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Split-Rate Property Taxation
also known as two-rate taxation

Split-Rate taxation is a wonderful example of "think globally, act locally."  Once your state has the enabling legislation, individual communities can begin to reduce the taxes on their buildings and place more of the taxes on land values.

Caution: In Massachusetts, the term "split-rate" is sometimes used to describe a system where commercial property (land and buildings) carries a higher millage rate than residential property.  This is something entirely different from what we are proposing, and while it may be popular with residential taxpayers, it has entirely different effects, and fails to shift the perverse incentives that retard community progress.

Similarly, in some places, the term "split-rate" is used to refer to having different millage rates for real property (real estate) and personal property (cars, trucks, boats, computer equipment, etc).  That definition, too, is not what we're talking about here: we'd not tax personal property at all.

Alanna Hartzok: Earth Rights Democracy: Public Finance based on Early Christian Teachings
As a result of decades of steady education and promulgation, there are now 18 municipalities in Pennsylvania which have adopted a so-called split-rate property tax which shifts taxes away from buildings and onto land according to site value. This approach is based on the understanding that the property tax is actually two types of taxes -- one upon building values, and the other upon land values. This distinction is an important one, as these two types of taxes have significantly different impacts on incentive motives and development results.
  • Decreasing the tax on buildings gives property owners the incentive to build and to maintain and improve their properties.
  • As the levy on land values is increased, land speculation and poor land utilization, an example being slum buildings and boarded up buildings, are discouraged. The signal thus sent to property holders is to either improve their properties or sell them to someone who can do so.
Either way, labor and capital gain access to land to improve and augment the building stock. The tax incentives are harnessed correctly to encourage effort directed to the provisioning of housing and other basic human needs.

Shifting the tax burden in this way
  • discourages land hoarding and encourages good land utilization.
  • It promotes a more efficient use of urban infrastructure (such as roads and sewers),
  • decreases the pressure towards urban sprawl (as there is significant infill development), and
  • assures a broader spread of the benefits of development to the community as a whole.
Researchers have carefully recorded the number of building permits issued in the three year period before and after the split-rate was put in place. In every instance, the number of building permits increased significantly after the implementation of this reform. As the city improves, without the need for subsidies, the land values gradually increase, thus providing the city with an increasing source of revenue for public services. With this system, land values maintain a natural correlation to the overall health of the city. Land values do not peak and spike as they do under conditions which promote land speculation and profiteering. As development stabilizes, land values also stabilize. Thus it is possible to have a self-financing city with citizens reaping the full rewards of their labor and creativity.

The experience with this form of taxation in the 18 municipalities of Pennsylvania point towards the possibilities of a self-renewing city. But until we greatly reduce or eliminate the burden of federal income and payroll taxes and the billions of dollars of wasteful and inequitable corporate subsidies, we will only have a partial realization of the promise. Nonetheless, there is much we can learn from the split-rate tax cities in Pennsylvania, upon several of which we shall now focus.

Harrisburg, the capital of Pennsylvania, provides one of the best examples of the benefits of shifting taxes away from labor and productive capital and onto land according to site values.

In 1981 Harrisburg was listed as the second-most distressed city in the nation under criteria used by the federal government. A review of the gains made in effective economic development activities since then has produced significant results, and the sharp reversal of nearly three decades of previous serious decline. Beginning with the implementation of the split-rate property tax and gradually increasing the tax on land while decreasing the tax on buildings, Harrisburg has sustained an economic resurgence that has garnered national acclaim. It twice won the top United States community honor as All-American City, along with the top state recognition from the state Chamber of Business and Industry as Outstanding Community in Pennsylvania, all because of Harrisburg's development initiatives and progress.

As of 2001, the value of taxable real estate was over $2.2 Billion, versus $212 Million in 1982. Over 26,000 building permits were issued from 1982 representing over $2.65 Billion in new investment. Even adjusted for inflation, this is more than for any period since Harrisburg became a municipality in the year 1791, with most of this investment undertaken since 1990. There are over 5,500 businesses on the city tax rolls in 2001 compared to 1,908 in 1981. The number of vacant structures, over 5,500 in 1982, have been reduced by 85% to less than 400. The crime rate has dropped 53% and fire rate has been cut by 72%.

