States Could Reduce Taxes for Most Taxpayers while Stimulating their Economies
- Most citizens would be taxed less because their tax reduction will exceed what they’re paying in taxes now. This would be especially true of all non-landowning renters because in the long run the land tax cannot be passed on to them.
- New construction & renovation would be more profitable because they’d be taxed less. Perhaps tax-exempt these activities (not their land) for the first 7 years.
- There’d be complete revenue neutrality since a pro-economic tax would only be reducing economically harmful taxes.
23 summaries of empirical studies show that economic development has always followed the exact equivalent of this proposal.
SUGGESTION: If 23 brief summaries of empirical studies seems like more than you have time for, then just read study summaries #10 (peer-reviewed) and #23 (the best one), then read any 3 other studies; then read them all. Your comments would be appreciated.
(1) The contiguous cities of Allentown and Bethlehem in eastern Pennsylvania are very comparable as to size and economy. In 1997, Allentown started taxing buildings less than land; Bethlehem did not.Allentown’s new private construction & renovation thereupon grew by 32% in dollar value in the three years after the shift to land value taxation as compared to the prior three years. That was 1.8 times more than Bethlehem’s increase in private construction & renovation during the same time period, even though Bethlehem (but not Allentown) received much federal grant money in the prior three years.These figures come from a study of building-permits on file in the Allentown and Bethlehem city halls by Benjamin Howells (science researcher and one-time Allentown Councilman), William Kells (science-oriented businessman) and Steven Cord (professor).
(2) Washington and nearby Monessen (both in southwestern Pennsylvania) are roughly comparable as to size and economy. After Washington started shifting some of its tax off buildings onto land in 1985, its new private construction & renovation increased by 33% in dollar value in the three years after its two-rate adoption as compared to the prior three years. But during the same time, nearby one-rate Monessen’s new private construction & renovation actually decreased by 26%.
(3) Connellsville, Pa. saw its new private construction & renovation jump 3.46 times in the three years after it adopted a two-rate LVT property tax as compared to the prior three years. This jump over-shadowed the modest 1.07 increase in new private construction & renovation of nearby one-rate Uniontown during the same time period. The two cities are quite comparable, although Uniontown is the county seat and is somewhat larger (both are economic-development plusses).
(4) Aliquippa, Pa., after the closing of its large steel mill, shifted some taxes off building onto land values in January 1988. Result: most residents paid less taxes and its new private construction & renovation jumped 97% in the three years after the two-rate switch as compared to the three-years-before.Nearby Ambridge, comparable except that it is closer to the Pittsburgh International Airport and enjoys brisk tourist traffic at its Old Economy Shaker Village (both economic plusses), experienced a 30% decline in private building-permits issued during the same period of time. Nearby Beaver Falls, also comparable except that it is less hilly than Aliquippa and is the county seat (again, economic plusses) experienced a 7.2% decline during the same time period.In July 1993, the Aliquippa School District adopted a two-rate building-to-land property tax. Its new private construction & renovation thereupon spurted: for 1994-95, it was 2.3 times greater.
(5) In 1989, Clairton, Pa., an industrial suburb of Pittsburgh, was under direct state fiscal control, officially labeled “financially distressed’. It took the advice of the prestigious Pennsylvania Economy League and adopted two-rate LVT. Building assessments were taxed at 2.105% and land assessments at 10% (instead of both at 3.7%).During the three-year period after the switch, its taxable building permits were 8.5% more than in the three years before (based on building-permit records in Clairton City Hall). This is to be compared to the 5.8% decline in all U.S. building permits issued during the same time. (The Clairton School District recently made a major tax shift from buildings to land. Results so far: as predicted)
(6) Oil City, Pa. adopted two-rate LVT starting in January 1989. Its private construction & renovation increased58.2% in the three following years as compared to the three-years before, while its nearby one-rate but otherwise comparable neighbor, Franklin, experienced a decline of 12.2% in the same time period.
