Comments on a Study of the Taxation
of Land Values in Pennsylvania
Mason Gaffney and Dan Sullivan
[Reprinted from the Land-Theory online
discussion group, 1999]
I note the following:
The authors are thoroughly right to stress the importance of
assessment practices. These may be as important as, or even more
important than formal legislation. However, the pages spent on the
Bentick-Mills quibble might then better be spent on the more
important general question, how does the assessor divide land from
building value? There are two basic concepts: the building-residual
method, and the land-residual method. The authors are silent on this
matter. LVT clearly presupposes use of the building-residual method.
You value the land as though clear, and allot whatever remains to
the existing building. Cf. #24, below.
While assessment practices are important, and while they are bad
in Pennsylvania, there was no significant change in assessment
practices that coincide with Pittsburgh's construction increases so
as to form an explanation for those increases. If the purpose of the
paper is to examine possible causes of construction other than the
land value tax, discussion of assessment practices is wholly
The authors are wrong to attribute all the effects of LVT to the
abatement of other taxes. They dismiss liquidity effects by citing a
1990 study of Steven Bourassa, p.8. That is hardly enough to
overcome the presumption created by the galloping spread of
preferential assessment of farmland around growing cities; of
timberland; and of golf courses (in California). The entire
rationale behind preferential assessment, from its inception in
Maryland in 1957 under Gov. McKeldin (spearheaded by Assemblyman
Spiro Agnew), is the universal perception that higher land
assessments induce conversion of land to higher uses (coupled with a
value judgement that this is bad).
Also, no such preferential assessments existed Pittsburgh, and
they are so rare in the municipalities contiguous with Pittsburgh as
to be inconsequential. There are a variety of abatements on new
construction, but these exist elsewhere, without comparable results.
P.13, shouldn't the reader be advised that the Penna. Economy
League is a political organization with constituents and an agenda;
and Mayor Caliguiri led the political opposition to the graded tax
plan? The authors seem to treat it as though it were a disinterested
research organization, and the political Mayor as though he were of
an uninvolved, judicial mindset.
On paper, the PEL is a disinterested research organization, and
they have in fact built up considerable stature in that regard.
However, the PEL study of land value tax was an orchestrated hatchet
job. One of the textbooks for my college statistics course was *How
to Lie with Statistics.* It showed 23 ways to manipulate the truth
through statistical misrepresentation. The PEL study used 21 of
them. The other two involved using graphs, and the PEL contained
only one graph, which was drawn honestly. If not for that graph, the
PEL study might have acheived pure intellectual dishonesty.
Some explanation is needed of why the comparison cities were
chosen. Is the word "sample" chosen advisedly? Proximity
and size seem to be the criteria used. Only two other Penna.
[control] cities are included, Erie and Allentown, and they are much
smaller. I should think Philadelphia would make an obvious pairing
with Pittsburgh, because both are subject to the same State laws and
Philadelphia is a much larger city, and is covered under a
different municipal classification, with a different tax code. Most
notably, Philadephia has a commuter wage tax, which is as
economically destructive as it is politically addictive. The wage
tax in Philadelphia is now almost 5% on residents and almost 4% on
Cleveland and Buffalo are actually more comparable socially and
economically, as they are about the same size, and are both rust
belt cities, plagued by industrial shutdowns. Cleveland, like
Pittsburgh, has an unusually high number of major corporate
headquarters for a city of its size.
The impetus was much stronger for nonresidential. This is not
exactly what one would expect a priori; some explanation would be
welcome. Two explanations seem worth exploring. 1) Land in the City
of Pittsburgh is mostly well suited to non-residential use, so there
was some tendency to convert land from residential to
non-residential use. 2) Perhaps apartments and hotel-apartments were
classed as commercial uses? This is often done, and can confuse
one's results if one fails to pick it up.
The explanation around here is that Pittsburgh has long had a
declining population. There is no need to build residential housing
when mere maintenance of existing housing would suffice.
Also, the increases in land value tax largely coincided with
increases in wage taxes from 1% in 1979 to 4% by 1985. In 1988, the
Masloff administration commissioned the University of Pittsburgh to
find out why people were leaving the city at the alarming rate of 4%
per year. Pitt researchers interviewed people who had left and found
that the number one reason given by these expatriots was the city's
higher wage tax. (The prevailing suburban rate is still 1%.) That
year, the city cut the wage tax by 1/2%, and the following year cut
another 5/8%, making up the difference mostly with land value tax.