Harrisburg Mayor Stephen Reed has written several letters to officials of other cities telling them that the split-rate tax has been a key to the remarkable renewal of his city.

The citizens of Allentown, the third largest city in Pennsylvania with a population of 105,000, voted for the land value tax system in 1994 and it was instituted in 1996. The difference between the land and building rates was expanded in each of the following four years. Michael Rosenfeld, the executive director of that city's Redevelopment Authority, says that the benefits of this tax approach are evident. The value of both new commercial construction and of new residential construction increased substantially after the shift to land value taxation. Nearly three out of every four properties in Allentown saw some sort of tax cut. Today, many of those properties have new or better buildings on them, stabilizing the tax base to the point where there has been no need for a tax increase in five years. The number of building permits in Allentown has increased by 32% compared to the three-year period before the land value tax reform.

Allentown and Bethlehem are both in eastern Pennsylvania and are roughly comparable as to size and economy. In that Allentown adopted this tax approach and Bethlehem did not, there was an opportunity to compare the two. Allentown's new construction and renovation grew by 82% in dollar value in the three years after it adopted two-rate LVT as compared to the prior three years. Its new construction and renovation grew 54% faster than Bethlehem's new construction and renovation despite the infusion of much federal grant money into Bethlehem (but not into Allentown) during 1997-99.

The small cities of Washington and Monessen, both in southwestern Pennsylvania, are roughly comparable as to size and economy. Monessen has the common form of property tax which taxes building value significantly more than land value. After Washington adopted the split-rate tax in 1985, it saw its new construction and renovation increase by 33% in dollar value following this tax reform as compared to the prior three years. During the same time period, Monessen's new construction and renovation decreased by 26%.

Studies comparing Oil City, Pennsylvania, which shifted its tax base starting in January 1989, with Franklin, a comparable neighbor municipality, found that Oil City experienced a 58.2% increase in new construction and renovation in the three years after it adopted a two-rate property tax as compared to the three years before, whereas Franklin experienced a 12.2% decline during the same time periods.

In 1995, Professor Nicholas Tideman, the Chairman of the Economics Dept. at Virginia Tech University and his then-graduate student, Florenz Plassman, now a professor at the University of Binghamton, N.Y. completed a highly technical, peer reviewed study of land value taxation in Pennsylvania. To quote from the conclusion of their study:
"The results say that for all four categories of construction, an increase in the effective tax differential is associated with an increase in the average value per permit. In the case of residential housing, a 1% increase in the effective tax differential is associated with a 12% increase in the average value per unit. From the perspective of economic theory, it is not at all surprising that when taxes are taken off of buildings, people build more valuable buildings. But it is nice to see the numbers."

Dr. Steven B. Cord has done an exhaustive review of 237 studies of land value taxation from all over the world. In every instance there was an increase in construction and renovation after the policy was enacted, indicating that there were previously unmet needs for housing and other living and working space. ...   Read the whole article

Walter Rybeck: What Affordable Housing Problem?

Like all creatures -- goldfinches, squirrels, butterflies, cicadas -- we humans are squatters on this planet. We all need a part of earth for shelter, nourishment, a work site and a place to raise the next generation. Otherwise we perish. ...

In the 1980s, Washington, D.C., was concerned about its growing army of homeless. At that time I found there were 8,000 boarded-up dwelling units in our Nation's Capital -- more than enough to accommodate some 5,000 street people. I also found there were 11,500 privately owned vacant lots in the District of Columbia, mostly zoned for and suitable for homes or apartments. Decent housing on these sites held in cold storage would have provided an alternative for the many low-income families squatting in places that were overcrowded, overpriced, overrun with vermin and overloaded with safety hazards.