(7) Pittsburgh, Pa. increased its land tax rate (but not its building tax rate) in 1979 and 1980; its building-permit issuance then became 3.57 times higher than in the previous years of 1974-1978 (source: Pennsylvania Economy League 1985 study, p. 16 chart) despite a steady decline in its steel industry. Compared to this 3.57 increase, U.S. office-building permits increased only 1.6 times (neither increase adjusted for inflation).In 1984, Pittsburgh again increased its land tax but not its building tax. In the following two years, its new construction & renovation increased 6.2 times faster than U.S. construction & renovation (sources: City of Pittsburgh building-permit annual reports and table 1194, U.S. Census report C30), again despite the continuing decline in Pittsburgh’s steel industry.Pittsburgh’s 1985 building permits increased 2.29 times over 1984; in 1986, they were 2.38 times greater than in 1984 (source: Pittsburgh Bldg. Inspection Dept.).
(8) Godfrey Dunkley, an economist and mechanical engineer, extracted statistics from the official Municipal Yearbooks of the government of South Africa.He compared 1959 building assessments to 1979 building assessments and found that the one-rate towns (taxing land and buildings the same) increased their total assessments by 486%, but the two-rate towns (taxing land more than buildings) experienced a 561% increase; the 46 towns that taxed only land assessments experienced an 850% increase. Inflation affected all these figures equally, but note that the more a town taxed land values, the faster it grew.Further substantiation from the same study: the eight towns that switched from one-rate to two-rate increased their building assessments by 748%, and the 15 towns that switched to land-taxing-only increased their building assessments by 996%.A later Dunkley study of a different time comparison yielded similar figures.
(9) Then there’s the study by professors Wallace Oates and Robert Schwab, both of the University of Maryland.They reported that 15 large northeastern cities in the U.S. averaged a decline of 15.5% in their annual value of building permits issued between 1960-1969 and 1980-1989, but two-rate LVT Pittsburgh recorded a 70.4% increase.Columbus, Ohio was the only other city in the study that recorded an increase – a rather modest 3.6%, but it had annexed some fast-growing suburbs in the interim.
(10) In 1995, Professor Nicolaus Tideman of Virginia Tech University and his graduate student, Florenz Plassmann (now a professor at the University of Binghamton) completed a highly technical study of land value taxation in Pennsylvania entitled “A Markov Chain Monte Carlo Analysis of the Effect of Two-Rate Property Taxes on Construction”. It was published in the peer-reviewed Journal of Urban Economics(3/00, pp. 216-47) and concluded as follows: The results say that in all four categories of construction, an increase in the effective tax differential is associated with an increase in the average value per permit. In the case of residential housing, a 1% increase in the effective tax differential [on land] is associated with a 12% increase in the average value per unit…From the perspective of economic theory, it is not at all surprising that when taxes are taken off of buildings, people build more valuable buildings. But it is nice to see the numbers.” This study completely confirmed all the Pennsylvania studies that had been done at the time (then 15, now 21).
(11) Harry Gunnison Brown, a prominent American economist, found that the suburbs of Melbourne (Aus.) which were about five rail miles from Flinders Street in downtown Melbourne and which taxed land values only, had 50% more dwellings constructed per available acre during 1928-1942 than similarly situated suburbs which taxed land and buildings at the same rate (source: Aus. govt. statistics).Making a similar comparison for suburbs seven miles out, the land-value-tax suburbs did 2.33 times better; LVT suburbs 9.5 miles out did twice as well.Suppose you own some vacant land and you read in the newspaper that the tax on land will be gradually increased in the ensuing years, wouldn’t you develop that land or sell to someone who will? So isn’t it a tax that creates development and jobs?
(12) A Pittsburgh City Council study (1976) concluded that a 1% earned income tax would hit the city’s homeowners 3.59 times harder than an equivalent-in-revenue LVT increase. If land were taxed, 73.6% of homeowners would pay less; all non-landowning tenants would pay less apartment rent in the long run.