The population quickly stabilized.
P.20, 3rd-last line, suggests perhaps the housing performance
would look better if compared with the national trend. Why not do
so, rather than leave this hanging? It need not be terribly formal -
just a few apposite data would do.
I suspect that the national trend is a tougher comparison than
metropolitan, state or regional trends. Things have been slow in
Pennsylvania generally since the mill shutdowns of the late 70's,
while the Southwest boomed. I think the best comparisons are between
Pennsylvania cities that switch to land value tax and Pennsylvania
cities that do not. If we cannot compare Pittsburgh to Philadelphia,
we can certainly compare Scranton to Wilkes-Barre, Duquesne to
Clairton, Aliquippa to Ambridge, etc.
P.22, the writers may be reaching too far in their interpretation
of the Penna. Economy League findings. The League questionnaire
apparently asked people if "the shift to heavier land taxation"
(and, I presume, lower taxes on new buildings) had an effect. The
writers reinterpret that to mean that the respondents meant that LVT
by itself had no effect, in a sense that would be used mainly by
fiscal theorists, not the respondents in question. It is cute to
turn the League against itself, but I am not persuaded. However, I
have not seen the survey.
Nor will you see it, as it was oral. I followed up on this by
asking the PEL interviewers and some of the interviewees what was
actually said. Even the list of the interviewees was not given, and
I had to persist in asking pointed questions to find out who was
interviewed. Many of the interviewees were real estate executives
who had already testified against the land value tax and who had a
vested interest in opposing it. Even those who might have been
objective were not given objective
Questions. The central question was commonly put in the form of
this false dichotomy: "Do you think land value tax caused the
construction boom or were there other causes?" Well of course
there are other causes. One of the interviewees, professor Donald
Stone, head of the School of Urban and Public Affairs at
Carnegie-Mellon University, saw through the dichotomy and proceeded
to talk about the beneficial effects of land value tax when the
interviewer changed the subject to assessment questions. Stone
commented afterward that he found it hard to believe that the
interview of him was related to the resultant study.
P.23, bottom, "some of the more extravagant claims that
land-tax proponents have made ... " Cite some, or drop this.
Every movement produces its windmill orators. Extravagant claims are
not peculiar to land-tax proponents, and it is unfair to imply so by
innuendo. Remember Arthur Laffer, Jr.? Howard Jarvis? Hall and
Rabushka? Listen today to Richard Armey, Charls Walker, Rush
Limbaugh, Paul Craig Roberts, Margo Thorning, or Newt Gingrich.
Indeed, wild, incredible claims about the benefits to flow from
untaxing capital gains have nearly gone mainstream.
I note only conservative windmills blowing here. What ever
happened to Lester Thurow, Ted Kennedy etc.? (Just tugging at Mase's
P.24. Cf. #3, above. They conclude LVT is "neutral," and
therefore good. As a cautious rhetorical device, given the values
dominating the profession in 1995, this may be the strongest
conclusion they are wise to make.
Except that it does not correlate with the facts. Land value tax
rates were increased in response to lost revenue from mill
shutdowns, outmigration, etc. It was not accompanied by reductions
in other taxes nor by increased public services. Were it neutral, it
would have been expected to produce no effect whatever. Some of the
the other Pennsylvania cities did reduce building taxes as they
raised land taxes, but others merely responded to a disappearing tax
base the way Pittsburgh did. Both categories of cities enjoyed
construction increases, according to data gathered by Cord and
Vincent of the Center for the Study of Economics, and by the Oates
and Schwab data as well.
Anyone who thinks the land value tax is neutral in its effects
only need watch the apoplectic land speculators fume at city council
when the tax is proposed, for the direct effect is not so much to
induce developers to come to Pittsburgh, but to induce the
speculators to offer better deals.
One year, the head of the Building Owners and Managers Association
argued that taxation is a minor factor in attracting major
development. Thinking that he was making his case, he noted that
(prior to the land value tax hikes) Rockwell International had
wanted to locate their corporate headquarters in Pittsburgh's Golden
Triangle (CBD), but could not find an available location. Well, that
is precisely the problem that the land value tax addresses; builders
of major buildings have had much less trouble finding cooperative
landowners since the land value tax increases.