Ten Ways to Implement Land Value Taxation

Steven Cord

[Reprinted from a Land-Theory discussion posting, 9 January, 2006]

Many empirical studies show that land value taxation produces tremendous benefits, but for political reasons it must be introduced gradually to avoid opposition from those few property-owners who would get a sudden increase in their property-tax bill (existing arrangements should always be changed slowly to avoid economic disruption).

Advocates who don't know how to implement a land value tax leave the impression that it can't be done, that it's just a pipe dream. But here are 10 ways to do it:

1) Reduce the current local tax rate on building assessments, usually by no more than 20% in the first year, and replace the lost governmental revenue by increasing the tax rate on land assessments, using this formula: PLTR = CLTR + Rev/LA, where PLTR = proposed land tax rate, CLTR = current land tax rate, Rev = the revenue lost by not taxing buildings so much, LA = land assessments in the whole taxing jurisdiction. This is the approach used to induce 22 jurisdictions in Pennsylvania to adopt a building-to-land property tax shift - always with good economic results.

2) Exempt the first $50,000 (or some amount) of every building assessment from the local property tax. Increase the exemption gradually in later years. The same effect can be obtained by exempting a percentage of the building assessments.

3) Exempt the first $1,000 (or so) of the property tax on building assessments, more in later years (or exempt a percentage of the building assessments).

4) Assess buildings at a lower percentage to market value than land assessments.

5) Pay the expenses of a popular public venture (like a park, playground, highway, homestead credit, anti-poverty bonus, deficit reduction, elderly property-tax recompense, federal tax liability, etc.) with a surtax on land assessments. Or set a separate property tax only on land, apart from the current benighted land-plus-building property tax.

6) The state could pay a locality for the revenue it will lose if it reduces its property-tax rate on building assessments. Currently, many states are paying localities to reduce property taxes on both land and building assessments (the so-called "circuit-breaker" approach) but the reduction should be only on building assessments.

7) No homeowner should pay more than 3% plus the inflation rate over what was paid in the previous year (5% for commercial property owners) as a result of a rate increase (but not assessment increase).

8) Elderly homeowners, also the poor and the temporarily unemployed, should be allowed to postpone their property-tax payments (or property-tax increases due to the land-tax shift) until the time of sale or bequeathal.

9) Gradually replace taxes other than the property tax on buildings with a property tax on land assessments. This would give most voters tax reductions.

10) All public entities - federal, state, county, school, etc., not just cities - can and should reduce taxes on buildings and other produced things with a higher tax on land assessments. For instance, wouldn't most voters get a tax break if a federal land tax replaced their payroll tax (or even part of it)?