While Democrats basked in the reflected glow of Watergate, the momentum behind conservatism continued to build, until by the late I970s it reached levels that knocked the legs out from under liberalism and, to a lesser extent, out from under the national Democratic party. The effects of racial schisms in the Democratic coalition during the second half of the 1960s and early 1970s--schisms created by urban riots, by rising crime rates, by pressures to end segregated housing, by affirmative action, and by busing—were further reinforced in the mid and late 1970s by inflation, by income stagnation, rising welfare and food stamp costs, and by ever-growing tax burdens.

         Watergate had served briefly to mask the conflicts of Democratic liberalism; by the 1978 elections, however, Democratic liberalism ran into a brick wall. That year, the political debate shifted in a direction that would prove to be debilitating to the presidential wing of the Democratic party for at least the next decade. With brutal force, the tax revolt—which erupted in California in 1978 with the passage of property-tax-cutting Proposition 13—moved across the country. The tax revolt opened up a new schism in American politics, pitting taxpayers against tax recipients.

        For the Democratic party, the party of government activism, this new division was a major threat, creating fault lines across Democratic constituencies; fault lines often coinciding with, or running closely parallel to, the party's racial fissures. Proposition 13 established the groundwork for an anti-tax ethic that would sustain Republicans in presidential campaigns —and in many state and local contests — through at least the next decade.

        The tax revolt, in tandem with sustained partisan conflict over racial policies — and over social/moral issues ranging from gun control to school prayer to abortion — catalyzed the mobilization of a conservative presidential majority. California became the testing ground for this new conservatism — California with its soaring property taxes, especially in the Los Angeles area (which already faced a school busing order); with its Democratic legislature and its Democratic governor both unwilling to use revenue surpluses to provide tax relief; and with its easy access to the ballot for almost any group seeking a statewide referendum.

        The battle over Proposition 13—passed by a margin of 65 to 35—split the electorate along lines that reinforced and widened the divisions that had already begun to appear over race. Polls taken during the campaign for Proposition 13 show that there were only two groups providing consistent opposition to the property tax rollback: blacks and public employees.

        Polls conducted in May and August of 1978 showed 67 percent of whites supporting Proposition 13, while only 29 percent of blacks supported it, and only 42 percent of public employees. At the same time, the central focus of public hostility to government spending in California was on programs providing a significant share of benefits to minorities: welfare and, to a lesser extent, public housing. California voters in three polls conducted from July 1977 to November 1979 favored cuts in welfare over increases by a margin of 73-27.  Cuts in public housing were favored over increased expenditures by a more modest 54-46 margin. In contrast, increased spending on police was favored over cuts by a 71—29 margin, on public schools by a 58—42 margin, on public transportation by a 66—34 margin, and on environmental protection by a 53-47 margin.

        The tax revolt provided, in addition, a new means for conservatives to identify and define an "establishment" attempting to thwart the populist will of the electorate—an establishment closely linked to the pro-civil rights establishment demonized by Wallace and Nixon in 1968 and in 1972.  The array of groups opposing Proposition 13 lent itself to characterization as a liberal establishment: labor unions, the League of Women Voters, Common Cause, feminist and civil rights groups, the Chamber of Commerce, the California Teachers' Association, and a host of powerful corporations. When Democratic State Assembly Speaker Leo McCarthy sought to paint Proposition 13 as a  "Landlords' Enrichment Act," Howard Jarvis, the leading proponent, countered with a list of the companies pouring money into the drive to defeat the anti-tax measure, including $25,000 contributions from Southern California Edison, Pacific Mutual Insurance Company, the Bank of America, Atlantic Richfield; and $15,000 donations from Southern Pacific Railroad and Standard Oil of California.

        The California victory of Proposition 13 produced a wave of tax-cutting and tax-limitation referenda in at least eighteen other states over the next four years, with victories in states as diverse as Massachusetts, Alaska, Washington, Missouri, Montana, Maine, and Utah." The tax revolt brought to fruition the phenomenon that Kevin Phillips had seen in the election results of 1968, a "great political upheaval . . . a populist revolt of the American masses who have been elevated by their prosperity to middle-class status and conservatism. Their revolt is against the caste, policies and taxation of the mandarins of Establishment liberalism."

        The tax revolt was a major turning point in American politics. It provided new muscle and new logic to the formation of a conservative coalition opposed to the liberal welfare state. The division of the electorate along lines of taxpayers versus tax recipients dovetailed with racial divisions: blacks (along with the growing Hispanic population) were disproportionately the recipients of government programs for the poor, disproportionately the beneficiaries of government-led efforts to redistribute rights and status, and the black middle and working classes were far more dependent on government programs and jobs than their white counterparts." Race melded into a conservative-driven agenda that sought to polarize the public against the private sector. The tax revolt provided conservatism with a powerful internal coherence, shaping an anti-government ethic, and firmly establishing new grounds for the disaffection of white working- and middle-class voters from their traditional Democratic roots.