Understanding Land Value Tax Studies

There are four basic models on which to do a study of the outcome. Ironically, a LVT study is often the first time a city understands what it is doing to property owners, and renters with its tax structure.  

Explanation of LVT models: Two-Rate, AXI, AXI 5%, and AXI plus Two-Rate:Two-Rate LVT is a way of taxing land using a change in tax rates.  For example, a drop of 10% in the building tax rate would require that revenue loss be made up by an increase in the tax rate on land values.  The direct effect is to put a greater reliance on publicly created value (land) rather than privately created wealth (buildings, commerce or wages).  A higher tax on land has the acknowledged effect of removing the distortions on markets that traditional taxes create.  It is more progressive than the current system, and heavily incentivizes vacant land into better use.

The City of Philadelphia - Analysis

Lancaster Study from the Center for the Study of Economics

Reading Pennsylvania Universal Abatement Study

Assessment Exemption on Improvements (AX) is slightly different.Put simply, a blanket permanent abatement of a certain dollar amount on a building is put into effect. The overall tax rate then rises accordingly, with a greater impact on land value. For example, if someone’s building is worth $50,000 and the AXI is $50,000 then they will pay no tax on the building.  If the building is worth $500,000 then the owner would pay tax on $450,000.  This has the effect of sometimes dramatically reducing tax burden on lower valued properties, most often for residential properties. It would provide immediate and substantial tax relief to homeowners, from poor to upper middle class.  By that measure it is a model with much vertical equity. AX shifts the tax burden to those properties with either the ability to pay, or the capacity to build and profit from what is now fallow land.

Assessment Improvement on Improvements 5% (AX 5%) is a different version of AX. Instead of a set dollar exemption/abatement, the methodology is to reduce the building value by 5% across the board. The effect is different from AX as shown by this example: a house with $50K in building value would see a reduction in building tax by $2,500, while a house worth $500K in bui8lding value would see a reduction of $25,000. The outcome is less progressive  than AX, and indeed may benefit those with a higher ability to pay.

AX plus Two-Rate (AX+2-Rate) is a combination of AX (which provides vertical equity and fairness) to LVT, which shifts taxation to those with a greater ability to pay, or who are not using land holdings for private or public benefit. This hybrid model reduces somewhat the large residential savings, but also ensures a higher holding cost for the vacant lots and underused properties which abound in older upstate cities.