Tax Land Instead of Property
I was walking north on 5th street the other day looking at the state of the neighborhood and it occurred to me that maybe it would make sense to tax land values rather than policy values. That would encourage people to put their parcels to use, rather than endlessly sitting on vacant properties hoping for a better deal tomorrow. Ryan Avent happens to have found a relevant paper, Junge, Jason and David Levinson, “Financing transportation with land value taxes: Effects on development intensity.”
A significant portion of local transportation funding comes from the property tax. The tax is conventionally assessed on both land and buildings, but transportation increases only the value of the land. A more direct, efficient way to fund transportation projects is to tax land at a higher rate than buildings. The lower tax on buildings would allow owners to retain more of the profits of their investment in construction, and have the expected side effect of increased development intensity. A partial equilibrium simulation is created for three sample cities to determine the magnitude of the intensity increase for both residential and nonresidential development if various levels of split rate property taxes were enacted.
It’s important, as a matter of governance, for progressives to spend more time thinking harder about the efficiency of different tax regimes. Tax issues are politically sensitive, obviously, but even in political terms the proof to a large extent is in the pudding. “Big government,” schemes, no matter how controversial, tend to become accepted when they work. But part of making them work is financing them intelligently. This seems like a better way to finance upgrades in our public infrastructure.
44 Responses to “Tax Land Instead of Property”
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November 7th, 2009 at 5:31 pm
You wrote “policy” instead of “property”.
November 7th, 2009 at 5:37 pm
This idea is as old as the hills.
November 7th, 2009 at 5:38 pm
There’s a weird example of Wiki vandalism in the first sentence of the article on Henry George, by the way.
November 7th, 2009 at 5:43 pm
Isn’t this just a variation of Henry George’s unitary tax? Idea’s been around over a hundred years, yet, no mention of that in the links from Avent or the paper’s authors. Good to see a simulation test though.
November 7th, 2009 at 6:01 pm
Georgism! I love it! If you’ve ever seen a gravel parking lot next to a 30 story building the logic is obvious.
I read somewhere Estonia used them speed up infill development in the post-soviet period. Wikipedia says they use them here and there in Pennsylvania.
November 7th, 2009 at 6:05 pm
Jasher, sh22: Yeah, but Georgism is a bit extreme, as it literally says that a tax on the unimproved value of land (and perhaps other natural resources) should be the only tax, and it’s hard to be able to wring that much money out of it. Just saying that taxes on the unimproved value of land is a neat idea isn’t quite Georgism.
November 7th, 2009 at 6:05 pm
I always wondered why there are still vacant lots in downtown San Francisco. Now I know. Cheaper for the owner to let it lay fallow.
I bet the owners would give you a sob story about ‘red tape’ and all if you asked them though.
November 7th, 2009 at 6:13 pm
I don’t don’t think this would make any difference where I live. I’m pretty sure my house has negative value. In other words, my property would probably be worth more if it didn’t have a house on it. Then the buyers wouldn’t have to pay to scrape the house before building the house they want. But the land my house sits on is worth a lot. So if you were to impose taxes on just the land and not factor in the negative value of the house on it, my taxes would go up a little.
November 7th, 2009 at 6:25 pm
SINGLE TAX!!!
November 7th, 2009 at 6:32 pm
I dont know, the opportunity costs are already huge. People are just stupid and/or indifferent about money. Besides that, empty land is a nice (positive) externality at least as long as there is no fence arround.
November 7th, 2009 at 6:43 pm
Hong Kong has been doing this, pretty much. A quick Google found this, for instance:
http://escholarship.org/uc/item/6jx3k35x
Or here’s a short editorial:
http://www.financialsense.com/fsu/editorials/2008/1203b.html
November 7th, 2009 at 6:45 pm
It will be interesting to watch D.C. parasites like Matt Yglesias have to get a job on the free market.
He has no marketable skills other than walking around D.C. thinking of new ways to tax people.
When the world drops the dollar, that won’t be a skill anyone will pay him for.
Any day now.
November 7th, 2009 at 6:46 pm
This is one of more inane moments in liberalism. You’re going to stimulate development by changing labels on property tax? Is this some kind of joke?
