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Wages to Labor and Interest
to Capital are earnings from productive effort. Land is passive, a gift of nature. Land on its own cannot produce wealth. Rent paid for use of Land is therefore a taking from Wages and
Interest. With
Property Tax Relief taxes also take Wage and Interest earnings from
producers. With No Property Tax Relief
government shifts from a taking (taxing) of Wages of Labor and Interest of
Capital to a taking of Rent taken by landowners from the Wages of Labor and the
Interest of Capital.
Solution: TAX LAND MORE, BUILDINGS LESS
a. No tax on new
buildings in cities or on that for farm, utility or railroad use.
b.
Tax all land at 100% actual
value.
c. Cut taxable
percent of building values to limit growth of combined values to 4%.
d. Cap actual
valuations of all classes of buildings at Jan. 1 2002 assessments.
e.
Assess utility and railroad
lands and easements separately from capital values
f.
Authorize city levy to fund
credits for city minimum water/sewer charges
g.
Replace two-cents of five-cent
state sales tax with state property tax levy.
h.
Encourage local governments to
replace local sales tax with property levies.
i.
Allocate $70 more in state
road funds per capita to cities, towns and townships
Explanation: Modifies tax system to collect more Land
Rent and cut taxes on Wages and Capital by permanently exempting new
construction in cities and by farmers, utilities and railroads anywhere from
property tax, lowering the taxable value of existing buildings, shifting cost
of city mandated minimum water/sewer services from households and businesses to
local land-owners, cutting state and local sales tax by forty to fifty percent
and raising state and local tax rates to fund state and local government. Increasing the allocation of state road
funds to cities, towns and townships returns locally generated gas tax receipts
to local governments to reduce property tax levies.
Expected growth in actual land values from increased demand for land on
which to erect tax-free buildings and no change in annual growth limits of
combined land and improvement values will gradually lower taxable improvement
percentages (rollbacks) for each property class.
Capping stops Assessors and
Boards of Review from raising improvement valuations when re-evaluating
property in response to higher prices for land caused by developers bidding for
building sites.
New incentives to improve properties
or sell to producers
No tax ever on new
construction increases demand for land, labor and capital
$1.76 Billion savings for
Iowa consumers to spend or invest
$369
million in water/sewer bills (estimated at $411/dwelling unit)
$957
million sales tax collections (from
state sales tax reports)
$438
million on existing buildings (calculated from 1997 assessment data)
$145 Million aggregate cut
in deadweight tax on Polk County’s urban economy
Landowners pay more tax on
land but can invest in tax-free improvements or sell
181% more on residential lots
45% more on commercial, industrial and
agricultural land
User charge
and sales tax cuts offset property tax increases for most homeowners
Examples:
Tax
impact on Polk County township agricultural class land
Current landowners pay $10 more tax per acre
Buyers capitalize tax rise to lower land
price, pay $10/A tax instead of $10/A interest.
Added tax on land an incentive to develop new uses of
agriculture land
Absentee landlords more likely to sell land to owner-operator
farmer
Families supply labor to produce high value products instead of low
value bulk product
Diversion of fragile land to tax exempt uses such as riparian
protection, wetland or forest
Add income by leasing sites for wind power, broadcast towers or
other high value uses
Attract investment
in buildings required for value-added production
Town development will increase markets for farm products cut
farm supply costs
Developers will look to farm product processors and marketers to
occupy new sites
Also manufacturers
and vendors of farm equipment and supplies to occupy developments
Commercial Class Property Downtown Des Moines
$2.3 Million Current Land Price
Annual
Savings:
Avoid $1.4 million tax on $32 million building
$95,000 less taxable income (state & Fed.)
Consumers
have more to spend
50% less tax on retail sales
Builder Free
water/sewer @ minimum usage
Costs:
$0.4
Million land price after capitalizing
tax increase on
land
$95,000 tax increase on land
Tax
shift to land lowers land price barrier by amount of capitalized tax
Tax
Shift raises land values in economically depressed urban residential areas
(Des Moines current combined building and land tax equals
51.6675% (rollback) X 4.437746% (tax rate) versus revised taxable value with
land at 100% plus buildings at 38.285% times 6.44153% tax rate)
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Aggregate
values of 13 dwellings on 173,369 sq. ft. (Des Moines) Land tax
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Bldg. Tax Increases
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Capitalized
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24 lots
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Value/acre
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land_full
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bldg_full
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total_full
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increase
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capitalized
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$ amounts
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capitalized
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net values
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Assessed
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$
24,683
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$
98,240
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$
456,710
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$
554,950
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$
(4,076)
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$
(81,513)
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$
(821)
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$
(16,415)
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$
457,022
|
|
Ex: Sherman Hills
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$
75,000
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$
298,500
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$
256,450
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$
554,950
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$
(12,384)
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$ (247,675)
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$
(461)
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$
(9,217)
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$
298,058
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sellers want*
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$
139,435
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$
554,950
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$ 4,800,000
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$ 5,355,000
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$
(23,023)
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$ (460,460)
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$
110,058
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$ 2,201,158
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$
7,095,698
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buyer offers*
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$
91,393
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$
363,745
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$ 4,800,000
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$ 5,163,745
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$
(15,091)
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$ (301,810)
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$
110,058
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$ 2,201,158
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$
7,063,092
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*(To build
40 new SFR units @ $120,000 ea., move salvageable units to infill other
blocks)
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$
3,684
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(savings/unit/renter)
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Even after paying $555,000 for land the builder can
project a $7,000,000 development value after capitalizing tax shifts and
savings of $3,684/unit ($2,757 bldg. tax, $524 sales tax for $25,000 household
income and $409 user charge). With
rising tax on land cutting speculative profits from just hanging on and new
residential development competing for buyers or tenants owners of low value
dwellings will more readily accept a builders offer when they can invest
proceeds in new affordable units. Subsequent development of both residential
and commercial land will pressure even more owners of under-used sites to
improve or sell. Overall each community
can expect an increased supply of affordable housing and places for business
along with increased demand for land, labor and capital.