These issues spurred my research described in a 1988 report, "Affordable Housing -- A Missing Link." Evidence from the Census Bureau, Bureau of Labor Statistics and other sources over a 30-year period revealed the following average cost increases of items that go into the building and maintenance of housing:
  • Wages of general building construction workers rose 14 percent a year.
  • Wages of special trade construction workers rose 11 percent a year.
  • Construction material costs rose 11.5 percent a year.
  • Combined wage-materials-managerial costs for residential building rose 12.5 percent a year.
  • Fuel and utility costs for housing rose 13.8 percent a year. All of these costs closely tracked the Consumer Price Index which, over these same 30 years, rose by 12 percent a year. According to those figures, housing prices and housing rents apparently were held in check
Why do those statistics not seem to jibe with what you have been told, seen with your own eyes, and felt in your own pocketbooks?
  • How to explain that, during the last decade of my research period, U.S. households with serious housing problems increased from 19 to 24 millions?
  • What caused the portion of renters paying more than 35 percent of their income for housing doubled from 21 to 41 percent during the last two decades of the study period?
  • Why were over 2.4 million renters paying 60 percent or more of their income for rent?
The answers would be obvious except that, so far, I have not mentioned what happened to the price of the land that housing sits on. Many of those who talk and write about housing conveniently overlook the fact that housing does not exist in mid air but is attached to the land, and that the price of this land has gone through the stratosphere.

In contrast to those 11- to 14-percent annual increases in housing-related costs, residential land values nationwide rose almost 80 percent a year, or almost 2000 percent over those three decades.  ...

A close friend in Bethesda bought a house and lot there 40 years ago for $20,000. Two months ago he sold the property for a cool half million. That 2400 percent increase was entirely land value. The buyer immediately demolished the house to put up a larger one, so he clearly paid half a million for the location value -- the land value -- alone.

Officials, civic leaders and commentators who bemoan the lack of affordable housing nevertheless applaud each rise in real estate values as a sign of prosperity. Seeing their own assets multiply through no effort of their own apparently makes them forget the teachers, firemen, police and low-income people who are boxed out of a place to squat in their cities and neighborhoods. ...

Many of our Founding Fathers, George Washington included, had amassed huge estates. But the property tax induced them to sell off excess lands they were not using.  ...

One of the many virtues of a tax on land values is that it can be introduced gradually. Cities that take this incremental approach report that homeowners-voters-taxpayers hardly notice the change. What's important in modernizing your taxation is not the speed of change but the direction you choose. If you keep the present tax system with its disincentives for compact and wholesome growth, you will experience the treadmill effect that has been so familiar in so-called urban and housing "solutions." You will have to keep running faster and faster with patchwork remedies to keep from sliding backward.

A caution. Revising taxes as proposed here will not end the need for housing subsidies, at least not in the short run, but it will do three things that should greatly reduce subsidies.
  • One, by deflating land costs it will enable the private market to offer homes and sites at lower costs.
  • Two, this will shrink the number of families needing subsidies.
  • Three, it will stretch subsidy dollars farther because sites for publicly assisted housing can be acquired far more cheaply.
In Conclusion, I have tried to show that America has a housing land problem, not an affordable housing problem. This problem can be substantially alleviated by freeing the market of anti-enterprise taxes and by turning the property tax right side up -- that is, by dropping tax rates on housing and by raising them on publicly-created land values. Read the whole article

Walter Rybeck and Ronald Pasquariello: Combating Modern-day Feudalism: Land as God’s Gift

The ethical foundations of land value taxation. The biblical Jubilee prescription -- redividing the land every half century -- may have been feasible for a people practicing crude agriculture. However, a modern civilization cannot reshuffle the land without confiscating unmovable property or discouraging economic progress. The land value plan suggested here -- increasing land taxes, while decreasing taxes on labor, production and buildings -- achieves the same Jubilee goal without negative effects. It lets everyone share the economic value of the land rather than the land itself, just as a corporation, instead of carving up physical portions of itself each year, lets shareholders enjoy portions of the profit.

