Property Tax: Biases and Reforms
|January 9, 2007||Posted by Staff under Progress Report, The Progress Report|
Tax Expert Urges Reforms
Property Tax Reform Priorities
by Mason Gaffney, Ph.D.
PART SEVEN (Parts 1 – 6 are still available)
Two More Areas Deserving Attention
In 1946 President Harry S. Truman, with the stroke of a pen, added 50 percent to the area of the U.S. when he unilaterally extended our traditional three-mile limit out to 200 miles. The first three miles were soon given to the coastal states; California and Alaska both raise large lease and tax revenues from their lands under these coastal waters. The next 197 miles, however, is unorganized territory, outside the sovereignty and tax reach of any state, or subdivision thereof.
Most of our domestic oil and gas is now produced from the seabed under this water wilderness. The property is public domain under federal BLM administration, but firms bid for leaseholds there under a system that the majors seem to manipulate to their advantage. Even so, there are some Federal revenues from both lease payments and corporate taxes. State and local revenues, however; are nil.
Counties may, and often do assess and tax “possessory interests” in leaseholds on federal uplands that lie within state boundaries. They are helpless, however, to tax such property held offshore. The property values are huge, and so are the firms that own the leaseholds. Many firms own tens of millions of acres apiece, areas larger than whole states. Offshore oil is our largest enclave protecting rent-bearing lands from property taxation, and any other form of state or local taxation.
Some form of national property tax is called for; or higher lease payments in lieu of taxes. Perhaps some income tax surcharge is the best way, or special federal tax on net proceeds. This paper cannot enter the thicket of what jurisdiction should have sovereignty to tax offshore leaseholds, nor how best to levy the tax. The point here is that no system of resource-based taxation is complete, philosophically or practically, that leaves this enclave untouched.
Tax All Natural Resources Uniformly and Comprehensively
Advances in the arts and sciences keep disclosing new values in old resources. Owing to institutional lag, these values can grow huge without finding their way onto the tax rolls. A thoughtless reaction is, “Bureaucrats want to tax everything!” The point is to tax all natural resources uniformly and comprehensively, to end the lowering taxes on incomes. productive business, and sales! Land taxation will not win wide support, nor will it deserve to, if it is perceived as a tax focusing on median homeowners, farmers, and merchants, while exempting oilmen, media tycoons, and timber barons.
In addition to newly awakened resources, many resources long known (like water) are held in odd tenures that have not been recognized as taxable property, although they should be. Any comprehensive move toward using resource rents for public revenue must include these varied resources and tenures. I have a list of 30 or so, too many to treat here. To give a sampling, they include pollution easements over air and water; aircraft landing time-slots and gates; aquifers; benefits from covenants; access easements; power drops; concessions; fisheries; franchises; the gene pool; grazing licenses; minerals; orbits; soils; radio spectrum; rights-of-way; shipping lanes; standing to sue; strata titles; use of the streets; wildlifet windI and zoning.
In tapping these many varieties of resources and tenures for public revenues, citizens and their representatives may have to set priorities. Two practical criteria rise to the top: go first for the big values, and go for the soft targets.
The biggest values are probably in energy, communications, water, rights-of-way, zoning and street use. Let’s just look at what we are learning about communications. Knowledge and entertainment appear both at top and bottom on man’s hierarchy of needs. People without even adequate shelter may be seen huddled around n/ sets; people in war, or under totalitarian governments, risk their lives to hear smuggled broadcasts. People with higher incomes and security equip themselves with mobile telephones, and call around the world; they rush to get on the information highway. AT&T was the biggest non-financial corporation in the world before splitting up. Newspapers depend on their “wire” services: one of the first Great American Monopolies was Western Union and its news appendage, AP.
Recent FCC auctions have fetched billions of dollars for spectrum licenses, but this is like selling the badlands after giving away the beachfronts. The values of extant licenses given away ion the past, especially spectrum in top locations, are much higher. AT&T recently paid $112.5 billion for the McCaw Company’s spectrum licenses, which are a smattering of all that is out there. These licenses should be on the property tax rolls in the jurisdictions that they cover. The revenue possibilities are staggering.
How about soft targets? A soft target is any tenure recently created, in a field that is easy to understand. Fisheries come to mind. In the last few years governments in Canada and the U.S. have limited allowable fish hauls by excluding new fishing boats and imposing quotas on the owners of old ones. This “imposition” amounts to a gift. Some quotas swiftly rose in value to over $1 million each, suddenly creating a class society where before there was equal opportunity. There is now a class of nouveau, instant millionaires and parlor fisherman who rent out their quotas to working fishermen.
Very likely it is wise to limit fish catches and avoid the “tragedy of the commons.” It is also necessary to police the waters and keep out alien interlopers, a dicey business calling for the full power of a strong national government. It is not necessary, however, to give away the quotas so dearly policed. It is obvious to any objective observer that the quotas should be sold or (better) leased to the highest bidder. If the Feds insist on giving them away, states and localities should class them as taxable property subject to a high rate. The best time to levy appropriate charges is when quotas are new, and the injustice of the present dispensation is apparent to all.
Another soft target is the Manhattan taxi license, or “medallion.” For some reason this has long been a favorite object lesson among economists, even as they shut their eyes to grosser sources of rent. It may be because cabbies are rude and visible and lower class, but whatever the reasons these writers have shown their consciousness of the rent aspect of medallions, and raised the consciousness of others.
The reason for pursuing soft targets is not for the money they may yield, but for principle. Once the principle is understood and established, wider applications should follow. In economic principle, fishing quotas and taxi medallions are just like conventional land titles: privileged control over limited natural resources. If it makes sense to socialize the rent from quotas and medallions, why not land titles too?
End of Part Seven. Part Eight will appear on Thursday, April 23.
This paper was originally presented at a property tax reform conference at the Jerome Levy Institute at Bard College, New York, November 3, 1995.
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