Property Tax Shift
|January 9, 2007||Posted by Jeffery J. Smith under Archive, Progress Report, The Progress Report|
Guest Article In Favor of Economic Justice
The Property Tax Shift
by Jeffery J. Smith
What is the PTS?
The conventional property tax is two taxes in one. One falls on buildings, the other on land. Some places don’t tax improvements at all, just sites. They did the Property Tax Shift (the PTS).
Why is the PTS better than the conventional property tax?
Taxing buildings raises their cost and discourages improvements, resulting in slums and loss of construction jobs. Taxing parcels, on the other hand, lowers their price and spurs development, result ing in compact, more esthetic cities offering plenty of good work.
Where has the PTS been tried and how did it do?
The PTS operates in Pittsburgh, twice named America’s Most Livable City for its affordable housing and low crime, and in 14 other towns in Pennsylvania. Taiwan taxed ag land and converted from poverty to prosperity in record time. While taxing land, some places fully exempted structures. New Zealand enjoyed seven years of 99% employment. Johannesburg, South Africa, had the fastest site-recycling rate in the world. Some Australian towns added business during the last recession. Other places, such as the Port District of San Diego, Canberra (the capitol of Australia), and Hong Kong, exist on public land leased to homes and businesses. All three raise lots of public revenue. Hong Kong often rates as the world’s best city for business. (See our “Where Tax Reform Has Worked: 20 Case Summaries”.)
How is taxing the land being friendly to the earth?
Un-taxing buildings means owners can improve them – weatherize, solarize, add heat exchangers, etc – and not incur a higher tax liability. Up-taxing land means owners must put theirs to best use. Those who’d pay the most, owners of the valuable central sites, would be the most eager to develop, absorbing the development that now spills over into leap-frog sprawl.
Transportation drives land use; where does the PTS fit in?
The PTS makes the tax overhead on parking lots too high for owners and the revenue lost from overly wide streets too high for municipalities. Changing the use of these lands make driving less convenient than riding. Plus, transit can be funded from the values around its stops.
Won’t the PTS spur over-building, too much density?
Not likely. (a) The very heart of big cities, where value peaks, becomes hard for private parties to afford, easy for the public who could there create a plaza. (b) Taxing land reduces the profit from speculation, making it easier politically to zone. (c) It also reduces the price of land, making it affordable to buy and protect fragile sites. (d) As building on under-used appropriate sites satisfies demand, it becomes feasible to de-build from streams, banks, cliffs, and ridge tops. Along with plazas, freeing up these natural features provides sufficient open space.
Is this urban medicine, the PTS, good for farms and forests?
The PTS drives compact urban form, sparing suburban farms. As the Tax Shift advances, de-taxing work and profit while collecting natural rents, investment is moved in the opposite direction, from extracting natural resources to recycling used materials. As recycling takes labor and extraction takes capital, de-taxing both ends the tax-breaks now enjoyed by extraction. On a level playing field, recycling can roll over extraction, sparing forests and the wilderness in general.
What’s the new bottom line? Who pays more? Who less?
The PTS is inherently progressive. The site value ratio from city center to rural fringe is typically 2,000 to one. Only the very rich own very valuable land. Most people own land of less than average value. Usually, 75% save, 20% break even, and 5% pay more after the PTS.
What about low income earners who do lose after the PTS?
Occasionally a poor person owns a valuable lot – a small one close in or a large one far out – that’d owe more than before. Deferring the poor owner’s obligation could let them continue to under-use their location. That forces development to inappropriate sites. Eventho’ it is society, not owners, who makes land valuable and thus own this value, society should bear the initial cost of the PTS. Government could offer the land-poor a bond of equivalent value in exchange for the land.
How do you tell how much a lot is worth? (no pun intended)
People are already figuring out how much a parcel is worth. Buyers and sellers do it for each transaction. Both parties look at the social factors: foot traffic, ambient income, proximity to parks, shops, et al., density, growth rate, etc. Then they conclude a deal that is fair to both sides (or they wouldn’t deal). Both private appraisers and public assessors track these (relatively) free market sales.
Won’t shifting the property tax take a constitutional amendment?
Amending a state or federal constitution would be the direct approach. But as laws are written by lawyers and include loopholes, an ambush may work more easily. Activists could persuade their local jurisdiction to give residents the same property tax breaks that politicians give big corporations, meanwhile establishing a Benefit District to collect rent to fund a Housing Voucher, good for taxes, mortgages, and lease payments. Pretty shifty, eh?
Who supports paying higher dues for one’s land?
The idea is just becoming popular among environmentalists (see our “97 Notables on Taxing Land Alone’) and libertarians. Because the PTS is both fair and efficient, a few civic leaders, both liberal and conservative, campaign for it (in Mexicali, the mayor won it). And sometimes, an overwhelming majority votes it in, as in Allentown in 1996. Historically, versions of the PTS have blossomed each century (see our “101 Famous Thinkers on Owning Earth”).
Is the PTS really necessary?
As long as we let rapidly rising land values reward urban speculation and rural over-extraction, permanent peace with the earth is not possible. This torrential flow of revenue must be put at the service of sustainability if ever we are to enjoy it. So, how about it? Ready to help shift taxes now and subsidies later? Just use the coupon below. Thanks, on behalf of the planet.
Jeffery J. Smith is President of the Geonomy Society. For more Geonomy Society information, go to http://www.progress.org/geonomy
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