The proposed change in the property tax would enable the community to recapture community-created land values. Those who hold land retain undisturbed possession of it so long as they pay back their fair share of land tax to the community each year. Those with prized sites pay most; holders of poor locations pay least.

Society suffers a loss when speculators hold highly productive sites out of use. A land value tax usually persuades owners to use land or to sell it to others who wish to do so. If not, the higher tax compensates society for the land privileges it grants. This approach permits the elimination or major reduction of other taxes that weigh too heavily on wages, while it contributes to increases in local productivity.

Seven Pennsylvania cities have independently increased tax rates on land while imposing much lower tax rates on buildings. Scranton, with a population of 87,000, has had a modest two-rate tax for 70 years. When federal funding was cut in 1980, it raised the tax rate on land to four times that on buildings. In the next two years, the value of private construction in Scranton rose 22 per cent. In contrast, Wilkes-Barre, 18 miles away, kept its old tax system, and construction dropped 44 per cent during the same period.

Strapped for funds in 1974, Harrisburg twice dropped tax rates on buildings and twice increased rates on land. Almost every homeowner got a tax break. McKeesport adopted the two-rate tax in 1980, raising revenues 50 per cent and getting the town out of debt. More remarkably, building investment rose 36 per cent, while falling 14 per cent in neighboring Duquesne and more than twice that in nearby Clairton. Since then, Duquesne, along with New Castle and Washington, has adopted a two-rate tax.

The largest American city using the two-rate tax is Pittsburgh. After the city raised its land-tax rate to four times its building-tax rate in 1979, new construction rose a healthy 14 per cent. In 1980, the land-tax rate rose to five times the building rate, and the value of construction shot up 212 per cent. When in 1982 the city widened the gap to six times the building rate, the value of new building permits rose 600 per cent.

In all these cities, despite a national recession and a severe steel crisis in their region, changes in the property tax structure produced results that were nothing short of startling. As detailed in a Fortune article ("Higher Taxes That Promote Development," August 8, 1983), housing and downtown buildings increased in numbers and dollar value. Homeowners enjoyed tax reductions, and housing costs were kept low. New construction jobs eased losses in the industrial sector.

Poverty, joblessness and homelessness have been central concerns of religious social-action groups. There is a growing awareness that neither private nor public charity is sufficient in dealing with these problems. Shifting property taxes offers an effective way to encourage public policy to be responsive to blighted cities, farm dislocation, declining industries, chronic unemployment and growing poverty. The need to infuse biblical principles into solutions for these problems seems imperative. Acknowledgment of this necessity is already evident in the Catholic bishops’ pastoral letter on the economy and parallel works by the Presbyterians, United Methodists and the United Church of Christ. The need to address poverty’s basic causes, including the unhealthy concentration of America’s land and resources in the hands of so few owners -- who have tended to misappropriate land values -- ought to be high on our religious and public policy agendas.   Read the whole article

Steve Cord: 22

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. ...

Pennsylvania's Experience

W.W.II, when its steel industry plummeted, Pittsburgh widened its two-to-one land-building ratio. The city watched 60 new buildings and skyscrapers, valued at $700 million then, stand up in industrial areas. This privately financed renewal brought 16,000 new jobs to an area that had employed 4,000. Then-Mayor David Lawrence, noting the power of the stick, said the higher rate on land "discouraged hoarding of vacant land for speculation." His successor, Mayor Joseph Barr, noting the carrot effect, explained, "Fine structures erected through private investment as part of the renewal program benefited by the lower tax rate on buildings." When many decaying cities were seeking federal aid, Pittsburgh's Golden Triangle brought the city national fame.

In 1951 the Pennsylvania legislature granted all cities the two-rate choice, omitting any ratio limits. Over two decades later in 1975, Harrisburg, the capitol, shifted its property tax landward. The value of its private real estate grew from $212 million in 1981, when it was cited as the second most distressed city in the nation, to over $880 million in 1994. Its mayor during much of this recovery, Stephen Reed, noted another benefit: "Many states try to save farmland by buying development rights. That's expensive. Without spending a dime, we can achieve the same goal with a two-tier tax. Unused urban land is what pushes development into open spaces. This tax, by assuring better use of unused land in cities and suburbs, will discourage the gobbling up of farms."

