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The question I am assigned is whether the taxable
capacity of land without buildings is up to the job of
financing cities, counties, and schools. Will the revenue
be enough? The answer is "yes."
The universal state and local revenue problem today is whether we must cap tax rates to avoid driving business away. It is exemplified by Governor Pete Wilson of the suffering State of California. He keeps repeating we must make a hard choice: cut taxes and public services, or drive out business and jobs. (When a public figure gives you two choices you know they're both bad, and he wants one of them.) The unique, remarkable quality of a property tax based on land ex buildings is that you may raise the rate with no fear of driving away business, construction, people, jobs, or capital! You certainly will not drive away the land. However high the tax rate, not one square foot of it will put on a track shoe and hop out of town. The only bad thing to say about this tax's incentive effects is that it stimulates revitalization, and makes jobs. If some people think that is bad, maybe this attitude is the problem. ... There is the answer to Governor Wilson' dilemma. I hope here in The Empire State you will supply a practical demonstration of the answer, one we may then use to inspire The Golden State. California now, following Proposition 13, has become a morality play, a gruesome object lesson in what happens when the property tax is pushed down toward zero. It forces higher taxes on production and exchange. Non-property taxes, you know, mostly have the character that they "shoot anything that moves," penalizing and discouraging economic activity. New buildings gain by having a lower property tax burden, it is true; but they bear the brunt of these new taxes and impost fees up front, at the time they are built. These offset the benefits of their lower property tax rate. Most California land, on the other hand, is now taxed at well below the allowable max of 1%. Speculators may sit on it at little tax cost, however many highways and water and sewer lines run to and past it, however many policemen are guarding it from trespass. Little wonder that California enterprise, once so dynamic, flexible, and vital, is giving way to stasis and decay. We used to lead the nation in making jobs; now in losing them. We used to lead in school quality; now in jail population.
Making the property tax more progressive is not just equitable, it raises its revenue capacity. That is because visible damage to the poor and marginal puts a cap on any tax. You can't squeeze blood out of a turnip, and if you try you'll look like the Sheriff of Nottingham. A land tax won't drive the poor from their humble huts, because it exempts the huts, and the sites have low tax valuations. It may tax a few off valuable land, if their poor huts are there and they own the land. However, if they own such land, are they really poor? They may be "land-poor:" a few folks always are. They have non-cash assets, but are illiquid. "Illiquid" may be just a euphemism for "holding out for more" — there is always a market at a price. Even so their plight, genuine or affected, traditionally evokes sympathy and support. We must address it. California, although backward in many ways, has addressed it effectively. In our special improvement districts (SIDs), State law allows the SID to contract with the landowner as follows.You don't have to pay your annual charge in cash. If you choose not to, we take an equity in your property, charging a modest rate of interest. Our equity accumulates over time. When you die, we sell the property and take our share; your estate gets the rest. Should our equity reach 100% during your lifetime, you stay there for the duration, tax free.
Objectively, it looks like a good deal for the
taxpayer. They can't come out behind, even if they die
soon; if they live long, they come out ahead.
The instructive result is that very few
people take this apparently advantageous option.
UCLA's Donald Shoup has published several works on the
program. One way or another, they manage to pay on time.
Perhaps it attracts the attention of potential heirs, in
a compelling way, but somehow the cash comes forth. While
intending only to relieve distress, the program seems to
have called a great bluff. The lachrymose plea of the
cash-poor widow is unanswerable in debate, without
appearing callous, doctrinaire, and jackbooted. Meantime
wealthy interests, thoroughly undistressed, hide behind
the widow's skirt and get their way. Read the whole
article Jeff Smith and Kris Nelson: Giving Life to the Property Tax Shift (PTS)
John Muir is right. "Tug on any one thing and find
it connected to everything else in the universe." Tug on
the property tax and find it connected to urban slums,
farmland loss, political favoritism, and unearned equity
with disrupted neighborhood tenure. Echoing Thoreau, the
more familiar reforms have failed to address this
many-headed hydra at its root. To think that the root
could be chopped by a mere shift in the property tax base
-- from buildings to land -- must seem like the epitome
of unfounded faith. Yet the evidence shows that state and
local tax activists do have a powerful, if subtle, tool
at their disposal. The "stick" spurring efficient use of
land is a higher tax rate upon land, up to even the
site's full annual value. The "carrot" rewarding
efficient use of land is a lower or zero tax rate upon
improvements. ... Might the PTS fall heavily on low-income land holders and elderly homeowners? The land-rich, money-poor old widow could suffer if society were to levy sites. Eventho' the vast majority of poor people would come out ahead, there probably will be the rare exception. To deal with "the widow on a valuable lot", the new policy could include deferments. A big problem needs a big solution which in turn needs a matching shift of our prevailing paradigm. Geonomics -- advocating that we share the social value of sites and natural resources and untax earnings -- does just that. Read the whole article Wyn Achenbaum: Eminent Domain and Government Giveaways
I am sympathetic to those who want to occupy their
homes forever, but if those homes are located on land
that is valuable (because of its views or water access or
transportation services, for example) or becomes valuable
because of surrounding development, it seems fair that
they compensate the rest of us for holding up progress,
for continuing to occupy as single-family residences,
land which it is now time to develop into something that
produces good results for the entire
community.
Most of us know of an older home, or perhaps a diner, or something else that was a highly appropriate use for its site -- and typical of the neighborhood -- 50 years ago, which stubbornly remains in the middle of a neighborhood which has been redeveloped with taller commercial buildings. The home or diner is something everyone else has to walk around, drive around. If that site were well developed, it could prevent the premature development of far less desirable sites on the fringe of town -- an acre downtown well developed, can save 10 or so acres on the fringe. Should we protect the right of elderly people to stay in their homes, at the expense of the rest of the community? Should we protect the right of a young person who shares that home to stay there for an entire lifetime, at the expense of the community? I'm comfortable with the idea of allowing the elderly person to defer payment of the property taxes, with interest-bearing debt accruing against the property until it is sold or transferred. It seems to me to be an acceptable tradeoff, even if it creates potholes in the redevelopment. But his heirs should not inherit it until the lien is satisfied, which will usually mean that at last it will be developed consistent with the neighborhood. But unless the properties are regularly and correctly assessed, land first and buildings as the residual, we won't have the signals which tell us when it might be time to move on. ... read the entire article Fred E. Foldvary — The Ultimate Tax Reform: Public Revenue from Land Rent
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