(13) A Washington D.C. council-authorized study done in the 1970s concluded that if only land was taxed (not building assessments), there would be these tax reductions: single family homes 18.1%, two-family homes 20.9%, row houses 14%, walkup apartments 8.9%, elevator apartments 22.5%.
(14) In 64 suburbs outside central Melbourne from 1955/56 to 1957/58, there were 42 new factories, of which half were in the 17 suburbs using only a land tax. Factory employment in these 17 LVT-only suburbsincreased by 445 whereas in the other 47 suburbs, factory employment decreased by 361 (source: Aus. govt. statistics).
(15) Twelve studies in rural Victoria found that the LVT-only towns averaged a construction-and-renovation growth of 29% as compared to a 2.6% growth for their real-estate-income-taxing neighbors in the same period of time (source: Aus. govt. statistics). The land tax was always adopted as a result of a poll of landowners only.
(16) If eastern Americans fall through the earth, they would emerge near Perth, Western Australia (pop. 400,000). 17 nearby localities taxing land values only experienced a 34.36 increase in the total number of dwellings between 6/30/71 and 6/30/76. The nine nearby localities taxing both land and buildings (presumably subject to the same economic-growth influences) experienced a 0.02% decrease in the same time period (source: Aug. govt. statistics).
(17) In North Dakota, farmers paid no tax on farm buildings. A survey by a high official of the North Dakota League of Cities revealed that this encouraged new farm construction (U.S. News & World Report, 4/3/78, p. 54).
(18) California Irrigation Districts – a 1909 California law required that new irrigation networks were to be financed by a tax on the affected land values only; all privately owned improvements were to be property-tax exempt. The theory was that irrigation networks increased land values, so the expense of those networks should be borne by the affected landowners. The result was beneficial to the local farmers, particularly the smaller ones. The irrigated valleys are among the most productive in the world. This is what the Modesto Chamber of Commerce stated in 1914 (according to a 1978 Congressional Research Service study, “Property Taxation,” p. 48):“As a result of the change many of the large ranches have been cut up and sold in small tracts. The new owners are cultivating these farms intensively. The population of both country and city has greatly increased. The new system of taxation has brought great prosperity to our district. Farmers are now encouraged to improve their property. Industry and thrift are not punished by an increase in taxes.”
(19) Malvern, Australia experienced a marked construction spurt after it adopted LVT-only in August 1955. The most extensive construction took place in its blighted problem neighborhoods: before August 1955, those neighborhoods accounted for only 22% of the city’s building permits, but in the five ensuing years that percentage jumped first to 35% and then steadily moved up to 47% in 1960 (these percentages are of continually larger construction figures) – per Victoria Bldg. & Construction Journal.
(20) In New Zealand in the late 1950s, ten large land-taxing-only cities had slightly less tax defaults than three large non-LVT cities, indicating that tax defaults are likely to decrease if buildings are not taxed so much (H. Bronson Cowan, 1961 report of the Canadian Federation of Mayors and Municipalities, p. 31).
(21) A city-funded 1980 study in New Castle, Pa. revealed that seven vacant and two poorly developed downtown sites would be an estimated $150,851 more profitable to build upon with a land-tax-only property tax. If county and school taxes were also to tax only land values, then the extra profit would approximate $243,750 a year.
(22) Random-sample studies in sixteen U.S. cities substantiated that most homeowners would pay less with a two-rate building-to-land property-tax shift. We can tell you how to exactly ascertain how each voter would fare with this gradually implemented tax on land values before going public with the idea; you can look before you leap.
(23) Pittsburgh had been taxing land assessments more than building assessments ever since 1915, but in 2001, it reverted to taxing both types of assessments at the same rate.Why did the city do that? Briefly, the well-to-do voters in Pittsburgh were suddenly aroused to fever pitch about their property tax as never before because a county re-assessment increased their land assessments by five-to-eight times overnight – an absolute political no-no (most county council members lost their next election).These voters thought they would pay less if they got the land tax rate brought down to the building tax rate, so they pressured the city council to reduce the land tax rate; they were completely unaware of the many Pittsburgh studies supporting land value taxation, and of course the property tax of most homeowners in the city shot up.
