Publication 216, The First 100 Years


The 1906 Report of the Commission on Revenue and Taxation

By 1895, California, like many other parts of the country, was showing signs of economic stress. The Panic of 1893, coupled with partial crop failures in 1893 and 1894, caused a depreciation in land value and increased unemployment. The burden of taxation caused a great deal of anxiety and became more of a public issue in succeeding years. While both Democratic and Republican platforms promised a great deal of reform, little change in revenue laws occurred until 1910.

The 1905 Legislature created a Commission on Revenue and Taxation, consisting of Governor George C. Pardee, Senators J. B. Curtin and M. L. Ward, Assemblymen H. S. G. McCartney and E. F. Treadwell, and Professor Carl C. Plehn of the University of California, an expert on taxation and finance, to make a study of the current system of revenue and taxation and recommend plans for its revision. The Commission submitted its findings in a report in December 1906. The report had some sharp criticisms for the equalization process, as follows:

“ ‘Equalization’ so called, does not equalize, and in the nature of things, cannot equalize. After the officers have exhausted their best efforts in this direction there are inequalities—glaring ones—between real estate and personal property; between different classes of personal property; between county and county; between city and county; between man and man. All of which are rarely removed and often intensified by so-called equalization.

“The present system takes the revenue derived by taxation from large general organizations, like the railroad, which revenue belongs by right to the people of the state at large, and distributes it most inequitably among the local divisions of the state which have no proper claim to it whatsoever.

“Our present system is a school for perjury, puts a penalty on honesty, and pays high premiums for dishonesty.” 35

As a remedy, the Commission recommended the “separation of sources” theory or “Plehn Plan” under which the state’s sources of revenue would be separated from those of local governments. In theory the “separation of sources” proposal would accomplish three things: First, it would separate state from local taxation as to sources of revenue, and thus eliminate the need for intercounty equalization. Counties desiring to raise taxes for local purposes would no longer be penalized by having to pay an increased amount of state taxes. Second, it would lessen the excessive burden of taxation on the farmers and real estate owners. Third, it would guarantee a steady source of revenue from a ”non-political” taxation of public service corporations and banks.36

35 Preliminary Report of the Commission on Revenue and Taxation of the State of California (Sacramento, August 1906), pp. 11-12

36 Ibid.