Local Property Tax,
By Taxing Improvements Too Heavily
And Land Too Lightly, Feeds Inflation

Henry S. Reuss

[A Release from the Office of Henry S. Reuss, 11 January, 1979,
when he served in the U.S. House of Representatives]

Chairman Henry S. Reuss of the House Committee on Banking, Finance and Urban Affairs says he has support for his thesis that inflation is made worse by the way the local property tax now operates -- taxing land too little and improvements too much. Alfred E. Kahn, Chairman of the Council on Wage and Price Stability, in a letter to the Milwaukee Democrat released today, says:

"I have long held the conviction that it makes absolutely no sense to tax unimproved land in the same way as improved land -- that the rental value of the former is, as Henry George observed a long time ago, a genuinely unearned increment, and that taxing it heavily, while reducing correspondingly the taxes on real capital formation, makes excellent sense on grounds both of equity and economics."

"The lion's share of property taxes falls on the improvements placed on the land -- houses, apartments, shops, factories, and office buildings," Reuss said. "In contrast, vacant and underused sites are taxed so low they have become prized tax shelters for which buyers keep bidding up prices. Sky high land prices, in turn, boost the cost of food and housing, two of the prime factors in the current inflationary spiral."

"Kahn is on the right tract," Reuss continued. "Land hoarding needs to be diverted into construction of residential, commercial and industrial Improvements. Getting the economy into high gear will boost productivity increase employment, and expand real wages -- and those are the things that fight inflation in the long run.

To alert the public to the dangers of land price inflation, Reuss recently urged Secretary Ray Marshall to establish a national land price index.

Kahn emphasised in his letter to Reuss that he does not speak for the Administration on tax matters.

"It seems extremely dubious that we can hold wages to increases of 7 percent a year or commodity prices to 5.5 percent unless we hold down land prices that have been dwarfing wage and commodity inflation," Reuss said. "Ways must be found to curb the tendency to invest more and more in land, a passive activity that adds not a single acre to the nation's real wealth. Instead, we must encourage Investment in job-creating plant and equipment."

Reuss said such agencies as the Agricultural Department, Department of Housing and Urban Development, and Interior Department keep track of selected land price data. But the government has never compiled a comprehensive index that would highlight how land prices are escalating, leading to possible changes in taxes and other policies that would address the problem.