The Property Tax: An Excise Tax or a Profits Tax?

Summary

"The Property Tax: An Excise Tax or a Profits Tax?" is a 1972 article by Peter Mieszkowski (1936–2024), then at Queen's University, Kingston, Ontario, later Allyn R. and Gladys M. Cline Professor of Economics and Finance at Rice University. It appeared in the first issue of the first volume of the Journal of Public Economics (1(1): 73–96) — the founding issue of what became one of the field's leading journals — and is the origin of what the public-finance literature calls the "new view" of property tax incidence. Mieszkowski was later awarded the National Tax Association's Daniel M. Holland Medal (2009) for lifetime contributions to public finance, and this paper is consistently identified as his single most influential contribution. Because it is a foundational, peer-reviewed general-equilibrium result in mainstream public finance — not a Georgist or advocacy publication — it carries substantial weight as the modern theoretical backbone for claims about who actually bears a tax on land and property.

The Core Argument

Mieszkowski's starting point is a critique of the older, partial-equilibrium "traditional view" of the property tax, which treated it as an excise tax on the consumption of housing and other structures in a single jurisdiction, shifted forward to renters and consumers (an analysis that consequently found the property tax regressive). He argued this partial-equilibrium approach, which examines one jurisdiction and effectively one sector (housing) in isolation, misses the general-equilibrium effects that arise once capital can move between uses, sectors, and jurisdictions in response to tax differences.

To capture those effects, Mieszkowski extended Arnold Harberger's (1962) two-sector, fixed-aggregate-capital general-equilibrium model of corporate tax incidence to the many-sector, many-jurisdiction setting of a national system of local property taxes. In this framework capital is assumed fixed in aggregate national supply but perfectly mobile across industries and localities, seeking the highest after-tax return everywhere. A local property tax is then decomposed into two conceptually distinct components:

1. A national average tax rate, applied (in effect) to the whole economy's capital stock. Because the aggregate supply of capital is fixed and capital cannot flee the country to escape a tax levied everywhere, this average burden cannot be shifted onto renters, workers, or consumers — it falls on the owners of capital generally, functioning economically as a tax on profits (the return to capital), not a tax on the good the capital produces.
2. Local deviations from that national average — the excess (or shortfall) of a given jurisdiction's rate relative to the economy-wide average. Because capital can move between jurisdictions even though it cannot leave the economy as a whole, these local differentials drive capital out of high-tax jurisdictions and into low-tax ones until after-tax returns are re-equalized. This reallocation produces classic excise-tax effects local to the high- or low-tax jurisdiction: relatively higher prices for housing and locally produced goods, and/or relatively lower wages and land rents, in high-tax jurisdictions, and the reverse in low-tax ones.

Mieszkowski treats land as a distinct, third factor: unlike capital, land is fixed in supply and cannot relocate between jurisdictions at all. Consequently, in his framework the portion of the property tax that falls on land value is borne entirely and only by landowners — capitalized into a lower price for the land — regardless of the average/differential decomposition that applies to capital. Land cannot flee a high-tax jurisdiction, so there is no mechanism by which its owner can shift the burden onto tenants, buyers, or other factors.

The net result, often summarized as the "new view" or "capital tax view": the property tax's average incidence, economy-wide, is progressive-ish and much closer to a tax on capital income (a "profits tax") than to a regressive excise tax on housing consumption, while its local incidence still contains genuine excise-like effects from rate differences across jurisdictions — with the land component, wherever it appears, falling on landowners in either case.

Relation to the Georgist Case

This paper is the modern public-finance backbone for the specific claim that a tax on land value cannot be shifted to tenants (the outcome documented on Landlords cannot pass a land value tax on to tenants). Mieszkowski's general-equilibrium result is not a Georgist argument — it is a mainstream analysis of the existing, mixed property tax (land plus improvements) — but the mechanism it isolates for land is exactly the one the Georgist incidence claim depends on: because land supply is fixed and immobile, the tax on its value is capitalized into a lower land price and borne by the owner, with no channel through which it can be passed forward. This is the same logic elaborated on this wiki's tax capitalization page and is consistent with the zero-deadweight-loss property of a pure land tax: since Mieszkowski's model gives land owners no way to reduce the quantity of land supplied in response to the tax, there is no efficiency loss from the land component, only from the capital component's distortionary reallocation.

