Surprise -- the LVT could help fix our economy
Tax and Mend
Would you like to be part of progress? Check out what's happening in Philadelphia and how you could help out. We trim this 2008 article is from the Philadelphia Weekly of Nov 26.
by Kellie C. Murphy“Why in a city of poor people are poor people being expected to shoulder the city’s burden?” asks Joshua Vincent, executive director of the Henry George Foundation of America Center.
Vincent and those in his organization think there’s an alternative to all this buck-passing: “Tax 2.0” or Land Value Taxation.
LVT is half of the city property tax. The other half -- on buildings -- city residents have come to dread. It encourages blight because as structures get improved, taxes get raised, which is debilitating for a home or small business owner. Conversely, utilizing LVT puts the onus onto land speculators and slumlords.
“Say a guy owns a ramshackle house in North Philly, and his tenants say, ‘Why don’t you fix the roof and put in new bathrooms and pipes?,’” says Robert Inman, professor of finance and economics at Penn. “And he says, ‘Okay, maybe you’ll pay a little more in rent, but the assessor will come by and bump up my taxes,’ so he doesn’t do it. The property part of the property tax discourages people from improving their homes.”
That, says Vincent, is what LVT could help resolve. “There’s so much vacant land out there. Prodded by the tax, owners wouldn’t sit on land that’s blighted or underused,” he says.
In practice, this property tax shift has worked in other Pennsylvania towns like Allentown Altoona, and Aliquippa in the wake of the steel industry collapse. Harrisburg was brought back from near bankruptcy via LVT.
“If a new tax has a lot of attractive features, the most important thing to do in any kind of reform is to spend the money wisely,” Vincent says. “Spending money from a land tax to continue reducing the other two taxes would be a real improvement for the city economy.”
Even when the rate on land is raised and the rate on improvements lowered, experts agree that most city taxpayers would see significant decreases in how much they pay.
Speaking of Philadelphia Mayor Michael Nutter, Vincent said, “Here people are a little nervous because most valuable land, really valuable land, which would be taxed, is owned by corporate entities that are rather powerful.”
Owners of corporations, abandoned lots, empty zoned-for-retail structures, and high rises usually owe higher amounts under LVT, while the corner bodega owner and many rowhome neighborhoods would likely catch a break.
Philadelphia had a tax reform commission a few years ago with Michael Nutter as chairman. Yet reform commissions don’t necessarily create lasting reform. Professor Inman read the report the commission released, and notes that changes like these won’t be easy, even after moving away from two very unpopular taxes: the city wage tax and the gross receipts tax.
Barry Mescolotto, acting director of assessments for the City of Philadelphia, says, “I spoke to a delegate we had here recently from an African country that just went through a civil war, and didn’t have taxes at all, and who came here to study the way we assess property. I said to him, ‘If I were starting fresh, like you are, and had very few buildings that were worth anything, I would absolutely set up the tax structure to use LVT from the beginning.’ It’s easy to maintain, very efficient and it works.”
But Mescolotto sees obstacles when implementing LVT in a fully developed city: “We can’t totally remove improvement assessments in a modern city because we can’t easily tell the difference between amenities to residential properties.” Nonetheless, Mescolotto’s office is implementing a new valuation system called RealWare, which values each property as a separate component from the land.
“Newspapers are saying business taxes are dropping, transfer taxes are dropping, wage taxes are dropping. But you don’t hear anything about real estate taxes dropping,” says Vincent. “That’s because people pay their real estate taxes.”
“The more valuable the city becomes, the more land value tax revenue can come in and we can leave small businesses and home owners alone.”
Vincent knows there are obstacles. “But to have change you really have to have progressive political leadership that’s willing to say, ‘I understand that most of the city’s going to be better off with change, so let’s try this.’”
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