Land Value Taxation – the Case for Right Now
Our Foundation has been researching and implementing land value taxation since 1926 Our experience statewide in research on the land tax and in issues concerning implementation is second to none. Currently 21 jurisdictions employ this program in Pennsylvania. We bring you a message from these cities and their officials: shifting taxes from buildings to land value works, is practical and should be done. In times of recession, with falling revenues from taxation of business and work, Philadelphia must eventually accept that a well-constructed real estate tax, based primarily on land value is a fair, stable and efficient source of public revenue.
Land Value Tax Outcome for Owner-Occupied Land Value Tax FY2009:
It can be done right now.
This program would allow Philadelphia to adopt a flexible form of the property tax that would permit the city to free all buildings from the destructive grip of taxation, and to make up the revenue loss by taxing land value instead.
As Mayor Michael Nutter correctly has noted in the series of recent meetings with the citizens, the 10-year tax abatement has worked. If that is so, then expanding the abatement into a universal, permanent and city-wide program is the next logical step.
By permitting separate tax rates for land and buildings for taxation Philadelphia can accomplish this goal. This program is called Land Value Taxation (LVT).
Right now, we are losing revenue form a myriad of sources. Yet, the property tax has remained stable. That’s a clue to where the city should turn.
But where do we get the revenue that our city services and schools need?
Land is the only responsible answer. Unlike jobs, houses, businesses and whole neighborhoods, land cannot flee the city. No one is loading land into trucks and hightailing it to the suburbs or New Jersey.
Economists, like the distinguished Penn professor Robert Inman agree that taxes on capital and labor are a drag on the economy.
The cratering of those taxes proves it.
Economists of all political stripes agree that land is a far better source for revenue needs.
In Philadelphia, land and building assessments are determined separately. That means we have an opportunity to see how much tax currently falls on each component of someone's home or business. In Philadelphia (with a rate of 82.64 mils) 22.5% of real property tax revenue comes from land. So what?
That means that 77.5% of city revenue comes from buildings. In other words, if someone fixes up their house their tax bill goes up accordingly, unless they are one of the few who apply for the abatements. That's a disincentive to go ahead with such a project. If buildings are taxed less, the city will have more of them. If the program is used, individuals take the plunge and maintain their properties. This has been the case, all over Pennsylvania and across the world.
LVT is in accord with ability-to-pay
LVT is far more preferable to senior citizens than the standard property tax. Since senior citizens keep up their homes, and since, therefore, most of their tax bill comes from the structure itself, they would assuredly see a decrease in their taxes with LVT. For families just starting out, a lowered tax bill means lower monthly mortgage payments. Although $500 a year isn’t much to some people, it’s for those struggling to live in dignity and to just pay the bills.
LVT attacks blight and vacancy
Harrisburg, Pa., has employed and marketed this program to great success. They have pushed the idea hard, especially to homeowners and homesteaders. In 1982, Harrisburg had 4,200 vacant structures. Today, there are less than 500.
Studies of LVT by tax experts like Oates and Schwab (U. of Maryland) in Pittsburgh and Dr. Kenneth Lusht (Penn State) in Sydney and Melbourne, Australia made a strong connection between lower taxes on buildings and increased construction and rehabilitation of existing buildings.
Although LVT should be (and has been) implemented with a gradual shift to an emphasis on land taxes, study indicates that 71% of properties in Philadelphia would see a tax reduction, including 78% of residential properties.
For the first time, there will be significant tax relief for those neighborhoods who have felt the brunt of poor tax policies such as Olney, Northeast, Kensington, Port Richmond and South Philadelphia. The table below shows the actual outcome by neighborhood.
There is no factual doubt that the poor and the middle classes will benefit from this program.
Our city faces immense fiscal challenges. Crisis must be met by new approaches that maintain revenue flow and local control, without resorting to failed - and failing - policies such as higher sales, business and wage taxes. LVT can help Philadelphia in this effort.
