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Two-Rate Property Taxation

Two-rate taxation, talso known as split-rate taxation, is one of the finest tools if you are looking to change the world by thinking globally and acting locally. Two-rate taxation allows a municipality to divorce from each other two taxes that traditionally have been tied to each other. (See the property tax is two taxes.) Two-rate permits a town or city to reduce the millage rate on buildings and increase the millage rate on land. Or, in a situation when local government finds itself in need of additional revenue, they can raise that money by increasing the millage rate on land without also increasing the millage rate on buildings, so that the incremental costs are borne by landholders in proportion to the value of their land holdings without regard to whether they have improved that land to its highest and best use or are underusing it.

A caution: in Massachusetts, these terms are sometimes used differently, to denote different millage rates for residential and commercial property. Georgists see this approach as at best pointless and at worst providing very perverse incentives. However, those who are interested in Massachusetts' idea might want to look at our ideas more closely, because what our remedy does may better serve the goals they embrace, in large part because the land under commercial properties tends to be far more valuable than the sites on which homes are located (with the exception of waterfront).

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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.

Alternatively, if we accept the income and sales taxes as “givens,” we must allow that they are both outrageously favorable to owner-occupants, so there is no overall merit in jiggering the local property tax the same way. On the contrary, owner-occupied housing is an unpreempted tax base that localities should seize, to redress the balance.

By focusing on gains to “homeowners,” Georgist campaigners are misstating the revolutionary implications of their own reform, and confusing their audiences. George spoke for the landless, the tenants, the young, the upwardly mobile, orphans with nothing to inherit (as opposed to the mythical orphans who own all the property in the country), the students and trainees, the exploited workers, the innovators and entrepreneurs and adventurers who turn their capital and turn the wheels of capitalism – not so much for stolid settled burghers and retirees who own land. Their buildings, yes, he would exempt. But if those buildings rest on land of high social utility, they are playing the role of land speculators. Call them Type #3 speculators: the “passive-aggressive” type. (For Types #1 and #2, see item 9, below.) Read the whole article

Walt Rybeck: Have We Forgotten The Foundation?

Americans owe a tremendous debt to architects and others who led the movement to save and restore our nation's historic buildings and neighborhoods.

My thesis today is that it is equally imperative to restore our historic land policy that provided a foundation for the flowering of wholesome cities and towns. Otherwise, precious treasures saved by preservationists are in danger of becoming isolated islands in an unsavory sea of urban ugliness, misery and blight.

Land policy is rarely addressed in books by or about architects. For most of the past century, political, scientists, sociologists, planners and economists also typically failed to focus on land policy. ...

The good news is that we can reclaim our historic foundation.

A problem is that our present property tax imposes a single tax rate on the total land-plus-building value. When a locality increases the good land tax, it automatically raises the destructive building tax. Thus the obvious first reform is to sever the unholy union of these distinctly different parts of the property tax.

Pittsburgh pioneered an easy way to do this with a two-rate tax. It taxed buildings at only one-sixth the rate on site values. Aliquippa taxes land at a rate 16 times higher than on buildings. Some 20 Pennsylvania cities and towns utilize this approach, gradually reducing taxes on structures. Results have been uniformly good -- bringing idle land and empty buildings back into use, rejuvenating business districts, and holding home prices in check so seniors on fixed incomes are not pushed out of their neighborhoods.

Architects and other preservationists can help revive urban livability by...

  • Joining forces with those who are pushing for this two-rate tax reform;
  • Persuading local governments to pass resolutions urging their state legislatures to enable them to tax land and buildings at separate rates;
  • Pushing state legislators to follow through on this action; and
  • Finally, at every opportunity, bringing public attention to the necessity of recapturing publicly created land values as a way to save our cities. Those who make restoration of America's historic land system a part of the historic resources agenda will be doing a great service to the country. This is the challenge and the opportunity.  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