Ailing, small towns in distressed Appalachia passed the shift in the eighties: McKeesport, New Castle, Duquesne, Washington, Aliquippa, Clairton, Oil City. In 1990 Titusville chimed in. A year later Coatesville, DuBois, Hazleton, and Lock Haven followed. In 1996, after repeated vetoes by the mayor, Allentown came on board with its 100,000 residents. That makes 16 municipalities with the two-rate property tax. All of them are growing by densification unlike many of their neighbors.

In 1992, Uniontown reversed its adoption of the PTS. (It was one of the towns one of these co-authors lobbied. It seems he may have pushed to hard. They accepted a higher initial rate which spurred a backlash which scuttled the whole program. Damn eagerness!) Like many others in the region, this city of 12,000 needed help; 80 percent of downtown sites were empty. Their big mistake was to introduce the two-rate reform under 34 year-old assessments which underestimated the value of lots with abandoned structures. The few retailers left were hit with a drastic increase. Moreover, officials did not give out public information in advance. When people got their tax bills, they were angered and uninformed, causing the city council to revoke the shift.

While the 1951 law abolished ratio limits, it has been used only to increase the land portion. In 1979, Pittsburgh moved to a three-to-one ratio and in a few years moved to six-to-one. Six others have chosen five-to-one. In 1995 Washington, 30 miles from Pittsburgh, shifted to taxing land 11 times higher than buildings; Aliquippa to 16-to-one.

These spreads are diluted by overlapping counties and school districts which still levy property taxes of one rate. When the city, county, and school taxes are figured in, Pittsburgh is dampened to a 2.5-to-one ratio. To address this lack of uniformity, the legislature granted permission to school districts and boroughs the option to split their rates. So far, only two noncity jurisdictions have taken advantage of this option, totally 18 jurisdictions, including Pittsburgh, that have opted for a higher rate on land and a lower one on buildings. Across the Delaware River in New Jersey, officials recently held a public hearing on the PTS. ...

Cities with either a phased-in two-rate land-weighted system, as in Pennsylvania, or with a full land tax, as in Australia and New Zealand, have consistently shown that:
  • Taxes on the majority of owner-occupied and rental homes were reduced.
  • The steep escalation of housing prices and rents experienced by most US cities was averted in the two-rate cities as housing supplies increased.
  • Construction and rehabilitation of homes, stores, and offices increased.
  • Central business districts drew more private investment and were renewed.
  • More efficient land use followed putting the city's idle lots and under-used buildings into productive use; reducing the pressure for urban sprawl. ...
Eventho' almost everyone would worry about paying more tax, the PTS is inherently progressive. Studies of the towns in Pennsylvania that have shifted some tax from buildings to land show that about 75% come out ahead (nearly the entire bottom four quintiles of income earners), 20% break even and 5% pay more (together a bit larger than the top quintile of income recipients), who are usually absentee owners. ...

Is ownership of land value concentrated? More so than other wealth? It's hard to unveil the largest landowners who own land under different names or corporations, or together with partners and family members. Best guesses tend to underestimate the concentration. One study of a Pennsylvania town of 15,000 found that 1.5 percent of landowners owned 53 percent of the land value. Under a land tax, they would pay 53 percent of the revenue. ...

