Sound and Fury over Taxes

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California do not rely solely on the property tax for income. They have been spending some $33.9 billion a year and real estate taxes account for just $12.4 billion of that. Proposition 13, which rolls back property taxes to 1% of market value (they average about 3.2% now), will reduce revenues from this tax by $7 billion. But that represents only 20.7% of all local funds. However, sizable federal grants may be lost because no local matching money will be available.

On the other hand, the average homeowner will lose a big chunk of his federal income tax deduction because of the lowered property tax. Uncle Sam is expected to gain some $2.3 billion from Californians as a result. And since the California income tax is tied to the federal tax, the state will pick up some 300 million unexpected dollars.

Analysts for the state legislature estimate that the total actual property tax cut may be nearer $6.4 billion than $7 billion—and of this, homeowners will get a collective saving of only $2.3 billion. The rest will go to owners of rented residential property ($1.2 billion) and commercial and industrial property ($2.9 billion). The state's ten largest utilities and railroads alone will benefit by $400 million next year; in addition, Standard Oil figures to benefit by $13.1 million and Lockheed by $9.5 million.

Whatever the disappointments California taxpayers may meet when Proposition 13 goes into effect, their overwhelming support of the measure sends a powerful message to Washington, and there is some evidence that Washington is beginning to take heed. In what a Capitol Hill observer calls "one of the legislative surprises of the year," Wisconsin's Republican Congressman William Steiger has mustered astonishing support for a proposal to cut the capital-gains tax from a maximum rate of 49% to 25%. Though the Administration dismisses it as a "fat cat" proposal, Steiger's measure has won endorsement from 61 Senators and, in the name of job creation, from none other than AFL-CIO Leader George Meany. Steiger had been talking of settling for a new ceiling of 35%, but in the wake of Proposition 13, he may well revert to his original demand for 25%.

The voters' tax-cut message places the President in something of a bind. If he cuts taxes heavily without slashing spending, he risks adding to inflation. He has already modified a proposed $25 billion income tax cut, and a shaky deal seemed to be shaping up on Capitol Hill last week for a less inflationary $15 billion reduction. Even so, the projected federal deficit would still be $53 billion, give or take a few billion, and the President declared last week: "Someone has got to hold the line on the budget, and I am determined to do so." To show that he means business, he is talking of a fiscal 1980 budget that would trim the deficit further, to $37.5 billion, and would include virtually no new spending.

The tax revolt has been largely stimulated by inflation, which pushes taxpayers into higher income tax brackets and boosts the value of taxable property. But if the choice is between lowering taxes and fighting inflation, what then? A new poll for TIME taken by Yankelovich, Skelly and White shows a spectacular rise in concern over inflation. Fully 66% of Americans rank "inflation, high prices and the economy" as their chief worries; seven months ago, only