The land value tax is getting attention these days, mostly as a way to spur redevelopment. New York City Mayor Bill de Blasio has promised to raise taxes on vacant parcels in outer boroughs. Legacy Cities are similarly interested in the theory that taxing land based on its value would prompt owners to improve the properties to start making a return. In recent years, Camden, New Jersey investigated implementation of a land value tax, and so did New London, Connecticut, where other redevelopment efforts led to the Supreme Court’s landmark Kelo decision.
New London never moved forward on the idea, but recently Connecticut lawmakers passed legislation allowing municipalities to apply to participate in a pilot program in land value taxation. Earlier this week, the Lincoln Institute held a special workshop in Hartford for elected officials, assessors and other tax officials to gain more understanding of how the tax might work. The event was moderated by Tom Condon, deputy editorial director and columnist at The Hartford Courant.
Land value taxation, often introduced in the U.S. as a split rate property tax, is a separate tax on land as distinct from buildings, with the market value of land affected by factors such as location and size. Buildings generally compose the greater part of the base of a standard property tax. A number of communities in Pennsylvania have adopted or experimented with LVT, notably Pittsburgh, as well as several nations outside the US including South Africa, Australia, New Zealand, Jamaica, and France. “We’re not sailing in unchartered waters here,” said Richard England, a visiting fellow at the Lincoln Institute and co-author with Richard Dye of Assessing the Theory and Practice of Land Value Taxation, published in 2010.
Robert Schwab, economic professor at the University of Maryland, began with a big-picture introduction, considering the fundamental questions of whether a tax is simple, fair, and efficient – the best taxes, in the view of economists, being those that minimize distortions, or change behavior in undesirable ways. A classic example is England’s window tax; when assessment was based on the number of windows in a building, property owners simply built fewer windows or even covered existing windows, with disastrous effects for health, safety, and aesthetics.
The least bad tax is the property tax on the unimproved value of land, said Milton Friedman, and the political economist Henry George believed that if land was taxed anywhere near its rental value, no owner could afford to hold land and not use it. But as noted by John Anderson, professor at the University of Nebraska, the link between LVT and the decision to develop is not totally clear.
Adoption of an LVT presents two challenges: getting the assessment of land right, which requires keeping track of the sale of vacant lots, using computer assisted mass appraisal and GIS, and sophisticated sales data analysis; and minimizing abrupt shifts in the tax burden. Golf courses and car dealerships have objected to the land value tax, often through classic political lobbying, noted David Brunori from George Washington University and contributing editor at State Tax Notes. But otherwise landowners in the best locations – a mantra of real estate – will pay more, and in that sense the LVT is progressive.
But the history of the land value tax in the US has been checkered. In Pennsylvania, some 20 cities implemented a split rate tax beginning in 1913. Seven of those communities revoked it, including Pittsburgh, according to Zhou Yang from Robert Morris University. Municipalities seeking to participate in the Connecticut program must put together a committee and do a study before proceeding; Jeff Cohen from the University of Hartford, looking at two potential candidates, New London and New Haven, advised a phased-in approach, starting with a split rate tax, potentially even targeted to just one neighborhood at the start. So far, no community has formally applied to be part of the pilot program.