|Pittsburgh has been taxing land and improvements at a different rate since 1913|
The property taxes currently in use usually assess the value of land and improvements made to the land, or the entire market value of the property. A landowner sitting on a vacant lot is taxed less than one who has put the property to a productive use by building on it. This tax structure ends up not only dampening human productivity in general, but also discouraging landowners from making the highest use of their property. In contrast, The idea of land value taxation is to tax the value of only the land itself. Holding costs would be higher the closer a parcel is to the center of a city, leading to increased pressure for infill development.
James Howard Kunstler makes the connection between tax structure and urban development: “our system of property taxes may be the single most insidious, pathological factor contributing to the geography of nowhere … site-value taxation would encourage more compact town and city development, and would take the development pressure (demand) off property in the hinterlands.”
And this is why I'm bringing it up here.
Land value taxation makes a certain philosophical sense as well. The modern notion of property rights springs from John Locke, who based his understanding of property on the labor the owner "mixes with the land." If you're a farmer, you want to know that you will be able to reap a harvest in the fall from the seeds you plant into the land in the spring. Otherwise, you might not plant at all. However useful the labor theory of property is, there has been a big gaping hole in the logic that Eric Freyfogle, among many others, has clearly pointed out. Often the value of land is socially created. The same farmer can sit on the field doing nothing, and because of the actions of the community around him, he can sell the field after a period of time at great profit. Lockes' labor theory doesn't have a good explanation for land speculation. A land value tax would attempt to capture for public use the socially created value of land, while allowing the owner to be the sole beneficiary of any work that has been added to the land. This strikes me as fair.
Is this yet another noble yet quixotic quest, like eliminating the Electoral College or granting D.C. voting rights? After all, the current system is pretty financially entrenched and any change will result in winners and losers. Even in the face of this, I think land value taxation may have a shot for two reasons: it may be locally implemented and a transition can be phased incrementally. Perhaps certain cities or counties can devise a 10-year transitional period, with the the tax burden shifting a little away from improvements and toward land each year. The clear and advanced notice will help investors adjust themselves in preparation for the change.