Does that mean reduced taxes, or does that mean higher taxes? Because making land more expensive, is not going to stimulate development.
November 7th, 2009 at 7:01 pm
This is a good idea.
I was thinking that we should limit the use of the tax shelter for businesses and personal for empty buildings, too. There really isn’t much of a reason why they should be able to use the lost revenue to offset taxes for years on end – it creates little incentive to actually put a building to use at a lower rate than they would desire, and has a perverse stimulus to make leaving a building completely empty better than renting it at a lower rate, because they’d pay taxes on the lower rate but could claim more from the feds because of its perceived value.
November 7th, 2009 at 7:13 pm
OK, but you’d have to deal with all sorts of weird distortions: this type of tax structure should be limited to urban areas, since we shouldn’t increase incentives to develop rural land at the edge of the sprawl. And certain urban lots (such as those that have protected historic buildings on them) don’t have a land value that’s really distinct from the structure’s value, so it’s not clear what you do with them.
November 7th, 2009 at 8:22 pm
Shooter, I don’t think you understand the idea of taxing land at all. Right now, taxing property means, in effect, that if I own some land that has no buildings on it I don’t pay property taxes. That land may be valuable, and there may be a great communal benefit to having it developed. But if I don’t feel like building on it, or I wait and wait forever for the best possible offer for the land, the community suffers.
Taxing land instead of property means is in no way the same as changing the label on property taxes. If my empty land is now taxed, I have every incentive to do whatever I can to make that land generate rents (money for me) because otherwise it is just a big fat net loss. So I develop it, or sell to someone who plans to develop it. Many other countries do this, I believe it may be done in a limited fashion here in the U.S., and the idea is a really old one.
November 7th, 2009 at 8:29 pm
Isn’t this idea what the original game of Monopoly was designed to promote?
November 7th, 2009 at 9:02 pm
I believe that George-inspired site-value taxation was also a plank of Sun Yat-Sen’s old-school Koumintang platform. The idea has been implemented in Taiwan. It hasn’t produced any miracles, but it seems to work pretty well.
November 7th, 2009 at 9:03 pm
Pittsburgh has done this for a hundred years. It was started as a way to get steel barons to develop land rather than keep it as hunting estates within city limits.
November 7th, 2009 at 9:45 pm
I grew up in a town, Fairhope, Alabama, founded on Henry George’s principles of Single Tax. My family were among the first colonists. It started with a newspaper in Iowa, then a corporation which raised money to buy land which it rented out, using the rents in the same way cities use taxes. The town is a model of the kind of development Matt likes, and attracts relatively well-educated, artistic, or creative people for a small southern town.
Pittsburgh has something similar. The state of Pennsylvania allows all cities except Philadelphia (which was exempted because it was Class 1, or something similar) to institute “differential taxation.” Pittsburgh was one of several cities in Pennsylvania to try it, and development data is available through the Georgist Society. It works like this: First the city takes the current property tax rate, does a land value study based on the Summers system, where the site value is determined by “the presence and activity of people” the amount of frontage, and its proximity to valuable attractions, parks, water, etc. or negative areas such as city dumps or polluted or otherwise detracting areas. Then, over a period of time, keeping the tax base constant, shifts the value away from the value of the building and other improvements and onto the site value.
My cousin is, I believe, still the president of the Georgist society, and if you would like the data to support a shift to “differential taxation, send me an email and I’ll forward it to him. He’d love it. You are, after all, one of the “most influential people in America.
November 7th, 2009 at 9:46 pm
@guy44
You’re right, I don’t understand this. I own undeveloped land and pay tax on it. Where in the world is there untaxed land? Can I buy some?
This sounds like yet another scheme to justify more taxation.
November 8th, 2009 at 12:16 am
shooter242 — let’s say that you could decompose the value of the land into two components: site value and building value. If you have an empty lot worth $100,000, and if you build a house on it (without any overall change in the neighborhood the lot is in), the value of the house + land goes up to $300,000, then the site value is $100,000, and the building value is $200,000. If you have a system in which property taxes are paid on the basis of all property, it’s as a percentage of total value. If you had a single site-value tax, it would be paid exclusively on the site value — whatever you build on that lot, the amount you pay in taxes is the same (if you renovated your kitchen, for example, the increase in the home’s value wouldn’t lead to higher taxes — although general gentrification of a neighborhood would, since it makes an empty lot more valuable.). If you have a mixed system, with higher taxes on the site-value than the building-value, then you’d pay taxes on both, but perhaps a somewhat higher rate on the site value than on the building value.