At the same time, the paper's scope should not be overstated for Georgist purposes. Mieszkowski's paper is about the existing US property tax system — a tax on land and structures together, with rates that vary across thousands of local jurisdictions — not a proposal for or analysis of a single national land value tax. Its capital-tax result (the "profits tax" finding) concerns the building/capital component of the property tax, which the new view treats as distortionary and partly shifted through local excise effects; it is the land component specifically, not the paper's headline finding, that maps onto the Georgist claim about LVT incidence. A reader should not cite this paper as showing "the property tax has no deadweight loss" — it shows close to the opposite for the capital portion.

Distinguishing the Three Views

Subsequent public-finance literature (notably George Zodrow's 2001 survey "The Property Tax as a Capital Tax: A Room With Three Views," National Tax Journal 54(1)) organizes property-tax incidence theory into three positions, and this paper's place among them should be kept precise:

• The "old" or traditional (excise) view: the property tax is a partial-equilibrium excise tax on housing/property consumption, shifted forward to consumers and renters; on this view the tax is regressive. This is the view Mieszkowski's paper is written to challenge.
• Mieszkowski's "new view" (capital tax view): the general-equilibrium view described above — average burden on capital owners nationally (profits tax), local differentials as excise effects, land borne by landowners. Zodrow shows the traditional view can be recovered as a special case of the capital-tax view under different assumptions about capital mobility.
• The benefit view, associated with Bruce Hamilton's 1975–76 work on Tiebout sorting and zoning (see Hamilton's benefit-tax view), holds that where local governments can zone effectively, the property tax on housing functions not as a distorting tax at all but as a price for local public services — a benefit tax, capitalized so that residents pay for what they get. This is a substantially different, and in some tension with, Mieszkowski's capital-tax result: under the benefit view there is little or no burden to trace back to capital owners because the "tax" is really a fee, whereas Mieszkowski's model treats it as a genuine tax with a genuine general-equilibrium incidence. The two views are best read as describing different margins — Hamilton's benefit view emphasizes intra-jurisdictional sorting into communities of similar housing demand, while Mieszkowski's new view emphasizes inter-jurisdictional and inter-sectoral capital reallocation — and later work (including Zodrow's synthesis) has argued they can be partially reconciled rather than treated as flatly incompatible.

For the Georgist case specifically, all three views agree on one point that matters most here: none of them offers a mechanism by which a tax on land value alone could be shifted onto tenants. The three views disagree about the capital and consumption components of the ordinary property tax, not about the land component's incidence.

Nuances and Limits

• Fixed national capital stock is a modeling assumption, not an empirical claim about capital supply. The new view's "profits tax" result depends on treating the aggregate capital stock as fixed at the national level even though it is freely reallocable within the country. In an open economy where capital can also flow across national borders, or over a long enough horizon in which national saving and investment respond to after-tax returns, this assumption is more questionable — a concern raised in later applications of the framework to small, open, or developing economies, where full capital mobility and inelastic land supply are less reliably satisfied.
• A theoretical general-equilibrium result, not a direct empirical test. Like Harberger's original corporate-tax model, Mieszkowski's result is a comparative-statics prediction from a calibrated theoretical model rather than a finding estimated from data. Testing the "new view" empirically — separating profits-tax and excise-tax effects, and isolating the land component specifically — has occupied a large subsequent literature (including Mieszkowski's own later work with George Zodrow) without full empirical resolution of magnitudes.
• The land/capital decomposition is cleaner in theory than in available data. The paper's clean result for land depends on land being genuinely fixed in supply and separable from the value of structures built on it; in practice, assessed property values in most jurisdictions (then and now) bundle land and improvements together, so the paper's sharpest prediction (full incidence on landowners) is harder to test directly against a real, mixed property tax than against a hypothetical pure land value tax.
• Does not address second-best or transition questions. The model is a static comparison of equilibria under different property tax patterns; it says nothing about the one-time transition effects of introducing a land tax where none existed before, nor about assessment or administrative issues in implementing one.

