Land Value Taxation

I recently posted this on my Mississippi blog, Gulf South Free Press, as a possible answer to the shortfall in tax revenues.  It would also be something to consider for the nation.  The news in at least 43 states is dire, they are scrambling for funds for projects, to the point of asking the Feds to get involved.  LVT would save the states and their programs.

LVT?  What is that, Professor?  I am glad you asked.

In the strict public policy application, Land Value Taxation (also known as split-rate real property taxation, and two-tiered real property taxation) is a type of real property taxation.  Whereas the typical real property tax taxes both land and the improvements on the land at the same rate, land value taxation taxes land at a higher rate while simultaneously reducing, or even eliminating, the tax on improvements.

The major points of a LVT:

•           A shift to LVT, even when structured in a revenue-neutral manner, usually results in net tax reductions for the vast majority of residents.

•           The problem of inaccurate or radically higher assessments is reduced because of the reduction in reliance on the building portion of the property tax.

•           The damage that taxes like sales and income taxes do to working families and local commerce can be lessened.

•           By reducing or eliminating the tax on improvements, there is a greater incentive to build, to build with higher quality materials, to maintain, to avoid blight, and to redevelop economically depressed areas.

•           Cities are almost always on the “short end of the stick” when economic development dollars are handed out.  This program helps achieve the same goals with no public investment.

•           When cities DO get permission to give out tax abatements, they lead to a revenue loss to the community with no assured payoff later.  LVT is purely revenue neutral to the city.  There is no tax shifting to citizens and property owners who have already done their bit.

•           A tax on land also has the advantage of being a “value capture tax.”  A new public works project may make adjacent land go up considerably in value, and thus, with a tax on land values, the tax on adjacent land goes up.  Thus, the new public improvements would be paid for by those most benefited by the new public improvements — i.e., those whose land value went up most.

•           A tax on land has been shown to result in better land use patterns and more in-fill development.  This has the benefit of reducing sprawl.

•           Several Nobel Prize winners in economics have stated their approval of government revenue being raised from taxes on land.

•           Support for LVT cuts across political lines.  Free-market economists like how it reduces distortions in economic decision-making.  Environmentalists like how it reduces sprawl and helps fund public transportation.  Developers appreciate how it makes new homes more affordable for their customers.  Citizens like the reduction in taxes.

Ad valorem taxes are increasing nationally.  The assessments were made when the market value of real estate was hugh and now that it has lost almost 40% of its value, people will be paying a higher rate until the next assessment.

These days of uncertain times, it is a new thinking that is needed….and LVT is that new thinking.

I would like to thank Henry George and urbantools.org for the ideas in this post.  For years I have advocated the LVT and now it seems that it is time for action, not begging.

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