November 8th, 2009 at 2:08 am
I’ve always been a fan of the Land Value Tax (LVT). I’m no Georgist, however, since as an urban area increases in size and density its tax revenues must keep pace with the increased need for services. With a pure LVT in place, an urban are like Manhattan would be unable to reap the benefits of development and likely have difficulty funding the necessary public services. However, a system in which the LVT is assessed at triple the tax on improvements would be incredibly effective at stimulating growth and development while still allowing the
community to take advantage of the growth in density in a meaningful and timely manner.
@shooter242:
When you are determined not to understand a concept, I suppose you never will.
November 8th, 2009 at 2:43 am
This sounds like yet another scheme to justify more taxation.
Do any of our other resident right wingers want to chime in, or should we regard shooter’s comments as the “official” conservative response?
November 8th, 2009 at 2:55 am
The Minnesota Department of Natural Resources has a report on its website linking property rather than land taxation as a key cause of urban (suburban) sprawl.
November 8th, 2009 at 4:10 am
Hm, didnt get the current situation. So right now unbuilt land is untaxed and Yglesias just wants to tax it as built land? Thats a good idear. .
November 8th, 2009 at 5:20 am
Careful, if you keep using economic reasoning people will think you have turned libertarian on us.
November 8th, 2009 at 9:41 am
1. People, stop with the Georgism idiocy. Its central tenet is that land belongs to everybody. It doesn’t, nobody says it does, and nobody wants it to (excepting a voiceless and powerless wacko fringe–MY and myself certainly not included).
2. Stop with the knee-jerk “it’s a tax!” hysteria. Unless you want to eradicate all taxes (see “wacko fringe,” above), the goal should be to implement the most economically efficient taxation. (Isn’t that what conservatives are forever going on about?)
3. Land taxes (excluding improvements) are economically efficient because once they’ve been implemented, they have very little distortionary effect. (Instead of linking to the Georgism wiki, try something educational and relevant like this.)
Matthew: “It’s important, as a matter of governance, for progressives to spend more time thinking harder about the efficiency of different tax regimes.”
Oh sweet mother mary is that ever true. (Are progressives just uncomfortable with all those hard, cold, un-poetic numbers?) Because conservatives are preaching a gospel of prosperity, while progressives are preaching a gospel of fairness. Which do you think keeps people from changing the channel?
The painful irony, though–one that progressives seem blind to–is that progressive policies result in faster growth and more prosperity than conservative ones–while also delivering greater equality.
Among prosperous, developed countries:
Countries with more generous social programs and redistribution regimes grow at least as fast as others.
Countries with more progressive tax systems grow faster than others.
Countries with more wealth equality grow faster than others.
More-equal countries provide more opportunity for people to climb the economic ladder.
http://www.asymptosis.com/socialism-and-prosperity.html
More-equal countries achieve that equality not through market forces–they generally pull the other way–but through redistribution (infrastructure, education, health care, direct transfers, and many etcs).
There is not a single prosperous country, anywhere in the world, that operates by libertarian principles. Every single one of them includes massive doses of redistribution. (So: who’s the starry-eyed utopian here?)
If libertarian principles were so efficient, wouldn’t you expect at least one country to have emerged that operated according to those principles? And shouldn’t it/they have surged ahead of all the filthy socialist countries? At least one?
Oddly, it hasn’t happened. Go figger.
The conservatives’ proclamations of prosperity are simply false, and all the numbers are out there to prove it. It’s bloody well time for progressives to stand up and say that we’re the party of prosperity, and to do the hard, cold, calculating work on issues like tax efficiency–co-opting and claiming for our own (as we should) the very central tenet of conservative ideology.