After the two-rate rescission, Pittsburgh’s private new construction (now more taxed) declined19.57% (inflation-adjusted) in the three years after rescission as compared to the three years before, while the value of construction nationwide increased 7.7% (also inflation-adjusted). A computer examination of the entire Pittsburgh assessment roll found that the rescission caused 54% of all homeowners to pay more property tax. As for non-landowning tenants (office tenants also), eventually they all paid more space-rent because more building tax was passed on to them but the land value tax never can be. Since big cities generally have many tenants (both residential & business), they would particularly benefit from a building-to-land property-tax switch.This LVT rescission has actually been a blessing in disguise because it enables us to examine the effects of a land-to-building tax switch. Much more evidence for LVT could be cited, but enough is sufficient.
Is it not common sense to expect that if production is taxed, there’ll be less of it? And that if you tax land values more, land-sites will have to be productively used (which by itself will increase production). Don’t let preconceived notions trump logic and hard evidence. Base your opinions on incontrovertible evidence. You hurt people if you do nothing.
The only way to reduce taxes on production is to tax land instead. Much more evidence for LVT could be cited, but enough is sufficient.
(1) Logic maintains that if we tax production, there’ll be less of it and it’ll be more costly (the price of what is produced will have to include the tax) but if we tax land more, its price will be lower and it will be more fully used. Also, since most people get more income from their labor & capital than from land ownership, they’ll benefit if taxes are on landownership rather than on production.
(2) Original Sources - When someone wants to build something, they must take out a carefully reviewed building permit. All these empirical studies are based on original data – building permits issued. The building inspector carefully reviews claimed construction costs. No wonder the U.S. Census Bureau uses building permits issuance to measure new construction.
(3) Economic growth has always followed a building-to-land switch. If only five or six cases could have been cited, or maybe eight, other factors could possibly explain the growth, but surely not in hundreds of cases.You can get a report (free, no obligation) containing 63 studies comparing the economic growth of land-taxing localities to neighboring non-LVT localities or nation subject to the same economic influences. The land-taxing localities always exceeded the construction & renovation growth of their neighbors or nation.
(4) In my own 18 empirical studies, I found no non-land-tax growth factors refuting the conclusion that when land is taxed, economic growth ensued and most taxpayers paid lower taxes.The building permits issued in the three years after the land-value switch were compared to the three years before in order to eliminate other possible factors - longer periods might introduce such factors and shorter periods might not allow enough time for new construction & renovation to begin.Whenever I could, I compared the building permits issued in the two-rate cities with neighboring one-rate-but-otherwise-comparable cities - the two-rate cities always out-constructed such neighbors.
(5) Many competent researchers concurred – Many of these studies were authored by many different researchers and they came to the same conclusion – taxing land rather than buildings benefited the economy and lowered taxes for most taxpayers.
(6) Peer-reviewed - Two of these researchers authored a peer-reviewed article of all my studies completed when their study was performed (their study was later published in the Journal of Urban Economics, March 2000). They completely corroborated all my conclusions.
(7) No contradicting empirical studies - I assiduously reviewed as much of the scholarly land-tax literature as I could and found no contradicting empirical studies. None. Have you ever seen any? Objections were rare and never empirical.
(8) Widely endorsed – Literally hundreds of well-known historical personages and urban officials have endorsed this tax proposal, including eight American winners of the Nobel Prize in economics (we can send you their endorsements, at no cost or obligation). But they didn’t know how to implement it. We do, you can also.It could be required that no property is to pay more than 3% in property taxes above what was paid in the previous year; this would protect even the few pay-mores.
For more information, contact Steven Cord, Professor-Emeritus, I.U.P., now Research Director, Center for the Study of Economics, 10528 Cross Fox Lane, Columbia MD 21044, 410-997-1182, [email protected]