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Tax
the Land
I
put property-tax cappers in the same category as flat-Earthers.
It’s troubling that we have policy shapers who understand
so little of land economics. That other states—with disastrous
results like California’s Proposition 13—have gone down this
path is no reason for New York to drive off a cliff too.
When we realize that the property tax is really separate taxes
on land and on buildings, each with its own very different
dynamics, we’ll better be able to address an alternative.
Buildings are a stock—a thing—that depreciates just like a
car or a computer, and penalizes owners that improve their
property. Land has a flow of value that economists call “rent,”
or sometimes ground rent. One can no more cap the flow of
rent than one can stop gravity. If one caps the part of rent
taken in taxes, it leaves more to flow through the land sites
into private pockets.
Sure, the Legislature can enact a tax cap, but this will create
more problems than it solves. In Shakespeare’s Henry IV,
Glendower boasts, “I can call spirits from the vasty deep.”
To which Hotspur answers, “Why, so can I, or so can any man;
But will they come when you do call for them?” The property-tax
cap or a circuit-breaker proposal is an equally hollow boast:
We can cap the tax burden, but land values will increase,
which only disrupts real-estate markets and development further,
just when we need them most.
Rent flow reflects the vitality of the economy and is stifled
when that wealth is frozen in land sites, which are as much
as half the total real estate value in a locality. What we
really need is as much turnover in wealth as we can get, not
locking it up in land wasted as slums, parking space and vacant
lots.
Recently, in The Atlantic, conservative writer and
the New America Foundation’s Reihan Salam asked, “What if
the problem isn’t the property tax at all but rather, well,
all other taxes? In 1879, Henry George . . . found it perverse
that we tax productive activities like work and innovative
investment while letting landowners grow rich simply because
they scooped up property at the right time. . . . When you
tax income, aren’t you punishing people for working hard?
But when you tax an asset like land, you’re simply encouraging
the most valuable use of that land. . . . Simply put, the
better you govern, the more valuable the property. The more
valuable the property, the more revenue you raise.”
There are solutions, tried and true: The first is to un-tax
buildings altogether and remove the penalty it imposes on
people who improve or maintain their property. Most residential
parcels pay less, and underused and vacant parcels in high-value
urban cores pay more, providing an incentive to develop. That
reverses sprawl and fosters urban revitalization, without
throwing precious public dollars at the problem. Another is
to have taxes paid in increments rather than in a yearly lump
sum. The third part is to give households the option of deferring
their tax burden until they sell. Then they pay up with interest
what they rightfully owe and don’t shift their burden onto
others unfairly. Twenty- four states do this in some way.
The value of land is due not to what any landowner does—often
they don’t even live in the area—but what the total community
does. The increase in value is a windfall gain often called
the “unearned increment.” Since that value is socially created
wealth, it follows that it’s the rightful source of public
revenue, and we should recapture its flow rather than tax
people’s work and products which they’ve earned with brain
and brawn.
A land value tax fits best all textbook principles (as well
as actual practice) of solid tax theory: It is “neutral,”
meaning it doesn’t interfere in market choices; it is efficient
in not damping vitality; it is progressive as it can’t be
shifted to tenants. It is easy to administer, simple and stable.
There’s a reason why so many nations, as well as some places
in the United States, are now looking anew at taxing land
value.
—Bill
Batt
Bill
Batt is a political scientist who has worked as a university
professor and policy analyst for the New York State Legislature.He
serves on the board of the Center for the Study of Economics,
and the executive committee of the London-based International
Union for Land Value Taxation. More at urbantools.org.
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