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 EIGHT (Parts 1 – 7 are still available)
Priority #4. What Tax to Fight First?
We must set priorities on taxes to lower and eliminate. The Georgist [geoist] objective is dual: to raise taxes on land, and to lower taxes on other bases. Many Georgists have the posture and mindset of reforming just “the property tax,” in a vacuum, but this was never George’s main point. There are other new or augmented taxes more damaging and noxious than the property tax falling on reproducible wealth: state taxes on retail sales; payroll taxes; income taxes falling on wages and salaries; excise taxes; etc.
Some Georgists have supporting wiping out taxes on “personal” (movable) property. political success be the test, this movement has won massively (although silently) in state after state, and in all Canadian provinces. The result, though, is to do as much harm as good, for the exemption of capital is partial and discriminatory. “Real” (immovable) capital is still taxed, biasing the way investors allocate capital. Indeed, some “real” property is changed into “personal” property simply by unbolting it from the floor.
The result is also regressive, because personal property in most industries is more concentrated in ownership than real capital. In farming, for example, personal property includes cattle, stored grain, and farm machinery, but the owner’s dwelling is real capital.
Other Georgists have diverted their efforts into wiping out the property tax on standing timber, replacing it with a nominal yield tax. Again, the result is partial and discriminatory, biasing investors to allocate more capital in the form of timber, and correspondingly less in other forms. As noted earlier, the present system works as though half the buildings in a city are exempted from a tax and the rate on the others raised.
Timber-exemption is highly regressive because the ownership of timber is much more concentrated than the ownership of homes of loggers and mill-workers and retirees in the timber counties. It would not be so bad if the land taxes on timber-growing sites were raised enough to compensate for exempting the growing stock. However, as we have shown, these site taxes are also held down to token levels. The net result is to turn timber and timberland owners into a huge public welfare case supported by a sophisticated brainwashing machinery paid by the discretionary income and wealth of the industry.
Most Georgist activists today devote most of their efforts to lowering the property tax rate on urban buildings. As we have seen, this effort is only effective in states that still rely heavily on the property tax. Even in such states, all the gains won so laboriously, trench-bytrench, in Pennsylvania can be lost overnight should the State Legislature or the electorate decide to cap property tax rates and meet the shortfall by raising consumer taxes and income taxes. This has occurred in California, and been credibly threatened in Pennsylvania.
However, this effort is potentially productive, even in states with low property tax rates, because it sets the stage for raising the rates. Once buildings are exempted, a polity can raise tax rates without driving away industry, capital, or talented people. Today, politicians like California’s Governor Pete Wilson enhance their careers by starving schools and libraries and police in order to attract and retain employers by offering lower tax rates. Given a property tax on land ex buildings, we could support the public services without penalizing true industry.
To achieve that end, we must stifle sales and payroll and income taxes. They are the chief alternatives to property taxes. They are inherently counterproductive because they are contingent on some “taxable event” which is a constructive act of production or exchange. Henry George, in one of his striking similes, observes that a packhorse can carry a heavy load on its back, but hardly any load if you bind it to the shins. Economic theorists write of the “excess burden” of excise taxes, and the “Laffer Curve Effect;” lawyers write of “taxable events:” both are saying the same thing in their own argot. Sales and payroll and income taxes are like the load strapped to the packhorse’s shins, dragging on every step. Indeed, they are more like a load bonded under each hoof: the horse has no burden if it just stands still.
What, then, makes these regressive taxes so attractive to landowners? Why this constant clamor and pressure to raise them to provide “property tax relief?” In the short run they do relieve landowners. They appear to shift taxes off landowners, who are well organized and vocal, and onto working people who are not. But they soon shift back onto landowners by repelling mobile capital and labor.
End of Part Eight. Part Nine, which will conclude the series, will appear on Thursday, April 30.
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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