Bears On

• Outcome: Landlords cannot pass a land value tax on to tenants — the paper's land-component result (fixed, immobile supply implies full incidence on the owner) is the general-equilibrium theoretical foundation for this claim, extended here from an ordinary property tax to the pure-land case.
• Concept: Tax Capitalization — Mieszkowski's mechanism for why the land portion of a property tax cannot be shifted is precisely tax capitalization into a lower land price.
• Concept: Deadweight Loss — the paper's contrast between a distortionary capital-tax component (excise effects, capital reallocation) and a non-distortionary land component is an early general-equilibrium statement of why a land tax alone would carry no efficiency cost.
• Research: Hamilton's benefit-tax view — the paper this one is most productively read against; both concern property-tax incidence but locate the burden differently (capital owners vs. local service consumers).
• Research: Oates (1969), property tax capitalization — an earlier empirical companion showing property-tax capitalization into house values in practice, though for the mixed land-plus-structure tax rather than Mieszkowski's theoretical decomposition.

See Also

• Peter Mieszkowski
• Landlords cannot pass a land value tax on to tenants
• Tax Capitalization
• Deadweight Loss
• Hamilton's benefit-tax view
• Oates (1969), property tax capitalization
• Economic Rent

Sources

1. Peter Mieszkowski (1972), "The Property Tax: An Excise Tax or a Profits Tax?", Journal of Public Economics 1(1): 73–96. DOI: 10.1016/0047-2727(72)90020-5 (paywalled via ScienceDirect/Elsevier) — used for the paper's title, venue, page range, and its core theoretical argument (the profits-tax/excise-tax decomposition and land-borne-by-landowners result), corroborated across multiple secondary academic summaries since this session's sandboxed web access could not directly fetch the full text. An apparent free full-text mirror was located at gabriel-zucman.eu (course teaching materials) but returned a network error in this session; a future editor with open web access should verify direct quotations and page-level detail against it or the ScienceDirect original.
2. George R. Zodrow (2001), "The Property Tax as a Capital Tax: A Room With Three Views," National Tax Journal 54(1): 139–156. IDEAS/RePEc record — used for the three-way taxonomy (traditional/new/benefit views) and the framing of how Mieszkowski's capital-tax view relates to the traditional and benefit views.
3. Bruce W. Hamilton (1975), "Zoning and Property Taxation in a System of Local Governments," Urban Studies 12(2): 205–211. DOI: 10.1080/00420987520080301 — used for the benefit-view contrast described in "Distinguishing the Three Views" (see also Hamilton's benefit-tax view for the fuller treatment).
4. Wallace E. Oates (1969), "The Effects of Property Taxes and Local Public Spending on Property Values," Journal of Political Economy 77(6): 957–971 — wiki summary — used for the empirical-capitalization companion note in "Bears On."
5. Rice University / Baker Institute, obituary and faculty profile of Peter Mieszkowski (1936–2024) — used for biographical details (Queen's University affiliation at time of writing, later Rice professorship, 2009 Daniel M. Holland Medal). Rice News · Rice faculty profile.

[CITATION NEEDED: a directly fetched copy of the primary text of Mieszkowski (1972) — this session's sandboxed web access returned 403/connection-blocked errors for sciencedirect.com, doi.org, gabriel-zucman.eu, and other candidate mirrors, so exact equation-level detail, page-specific claims, and any direct quotations could not be verified first-hand. The theoretical content above (the average/differential decomposition, the land result, and the critique of the traditional view) is corroborated by multiple independent, agreeing secondary academic sources (Zodrow 2001; IMF and Lincoln Institute summaries of the incidence literature) but a future editor with open web access should verify page numbers and add direct quotations against the primary text.]