levies and assessments. When assessed values rise faster than the permitted levy, tax rates should automatically fall. New construction can be treated separately to finance the cost of genuine growth. This offers relief without reproducing Proposition 13’s acquisition-value system, under which similar properties can face dramatically different tax burdens based on purchase date.
Second, the rule’s perimeter must extend beyond the ordinary budget. Special districts, public authorities, dedicated funds, public-private partnerships, lease obligations, and recurring subsidies should appear in a consolidated fiscal report. Debt repaid from taxes or compulsory charges should face approval and disclosure requirements comparable to general obligation debt. New debt service should not become an unlimited exemption from the spending limit.
Third, local governments should raise a meaningful share of what they spend. Permanent state backfills weaken the connection between the officials who authorize services and the taxpayers who finance them. State transfers may remain necessary to address differences in local tax capacity, but its formula should not automatically preserve every locality’s previous spending level. Otherwise, state officials collect the money while local officials continue spending it.
Fourth, reform must distinguish a genuine user fee from a disguised tax. A fee should finance an identifiable service, reasonably reflect its costs, and be dedicated to that purpose. A compulsory charge financing general government should be treated as a tax regardless of its label. Revenue bonds for a self-supporting water system are different from bonds supported by recurring tax subsidies or implicit bailout guarantees.
Finally, reform should be prospective and gradual. Existing covenants and pledged revenues should be honored, with a clear timetable for future changes. Abrupt abolition could destabilize local credit and make legitimate capital projects unnecessarily expensive. Protecting existing creditors, however, does not require unlimited borrowing authority forever.
Brennan and Buchanan’s contractarian approach supplies a final test: Would citizens accept these rules before knowing whether they would use many or few local services, whether they would hold municipal bonds, whether they would be homeowners or renters, or residents of growing or declining communities? Rules passing that test are more likely to be general, durable, and resistant to manipulation.
Eliminate the Burden, Not Just the Bill
Property taxes are politically vulnerable because taxpayers can see them. The annual bill places the cost of local government in front of the homeowner in a way that withholding, state transfers, debt, and embedded charges often do not. Reformers should not mistake making the bill disappear for making government less costly.
The earlier tax revolt demonstrated that citizens could impose meaningful limits on government. It also showed that governments will reorganize their finances around whatever choices remain.
The new property tax revolt’s success should, therefore, be measured by whether the total burden becomes smaller, more predictable, more visible, and more closely connected to the government spending the money. The goal should be to prevent government from recreating that tax under another name.
Thomas Savidge is a research fellow at the American Institute for Economic Research.