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

Mason Gaffney: The Taxable Capacity of Land
  The property tax, rather than "shoot anything that moves," is a charge on inactivity. It taxes both lands and buildings on their market value, regardless of how they are used. "Hold on," you might say, "how about the very activity of constructing those buildings?" Yes, touché, the property tax does shoot at that, and shoot hard. However, that is why we are here today, to consider modifying the tax to exempt buildings. The proposal is to make it a tax mainly, or even purely, on "land ex buildings," a tax on inactivity, a tax just for sitting on a piece carved from the world's fixed, limited land supply....   Read the whole article

Herbert J. G. Bab:  Property Tax -- Cause of Unemployment  (circa 1964)
The purpose of my talk is to show that the relation of property taxation to unemployment and lack of economic growth is that of cause to effect. I shall try to explain why I believe that property taxation is one of the two chief villains in the drama we are witnessing today in these United States. The other villain is the monetary policy pursued by the government, which has increased the cost of borrowing to a point where it stifles the growth of the economy. In this context however I shall be concerned only with property taxation. ...

An analysis of the social and economic effects of a particular tax system would indicate the third criterion.

When analysing property taxes we shall distinguish between that part of the tax which is assessed on improvements and that part which is assessed on land.

That part of the tax that is assessed on buildings penalizes everybody who improves his land, his buildings or intends to construct residential, commercial or industrial property. The most serious incidence of property taxes is on new housing. When rental property or houses are newly constructed these taxes add 15 to 20% to the annual cost depending on assessment practices and tax rates.

To the extent that property taxes discourage residential construction and the improvement and modernization of homes they create unemployment.

A defect of our property tax system that is seldom mentioned is that it puts a premium on obsolescence and penalizes new housing. This is so because property taxes are ad valorem taxes. Every piece of real estate except land is subject to depreciation. Thus the owners of old and obsolete real estate will pay little in taxes, while newly constructed buildings will bear the brunt of the tax.

This characteristic of the property tax is obscured by the rising trends of land values, which in many cases offset the loss in value of the improvement. Increases in tax rates and differences in assessment procedures and practices further hide the fact that ad valorem taxes favor obsolete real property.

Let us now turn to that part of the tax that is assessed on land. Increases in population, immigration from the farms and other forces have led to a rapid increase in the population of our large cities and metropolitan areas. Population pressure is bound to increase the value of urban land. Yet an adequate system of land taxation could have prevented the steep rise in urban land values.

Economists agree that taxes on land can not be shifted but are capitalized. For instance a lot having a value of $10,000 -- will have an imputed or expected income of $500 -- assuming a 5% rate of capitalization. A 2-1/2% yearly "ad valorem" tax would reduce the imputed income by $250 -- or 50%. Such a tax would naturally reduce the value of the land by the same percentage.

For these reasons increases in land values can be prevented by taxing land at an appropriate rate. Yet urban land values have increased tremendously during recent years. For instance in Los Angeles county the assessed value of land increased from $1,972 millions in 1952 to $4,002 millions in 1962, an increase of a little over 100%. The assessed values, are supposed to represent 25% of the market value. Thus the unearned increment in land values during this period amounted to not less than $8 billions. Even this figure is an understatement because it is based on assessed values and land is greatly underassessed. While land values have risen by about 10% yearly, property taxes assessed on land averaged about 1.5%. Thus a person owning vacant or underimproved land would have earned about 8 1/2% per year just by withholding land from its proper use.

A higher tax on vacant or unimproved land would make it unprofitable to hold such lands. It will tax land into better use and it will lead to a spurt in construction activity. While all other taxes are deterrents to employment and economic growth, though to a varying extent, land taxes are the only genuine incentive taxes.

Inflated land values must necessarily increase the cost of new homes, the cost of home-ownership and rentals. It discourages residential construction, prices many families out of the housing market and aggravates the housing shortage.

Homeowners who bought their homes some time in the past can reap large profits when selling them. Old homes should sell at a lower price, because of the depreciation of the building, but in most cases the depreciation of the building is more than offset by the increased value of the lot. This increased value forces buyers to increase their down payments or to increase their loan are higher, many families are priced out of the market.

We have discussed the sharp increase in the level of rents that has taken place during these last years. These increases reflect the steep rise in land values that have taken place in almost all sections of our cities. The tax assessed on the improvements has discouraged the construction of more and better housing. At the same time, the tax assessed on land has been too low to induce owners to sell, improve, or replace their rental properties.