November 8th, 2009 at 9:42 am
This may work in urban environments, but not in rural environments. Rural land sometimes needs to be left alone so to speak to replenish the soil (i.e. you cannot plant the same crop in the soil year after year without replenishing the soil). The same holds true for landowners with significant amounts of trees. Are you proposing cutting trees to make the land useful?
I do support the argument in urban environments, but there is often (if not always) a disconnect between urban and rural thinking.
November 8th, 2009 at 10:07 am
@Julian Elson
So let me see if I have this straight… once the property tax on a vacant lot is set, that’s it? No more taxation on whatever is built there, so the maximum amount levied is fixed?
Does anyone see a potential flaw there?
The reason we have a tax system based on overall value is location, location, location. There are some locations where land is so cheap the building will always be more valuable than the land. ($5 houses in Detroit) There are some locations where land will always be more valuable than the building. (Hong Kong) And there are lots of locations where it’s a close call.
As usual with legislative attempts ordering people what to do with their property, this one is futile and foolish.
November 8th, 2009 at 10:27 am
@ Steve Roth
For that to be believed, one has to accept the idea that Government will do a better job of providing for your welfare than you will. Or more specifically, what Government takes, one receives back in value. Commonly known as a fair trade. But productive people understand that isn’t ever the case for them and resist.
People raised in a monarchy like most EU countries think Government has a lot to do with their lives. They will bear the yoke easily.
We are not raised in a monarchy, and we are trained to distrust central authority. Good or bad, it’s what you have to work with. Fortunately Libertarian leaning places do just fine.
November 8th, 2009 at 10:37 am
As usual with legislative attempts ordering people what to do with their property, this one is futile and foolish.
Winger hall of fame.
November 8th, 2009 at 12:01 pm
Rural land sometimes needs to be left alone so to speak to replenish the soil … The same holds true for landowners with significant amounts of trees. Are you proposing cutting trees to make the land useful?
In the land tax regime, it would not matter whether you developed it or not: unused land? Taxed as land according to how much that land is valued as a lot. Using the land as a productive wealthy tree farm? Still taxed the same. Build an apartment building? Same tax.
Now. DC itself has a property tax rule where the tax on an abandoned building is much, much higher than the tax on an owner-occupied one. And rural areas have lower taxes on agricultural land than residential. That is not what we are talking about here. We are talking about a tax that would give landowners carte blanche to develop whatever value and wealth producing improvements on their land they choose without ever incurring any additonal property taxes on those improvements. This is a huge incentive rather than, as shooter views it, a punishment.
shooter’s argument is like if a conservative opposed the elimination of the estate tax by complaining that it would just result in higher income and sales taxes.
November 8th, 2009 at 12:14 pm
“It’s important, as a matter of governance, for progressives to spend more time thinking harder”
About everything. A test that Matt (who I long admired) is increasingly failing in favor of latching onto the feel-good idea du jour.
Taxing land instead of property only works if you are willing to confront the reality of taxing “highest and best use” vs current value. And what makes sense in NYC or DC does not make sense on the West Coast. Your typical East Coast urban area has no place to go, no room to grow, given that a policy that taxes land over property encourages in-fill. In the West many cities HAVE room to grow when means a policy that taxes land over property encourages urban sprawl as semi-rural and rural areas get carved up into homesites and so long-term works against getting the kind of urban in-fill you need to support such things as mass-transit to reduce our car-centric land use pattern.
Do you want to encourage the transformation of agricultural land to detached housing where every household needs three cars to simply survive? Do you want to transform every flood plain into a vast shopping mall with 8 bazillion acres of impervious parking lots surrounding it, do you want to eliminate a couple of decades of effort in Seattle and Portland to create denser, transit friendly urban cores while preserving rural areas? If so listen to Matt. But for everyone else listen to Joni Mitchell “They paved paradise and put up a parking lot”.