With greater reliance on property tax on land Iowa
can have:
- Economic development
- Environmental protection
- Tax cuts for businesses and families
- All tax revenues as levied, no shortfalls
- No jail for failure to file or pay
- Rising personal incomes*
(*High tax states that also rely heavily
on property tax have higher per capita personal incomes but high incomes not
likely to cause high property tax. Personal
income per capita for the top ten states in 1993 was 48% greater than for the
bottom ten, all taxes 71% greater and property tax 173% greater (Mason
Gaffney and Richard Noyes, ‘Losses of Nations’ ed. Fred Harrison, Othila Press,
1998.)
So
who needs a ‘Tax Shift’?
Young people, families and businesses do. The state now sticks families with $5.4 billion in deadweight
taxes on earned income, dilapidated buildings and vacant urban lots that
produce no business, no industry, no jobs, no affordable housing and too little
fun. In FY2000 Iowa’s 1.2 million
families paid 60% of $2.6 billion property tax, 58.3% of $2 billion sales tax,
90% of $0.3 billion corporate tax, 100% of Iowa’s $2 billion personal income
tax and $0.4 billion in municipal user charges. They also paid over $2 billion in land rent and billions more in
higher land prices to the 250,000 landlords who control most of the land but
who paid only $0.5 billion tax on land they own. (percentages from
KPMG, Peat Marwick, 1993, Iowa Tax Study, amounts from Dep’t Revenue &
Finance Annual Report FY2000).
Given low taxes on land and $7 billion less for families to spend landlords
have no pecuniary obligation to invest in affordable housing and new businesses
when they can make more speculating on land. State and local governments spend
money to encourage economic development but can never have enough to be
effective.
Tax Shift is an
effective remedy.
It permanently
exempts new construction in cities and that by farmers, railroads and utilities
from property tax. It cuts $1.76
billion from Iowa’s $5 billion in deadweight taxes by substituting $1.76
billion in state and local levies on the 100% actual valuation of all classes
of land for three-cents of state and local sales tax and minimum city
water/sewer bills. It also avoids spending tax money to aid the private sector
in re-developing urban sites served by existing infrastructure.
It
opens high-value city land to building new or keeping-up existing buildings. Developers seeking sites
for tax-free buildings bid up land prices at the same time the rising tax on
land raises the cost of keeping land idle.
Taxable percentages and taxes on all buildings will soon fall to zero
since rising land values will push combined property values beyond Iowa’s 4%
annual growth limit. Cuts in deadweight property and sales tax and tax cuts
from less state and local spending on economic development will raise family
and business income, the key to economic growth everywhere.
Objections
nullified
Some
say landowners shift land taxes to consumers or, if not, the capitalized tax
reduces the tax base. Neither are
so. Landowners can raise rent only if
tenants can pay more but a rise in land tax won’t of itself raise tenant
income. Besides, newly improved
properties will compete with older properties for tenants. As to the tax base it can rise only with
increased productivity from better use of land.
Others claim property taxes take more from poor families
than from the wealthy. The fact is wealth derives from ownership of land but
most low-income families own none. For
those who own a reasonable amount of land opportunities for higher earnings and
tax cuts offset the higher tax on land.
Wrong to fear higher taxes on farmland
Excessive prices for farmland are actually capitalized farm
subsidies and tax expenditures for property tax relief. Rising land prices don’t raise soil
productivity but do raise collateral values for landowners who can rely on cash
flow from state and federal subsidies to buy more land. They, and 120,737 landlords, control as much
as 72% of Iowa farmland. Their
subsidized rent-seeking drives price-busting over-production of bulk crops to
the harm of all farmers and local communities.
Higher taxes on land and cuts in deadweight taxes will encourage sale of
farmland to owners more able to practice economically efficient and sustainable
production of diversified crops.
Tax shift builds homes and
creates job, business, and farm opportunities.
Shifting taxes from wages
and profits to land raises earned income for families and businesses and lowers
after-tax land-rent income. It therefore spurs landlords to relinquish farms to
farm operators and residential, commercial and industrial lots to owner producers
who can make best use of the land. By
investing in tax-free improvements such as housing, farm and commercial
buildings, factories, railroads and energy production and delivery systems
landlords become entrepreneurs who hire labor (create jobs) to produce housing
and open new businesses and factories in cities and towns without reliance on
government aid. Everybody wins. (Feb. 2002)
By Robert P. Willis, 3921 Columbia, Des Moines, IA 50313.
See also www.progress.org
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