Property taxes shape the pattern of our cities.
  • If taxes on improvements are low or non-existing and taxes on land are high, the cities are bound to grow vertically and at a fast rate.
  • If taxes on improvements are high and taxes on land are low, our cities will spread over larger and larger areas. They will become metropolitan areas and they will grow at a much slower rate.
Relatively low taxes on land and high taxes on improvements will discourage the owners of vacant lots or underdeveloped land, such as that used for parking lots, gas stations, hamburger stands, etc., from improving their land. It will encourage them to keep the land out of use and to sell later at a profit. This will create an artificial shortage of land, which in turn will lead to urban blight and irregular, leapfrog city growth.

This urban sprawl makes our cities look ugly, but it has many disadvantages besides:
  • It gobbles up a tremendous amount of farm land;
  • the farmers have to give up their land before it is really needed;
  • the building developer has to go far out to find available land;
  • the prospective home-owner has to travel farther;
  • traffic on congested roads will increase and
  • new roads and schools will have to be built.
It is generally believed that zoning laws are a very effective tool to control the growth of our cities. Zoning laws determine the best possible use of urban land. Yet nobody can be forced to improve his land and to build unless there is an incentive. This can be achieved by taxing land at a rate that will make it unprofitable to hold it without improving it.

The city planner needs land taxation just as he needs zoning laws. With both these tools the orderly growth of our cities will be assured, but -- as experience has shown -- without land taxation rational and efficient land usage becomes impossible.

Professor Galbraith and others have expressed concern about the poverty of the public sector of our economy as compared to the affluence of the private sector. The appearance of our cities, the inadequate financial support we give our schools and poor public services seem to support this view. Yet, I can not agree with Professor Galbraith's conclusion that we need more public revenues to meet these needs. It seems to me that the spreading out of our cities over wider and wider metropolitan areas has immeasurably increased the financial burden of local governments. In other words, wasteful use of land caused by our property tax system is the real reason of the poverty of the public sector. ...

he administration of the property tax leaves very much to be desired. Assessment procedures and practices are in many cases erroneous, arbitrary and widely variant. So is the ratio of assessed value to full market or cash value. In many states no public records are available indicating assessed values and the taxpayer has no of knowing what his tax bill will be.

The most serious defect in the administration of property taxation is the continuous, widespread and enormous underassessment of land. A survey made recently found that in 9 California counties, vacant lots and acreage were assessed at only 5.3% of the cash value, while residential property was assessed at 19.3% of its value. The illegal underassessment of land deprives local governments of millions of dollars of revenues. Moreover, it further aggravates the serious defects of property taxation.

We have analyzed the effects of property taxation on improvements as distinguished from those caused by the incidence of these taxes on land.
  • We have found that a high and burdensome tax rate on improvements will discourage residential construction, create unemployment, penalize home-ownership, aggravate the housing shortage and force up rents.
  • Yet a low tax rate on land will have similar if not identical effects: it will lead to a rise in urban land values, which in turn will discourage residential construction, create unemployment, penalize home-ownership, aggravate the housing shortage and force up rents.
The paradox of property taxation consists in the fact that lower rates on improvements produce the same results as higher rates on land and conversely higher rates on improvements produce the same results as lower rates on land.  Read the whole article

Mason Gaffney: Full Employment, Growth And Progress On A Small Planet: Relieving Poverty While Healing The Earth
3. The rural landed gentry.

Georgists have focused on urban land, stressing its stupendous value p.s.f., and also its high value per capita. Some have favored ignoring rural areas completely, to placate the rural vote, and the putative empathy of urban Americans with their rural roots, and the supposed rural preservation of old cultural values. If those notions ever had merit, they do not today. George himself did not think they had merit in his day, either: his first book, Our Land and Land Policy (1871) went into great detail about the villainies (his word) involved in monopolizing rural land from the public domain. He demolished economist Francis A. Walker while exposing how Walker’s direction of the U.S. Census concealed the concentrated ownership of rural land – an early example of “How to Lie with Statistics.” In the process, George invented what today is called the Lorenz Curve, and influenced the U.S. Census to begin arranging data in a template geared to that curve, and to report on land separate from buildings (which it did until 1940).