Matt you increasingly come off as a person whose thinking is strictly confined by the Beltway and/or the East and Hudson Rivers, and as such blissfully unaware of the realities of land use regulation in areas with a different mix of land uses. Where I live we give HUGE tax breaks to land that is preserved as agriculture, forestry, or simply as open space while passing often oppressive legislation to ensure urban infill. Because in so doing we maintain the possibility of urban yuppies to maintain a locavore lifestyle. Plus allowing them to have access to fresh salmon. And rivers and streams to put their kayaks in the water. And the ability to drive to ski-resorts without battling mile after mile of suburban sprawl. And the ability to have an urban core where museums, coffee shops and trendy restaurants are all within handy walking/transit access. Or I guess we could just follow Matt’s advice and tax ALL land at highest and best use while ignoring the unintended consequences.
Matt take your own advice. THINK. And maybe in some context outside of Metro DC and Manhattan Island.
November 8th, 2009 at 12:22 pm
Fortunately Libertarian leaning places do just fine.
So, when do you emigrate to Somalia?
November 8th, 2009 at 12:29 pm
@shooter: “one has to accept the idea that Government will do a better job of providing for your welfare than you will.”
No, it has nothing to do with faith-based beliefs. It’s about the facts on the ground. Evidence.
Take a look at it–I gave you a starting link–and you’ll see.
November 8th, 2009 at 2:28 pm
The neglected genius George gets some shine, excellent. It’s fascinating how classical, liberal economic theory kinda ended as a philosophical discipline when George challenged the elite speculators – since that point, it appears to neglect his thought and entrench just before him.
November 8th, 2009 at 4:05 pm
Steve Roth: Unless you want to eradicate all taxes (see “wacko fringe,” above), the goal should be to implement the most economically efficient taxation.
No. The goal, for progressives at least, should be to implement the most socially beneficial (or least socially detrimental) taxation. Quite often, what is economically efficient is also socially beneficial. Even when it’s not, it can be made to be so by some sort of redistribution (I’m thinking of regressive taxes like congestion pricing or a junk food tax, with the revenues rebated to those worst off or hit hardest by the tax). But you’re making the same mistake that many well-intentioned progressives make: the purpose of the economy is to serve human beings, not the other way around.
November 8th, 2009 at 4:06 pm
(That said, I think a land value tax is a fine idea.)
November 8th, 2009 at 6:21 pm
I’m not quite sure what you’re getting at. If the whole neighborhood became more desirable, so that even an empty lot became worth more, then taxes would increase in accordance with the value of the empty lot, and if the neighborhood became less desirable, then taxes would fall (assuming appraisers are being honest — a real but manageable issue with either total-value, site-value, or differential-rate taxation systems). However, the value of the building (if any) on the lot itself would not considered in the appraisal (or, in a differential-rate system, would be considered in the appraisal, but seperately and at a lower rate.).
The reason we have a tax system based on overall value is location, location, location. There are some locations where land is so cheap the building will always be more valuable than the land. ($5 houses in Detroit) There are some locations where land will always be more valuable than the building. (Hong Kong) And there are lots of locations where it’s a close call.
As usual with legislative attempts ordering people what to do with their property, this one is futile and foolish.
November 8th, 2009 at 6:28 pm
I’m not quite sure what you’re getting at. If the whole neighborhood became more desirable, so that even an empty lot became worth more, then taxes would increase in accordance with the value of the empty lot, and if the neighborhood became less desirable, then taxes would fall (assuming appraisers are being honest — a real but manageable issue with either total-value, site-value, or differential-rate taxation systems). However, the value of the building (if any) on the lot itself would not considered in the appraisal (or, in a differential-rate system, would be considered in the appraisal, but seperately and at a lower rate.).
Of course it is. The whole idea is that appraisals would be based on the value of a parcel of undeveloped land in its given location. What’s your point? Are you saying that SVT advocates want to tax an acre of land in downtown Manhattan and an acre of land in rural Wyoming at the same Dollar value? If that’s what you’re getting at, then I’ll just say… “no, that’s not what we had in mind.”
November 8th, 2009 at 6:54 pm
“shooter242 — let’s say that you could decompose the value of the land into two components: site value and building value”
This shows up on my tax bills in CA, though I’m not sure if taxes work out like Matt suggests (would my taxes fall to 0 if I razed my house?–I’m not sure).
November 8th, 2009 at 6:57 pm
@Bruce Webb 34
Interesting analysis, and prima facie seems right.
November 8th, 2009 at 11:17 pm
the proof of the pudding is in the eating