For immediate release
Contact: Anthony Flint 617-503-2116
CAMBRIDGE, Mass. (February 2, 2010) – The highly unpopular property tax – which has been subject to assessment limits, rollbacks, and even elimination across the U.S. – could improve in both reputation and practice with key policy and administrative reforms, says a new book published by the Lincoln Institute of Land Policy.
Challenging the Conventional Wisdom on the Property Tax, edited by Roy Bahl, Jorge Martinez-Vazquez, and Joan Youngman (2010 / 384 pages / Paper / $30.00), suggests ways to achieve greater voter confidence and more robust property tax systems in both developed and developing countries.
The future role of the property tax in government finance systems around the world is unclear. Academics, particularly economists, are long-time fans, and commonly view the tax as an appropriate and feasible source of local revenue. But it remains unpopular among voters and politicians. Beyond the U.S. and a few other industrial countries, property tax collections are a low share of tax revenue in many OECD countries and a weak revenue source in most developing countries.
Challenging the Conventional Wisdom on the Property Tax is based on a 2008 conference, “What Role for the Property Tax?” that compared theories with practice. Participants at the gathering, which followed the 2006 conference, “Making the Property Tax Work in Developing and Transitional Countries,” looked at how the property tax compares with other taxes in terms of efficiency; the political economy of property taxation and land taxation; and behavioral responses to the property tax in terms of location choice or land use.
Other key topics include tax bases, fairness of a market-value tax base, taxing property transactions versus ownership, taxing rental versus capital value, the optimal revaluation policy, and the assignments of revenues and functions for property taxes. The book addresses the reason for the poor state of affairs in practice, and probes several perspectives, including:
-- Is it just too expensive to keep property values up to date? Many problems are rooted in a failure to keep values current. Contributor Alan Dornfest (Chapter 4) argues that the costs of reappraisal are especially high if assessed values are out of date, but the answer is to not let re-appraisals fall behind in the first place. He find the average assessment cost in the U.S. is a surprisingly low $20 per parcel— roughly 2 percent of revenue collections.
-- Does it achieve fairness to treat taxpayers equally? Steven Sheffrin (Chapter 8) finds the link between current income and property wealth is not tight, largely because of a significant number of low- income house holds with considerable property wealth, and examines the notion of “horizontal equity,” or imposing equal taxes on those similarly situated.
-- Is the property tax “visible”? Michael Pagano and Benoy Jacob (Chapter 9) point out that because several local governments and special districts may be taxing the same property tax base, the taxpayer may not see the link between the tax paid and the service benefits received. The failure to recognize this relationship fuels discontent with the property tax.
-- How does the tax compare to its alternatives? Athiphat Muthitacharoen and George Zodrow (Chapter 2) question the efficiency costs of other local government taxes, look at comparisons between the property tax and state sales taxes, and find that the property tax is much less the villain than it has been painted by state legislators in recent years.
-- Taxes and behavior. Generally, taxes that change behavior impose a cost on society in terms of reduced efficiency. John Deskins and William Fox (Chapter 3) assess the behavioral effects of the property tax on economic decisions, and find that some may useful to engineer desired impacts -- such as reducing sprawl.
-- The biggest question: what about substitutes for the property tax? Terri Sexton (Chapter 7) is critical of the use of a transfer tax (a tax imposed when the property is sold) as a substitution. It avoids the problem of annual taxes on owners who might not have a cash flow from their property, but she cites increased volatility and the risk of under-reporting sales prices. Other alternatives include a comprehensive wealth tax that would include property, gift, inheritance, and perhaps capital gains taxes.
On the subject of the property tax in developing countries, Roy Bahl and Sally Wallace (Chapter 6) call for a single, comprehensive tax on land and structures, unifying the annual property tax on urban and rural property, replacing the property transfer tax with a tax on capital gains, making use of betterment levies or special assessments, and using agricultural land values to establish a presumptive tax on agricultural income. This family of taxes would be brought under a single administration at the local level and would feature local rate-setting autonomy. They estimate that a tax levied at a rate of about 1 percent of land wealth could generate annual revenues equivalent to about 3 percent of GDP.
Jorge Martinez-Vazquez, Luc Noiset, and Mark Rider (Chapter 10) also argue for a simplified approach in developing countries, but call for a more gradual transition that maintains administration and enforcement at the central (or state government) level until administrative capacity is better developed at the local government level.
About the Editors
Roy Bahl is Regents Professor of Economics and Founding Dean of the Andrew Young School of Policy Studies at Georgia State University in Atlanta.
Jorge Martinez-Vazquez is professor of economics and director of the International Studies Program at the Andrew Young School of Policy Studies at Georgia State University.
Joan Youngman is senior fellow and chair of the Department of Valuation and Taxation at the Lincoln Institute of Land Policy.
Bahl, Martinez-Vazquez, and Youngman also edited the previous conference book Making the Property Tax Work: Experiences in Developing and Transitional Countries (Lincoln Institute of Land Policy 2008; ISBN 978-1-55844-173-6). The Lincoln Institute is a leading resource for key issues concerning the use, regulation, and taxation of land. Providing high-quality education and research, the Institute strives to improve public dialogue and decisions about land policy.
Challenging the Conventional Wisdom on the Property Tax
Edited by Roy Bahl, Jorge Martinez-Vazquez, and Joan Youngman
2010 / 384 pages / Paper / $30.00
ISBN: 978-1-55844-200-9
Media: for review copies, contact Anthony Flint at anthony.flint@lincolninst.edu.
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