Assessing the Theory and Practice of Land Value Taxation
Total Page：16
File Type：pdf, Size：1020Kb
Policy Focus Report • Lincoln Institute of Land Policy Assessing the Theory and Practice of Land Value Taxation richard F. d y e a n d r i c h a r d W. e n g l a n d Assessing the Theory and Practice of Land Value Taxation Richard F. Dye and Richard W. England Policy Focus Report Series The policy focus report series is published by the Lincoln Institute of Land Policy to address timely public policy issues relating to land use, land markets, and property taxation. Each report is designed to bridge the gap between theory and practice by combining research findings, case studies, and contributions from scholars in a variety of academic disciplines, and from profes- sional practitioners, local officials, and citizens in diverse communities. About this Report The Lincoln Institute has long been interested in the writings of Henry George, who advocated land value taxation in his book, Progress and Poverty (1879). The Institute has sponsored numer- ous studies of land value taxation and related topics, and in 2009 published the book-length analysis, Land Value Taxation: Theory, Evidence, and Practice. Richard F. Dye and Richard W. England, the editors of that volume, summarize its research findings in this report and present recommendations for local policy makers considering alternative property tax measures. Dedication This analysis of land value taxation is dedicated to the memory of C. Lowell Harriss (1912– 2009), professor of economics emeritus at Columbia University, and a long-time proponent of policies that would support land taxation approaches. He was an associate of the Lincoln Institute of Land Policy from its earliest days as an educational institution, and he served on its board of directors for many years. His scholarship and dedication to research on public finance had a profound influence on the authors, and many, many others. Copyright © 2010 by Lincoln Institute of Land Policy. All rights reserved. 113 Brattle Street Cambridge, MA 02138-3400, USA Phone: 617-661-3016 x127 or 800-526-3873 Fax: 617-661-7235 or 800-526-3944 Email: [email protected] Web: www.lincolninst.edu ISBN 978-1-55844-204-7 Policy Focus Report/Code PF025 D Y E a n D E n g l a n D ● Assessing the t h e o r y A n d P r A c t i c e o f L A n d Val u e Ta x At i o n 1 . Contents 2 Executive Summary 4 Chapter 1: Property Tax Reform: The Good, the Bad, and the Ugly 7 Chapter 2: The Case for Land Value Taxation 7 Efficiency Advantages 8 Burden on Landowners 8 Speculation and the Timing of Development 11 Sprawl and the Density of Development 11 Revenue Adequacy 12 Summary 13 Chapter 3: U.S. and International Experiences 13 U.S. Experiences 16 International Experiences 16 Summary 17 Chapter 4: Evaluating the Evidence on Land Value Taxation 17 Statistical Comparisons 19 Types of Models and Studies 22 Summary 23 Chapter 5: Legal and Assessment Challenges 23 State Constitutional Issues 24 Assessment and Administrative Concerns 25 Summary 26 Chapter 6: The Politics of Adopting Land Value Taxation 26 Current Views and Practices 27 Lessons from Past Experience 28 Tax Reform Winners and Losers 29 Summary 30 Chapter 7: Conclusions and Recommendations 32 References 33 About the Authors, Acknowledgments, and About the Lincoln Institute of Land Policy D Y E a n D E n g l a n D ● Assessing the t h e o r y A n d P r A c t i c e o f L A n d Val u e Ta x At i o n 1 . Executive Summary Bucks County, he land value tax is a variant of the without distorting the incentives for owners Pennsylvania property tax that imposes a higher to invest in and make use of their land. By tax rate on land than on improve- contrast, the part of the property tax that ments, or taxes only the land value. falls on structures or other improvements TMany other types of changes in property tax discourages investment. The burden of policy, such as assessment freezes or limita- the tax on land falls entirely on landowners, tions, have undesirable side effects, including who have no opportunity to shift the tax unequal treatment of similarly situated tax- to others (such as renters). The land value payers and distortion of economic incentives. tax is neutral with respect to the choice of Land value taxation would enhance both the when to develop a parcel and the density fairness and the efficiency of the property tax. of its development, whereas the taxation Raising the tax rate on land has few un- of improvements is likely to increase low- desirable effects, while lowering the rate on density sprawl. improvements has many benefits. Land is More than 30 countries around the world effectively in fixed supply, so an increase in have implemented land value taxation, so it the tax rate on land value will raise revenue is not a utopian proposal. In the United States, 2 P o L icy focus re P o r t ● l i n c o l n i n s t i t u t E o f l a n D P o l i c Y D Y E a n D E n g l a n D ● Assessing the t h e o r y A n d P r A c t i c e o f L A n d Val u e Ta x At i o n 3 . experience with land value taxation dates back A land value tax also raises administra- to 1913, when the Pennsylvania legislature tive issues. The land and improvements of permitted Pittsburgh and Scranton to tax each parcel need to be assigned a taxable land values at a higher rate than building value in a timely and accurate fashion. The values. A 1951 statute gave smaller Pennsyl- good news is that administrative policy and vania cities the same option to enact a two- professional standards already require most rate property tax. While most municipal tax assessors to report separate values for governments in the state have not adopted land and improvements. The cautionary two-rate taxation, and a few have tried and news is that this information is not always then rescinded it, about 15 communities accurate. A successful two-rate property tax currently use this type of tax program. system would require regular assessments The State of Hawaii also has experience of land and improvements. with two-rate taxation, and in recent years Land value taxation is an attractive alter- the Commonwealth of Virginia and State native to the traditional property tax, especially of Connecticut have authorized a few mu- to much more problematic types of property nicipalities to choose a two-rate property tax measures such as assessment limitations. tax, though none of those communities This report recommends consideration of has yet adopted it. the following features as part of a tax reform There is strong theoretical support for package: land value taxation, in particular for reducing • measures to guarantee best practices the tax on real estate improvements, and real- by local assessing officials and frequent world experience offers evidence that has been reassessment of taxable properties; used to test the economic theory supporting • phase-in of dual tax rates over several the land value tax. A number of studies have years to reduce the immediate negative attempted to draw statistical comparisons impact on some property owners; and between jurisdictions with and without land • inclusion of a tax credit feature to reduce value taxation, or before and after the adop- the burden on land-rich but income-poor tion of a land tax, although the results are citizens. generally inconclusive. Legal and assessment challenges to land value taxation also exist, but they are not insurmountable. Since property taxation in the United States is administered by local governments as permitted by the laws of each state, implementation of land value taxation in most states would require new statutory authority, and in some cases a constitutional amendment. 2 P o L icy focus re P o r t ● l i n c o l n i n s t i t u t E o f l a n D P o l i c Y D Y E a n D E n g l a n D ● Assessing the t h e o r y A n d P r A c t i c e o f L A n d Val u e Ta x At i o n 3 . C h a p t e r 1 Property Tax Reform: The Good, the Bad, and the Ugly Real estate value axation of real estate is almost as other vital services, the property tax has also is based on both old as civilization itself. Property become a lightning rod in American politics. the property’s taxes were levied and collected in The traditional property tax is controversial location (land) and structures. Egypt, Babylonia, China, and other because it is widely perceived to be unfair Tparts of the ancient world to finance construc- and regressive. Although evidence to support tion of palaces and temples and to maintain this claim that lower-income taxpayers bear imperial armies. In today’s world, the prop- the brunt of the property tax is weak at best erty tax continues to play an important role (Kenyon 2007), the widespread perception in many nations. In the United States, for of regressivity has ignited taxpayer revolts example, local governments raised nearly and fueled efforts to reform or even abolish 72 percent of their tax receipts via property the property tax.