Today, more than ever, persons of great wealth have fled the cities and bought up (or retained) vast and valuable lands in rustic retreats. To name but a few, there are San Juan County, Washington; Aspen, CO; Vilas and Walworth Counties, Wisconsin; Napa and Sonoma Counties, CA; the Sta. Ynez Valley north of Sta. Barbara; Kenedy County, TX; Barrington, IL; the Hudson Valley; Berkshire County, MA; Nantucket Island, MA; Manchester/Dorset and Woodstock, VT; Fauquier County, VA; Bourbon County, KY; and much of the whole State of NM. In addition there are individual spreads so vast they constitute regions in themselves:

  • San Simeon,
  • the Newhall empire,
  • the Bosworth and Chandler and Tenneco ranches,
  • the King Ranch,
  • Sta. Catalina Island,
  • the Irvine Company and the O”Neill holdings in Orange County, CA,
  • the McIlhenny lands in Louisiana,
  • Gardiner’s Island, New York,
  •  the Georgia-Pacific and Weyerhaeuser timber holdings,
  • the Scully farms in Illinois,
  • the timber empires of northern Maine, and so on.
Once known mainly for blood sports, owners in these areas wrap themselves now in the mantle of environmentalism – a major challenge for those seeking to reconcile fair taxation with ecological values.

Where land is valued less for amenities, and more for cash crops, absentee ownership runs high in much of Iowa and central Illinois, with rents going to Chicago lawyers and European investors. Likewise the oven-like Imperial and San Joaquin Valleys of California, whose absentee owners are more likely to live in coastal California, but also have addresses all over the world – some real, and some in tax havens (Gaffney, 1982).

In such regions, land values per capita run high. Vilas County, for example, an abandoned old “cutover” county centered on Eagle River, now has the highest land value per capita in Wisconsin, thanks to its many little lakes, and the high social status of summering there.

There is no reason, in equity or efficiency, to exempt all this personal wealth from taxation. The challenge is to implement policies to sift out the legitimate contributions to the environment from the country club and boating and beachy and “trophy” and “privacy” and “hunt club” and “fin and feather” and “snow-bunny” qualities that give these lands most of their market value.

Those rustic retreats are only the leading edge of manorial suburbanization. Inside them we find low-density, high-valued suburbs like Atherton, Belvedere, Rolling Hills, CA; Sag Harbor, Scarsdale, NY; Lake Forest, IL; River Hills, WI; North Vancouver and Point Gray, B.C.; West Palm Beach, FL; and so on. These are communities that fuel today’s booming demand for landscape architects, and turn so many retired golf professionals into country club designers and real estate developers.

Here we find many activist Georgists suffering from another blind spot. A major modern Georgist thrust is to push for a local municipal shift from the ordinary property tax to a “Two-rate” system, with a higher rate on land than on buildings. In doing so, they make a campaign issue and a litmus test of how the tax burden on “homeowners” will fall. Carried to an oversimplified extreme, this ignores all differences among “homeowners,” melding the landed gentry on huge lots or vast acreages with the poor in modest hovels on tiny crowded lots, or parts of lots. It ignores the tax rate on rental apartment units, which almost everywhere is, de facto, higher than on owned units. We must be prepared for cases where taxing those vast acreages will make the taxes of homeowners rise – and explain why that is a good thing.

The “homeowner” orientation of many modern Georgist campaigners plays into the hands of those who favor income taxation and sales taxation over property taxation.  If the goal is indeed to favor “homeowners” per se, then we should abandon the property tax altogether in favor of income and sales taxes, in their present biased forms. The imputed income of owner-occupied lands, including lands held for sport and recreation, is entirely exempt from income taxes, whose base exempts non-cash income. The imputed consumption of these lands is also exempt from sales taxes. ... read the whole article

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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper