Center for the Study of Economics - Company Message
RSS Follow Become a Fan

Recent Posts

Butt Out: Philadelphia’s cigarette tax will fail and make the city more fragile.
Land Value Tax featured in the Financial Times
More evidence confirms the error of stopping land value tax in Pittsburgh
Urban Taxation: Deadweight Loss for the Weakest
Property tax caps for user fees; what could be better? Almost anything

Most Popular Posts

Noted UK Think Tank: Tax Land Values
Eliminating the property tax? It must not happen, but we’ll see what happens.
Altoona, PA: City tax wholly on land values = normality
Dr. Herbert Barry's Proposal to Really Reassess Allegheny County
Namibia's land value tax: a powerful voice speaks out and says "more."

Categories

Act 47
Africa
Agricultural Policy
Allegheny County
ALTER
Altoona
Australia
Australian Capital Territory
Baltimore
Berkshire
Canberra
Clairton
Connecticut
Current News Item
de Blasio
Economic Development
Economic Policy
Economic Rent
Economist
Education
Federal Tax Policy
Fiscal Policy and Taxes
Gentrification
George Osborne
Global Taxation
Harrisburg
Hartford
Healthy Communities
Housing
Housing Policy
Hurricane Sandy
India
Ireland
Jimmy Tayoun
Kenyatta Johnson
Land Policy
Land Value Tax
Lanesborough
Larry Deutsch
Law and the Constitution
Legislation
Liberal Democrats
Maria Quinones-Sanchez
Martin Looney
Maryland
Massachusetts
Michael Kinsley
Michigan
Model Legislation
Monroe County
Montreal
Moonachie
Namibia
National Tax Policy
New Jersey
New London
New York City
NY
Oregon
Parking and Transportation
Patricia Dillon
Pennsylvania
Philadelphia
Pittsburgh
Portland
Property Assessment
Property Tax Reform
Public Opinion
Public Resources
Public Works
Regional Tax Base Sharing
Regionalism
Rhode Island
Rochester
Sales Taxes
Scranton
Senator Jan Malik
Smart Growth
Taiwan
Tax Exemption and Abatment
Thomas Piketty
Titusville
Transportation Funding
Transportation Policy
Uncategorized
United Kingdom
Urban Rejuvenation
Urban Tax Policy
Vince Cable
Wage and Income Taxes
Wales
Wealth
Wilson Goode Jr.
powered by

Incentive Taxation

The law of unintended consequences. Again

Baltimore's property tax in need of a restructuring, not a quick fix 
Fells Point: Back from the Brink

The sad reality of any tax program meant to help working and middle-class homeowners is how quickly the original intent can be lost, and the reform program can actually lead to further iniquities. That is the case in the city of Baltimore Maryland where the Homestead Property Tax Credit acts as a tax cap that prevents increases in a property's value from adding to the tax bill the homeowner actually pays.  The tax credit is meant to apply to one residence per homeowner, and applies only during the stay of the owner in that house. The reality is far different. Particularly in Baltimore the problem is this: the Homestead Credit has been in place for decades.  Therefore, a homeowner who stayed put for those decades pays a fraction of the property tax that a new neighbor would pay. 

Some might say that's not so bad because a longtime homeowner is certainly a net plus for the neighborhood and most likely elderly or on a fixed income.  Yet in Baltimore where the goal is to attract new families and new stakeholders in neighborhoods, the Homestead Credit does not apply.  Therefore, a new family would theoretically pay much more than the longtime neighbor next door. But it, it is not just theory.  

A recent report in the Baltimore Sun  highlights not only the disparities between new Baltimore residents and longtime ones, but also the opportunity for massive revenue loss to the city, as well as hundreds of error-prone properties receiving the tax credit even though those properties have been rental units for years.  In response to this slow-moving mess, respected Baltimore City Delegate Sandy Rosenberg has proposed a novel solution to the tax credit problem: tying the property tax to income, using a sliding scale to create a progressive property tax.  UrbanTools applauds the Delegate for trying to fix this long-term problem, yet would suggest further unintended consequences would reverberate down the legislative road.  

First , Article 15 of the Declaration of Rights and its statutory descendants call for valuation and taxation to be based upon the capital value of land, improvements on land, and personal property.   Second, if the goal of the city of Baltimore is to attract the middle-class and – yes – wealthier homeowners, then pegging property tax to wage levels could well serve to send a message that Baltimore City is off limits to high wage earners (which we know is not the wish of anyone).  Third, a similar distortion to that of the Homestead Credit could well occur if a person with a healthy wage moved into a neighborhood that was not particularly desirable. Imagine if this were law in the late 1980s, when the first stirrings of life arose in Fells Point (pictured above).  Under the proposal the urban pioneer would pay a higher tax than the surrounding homes simply because of the discrimination based on income. 

UrbanTools and many leaders from Baltimore such as current Gov. Martin O'Malley, Delegate Clarence Davis, and many other elected and policy officials have for years called for a simplification of the property tax in Baltimore.  That simplification is the land value tax, which would replace the traditional property tax in the city of Baltimore. 

The land tax would remove the penalty for reinvestment in construction by exempting buildings from tax.  It would also remove much of the need for the Homestead Tax Credit, as past research by UrbanTools and other policy groups have demonstrated time and again that the very most at risk neighborhoods would benefit fiscally from the tax shift, would be implemented in a revenue neutral manner, and would not require more complexity in the tax code because the state constitution requires separate valuation for land and buildings.

Land value tax would meet the reform goals that Delegate Rosenberg and Baltimore city officials desire in order to permanently remove the distortions of the Homestead tax credit
The best example of how the law permitting Baltimore city to enact land value tax is HB 1075 from 2005. Although known as a "local courtesy" bill, it was stymied in committee in March 2005.  

Please follow this space for updates on this crucial test for a city fighting to redefine and revitalize itself.