Property Taxes vs Land Value Taxes

Property Taxes vs Land Value Taxes

Most Americans pay the local inefficient, and economically challenged Property Tax on their home, but there is one alternative that seems to offer certain benefits that is catching the eye of local lawmakers; Land Value Tax. Though many are finding themselves attracted to this new alternative tax initiative the legal and political loopholes are making this option a difficult one to implement. Numerous reports tell the same tale; people hate property tax but what exactly are the advantages of Property Tax vs Land Value Tax?

property tax reform comicWhy Land Value Could Work

Multiple economists have theorized that most Americans dislike property tax because it weighs the heaviest on their pocketbooks, and is the hardest to ignore. In addition to the theory economists agree that Property Tax isn’t nearly as economically efficient because it acts as a tax on economic development by taxing value of home improvements. As such a debate has grown in favoring a land value tax to replace property tax.

Land Value Tax allows local governments from the State all the way down to local city officials the control needed to adjust a major source of tax revenue, while addressing issues of tax efficiency. Though the alternative tax isn’t used extensively it is more of a theoretical approach. But a form of land tax could be implemented in two forms.

Approaches to Land Value

A pure land value tax approach would have apply a tax to the value of the land. There would be no additional increases in taxes based on additional home improvements. But in a split-tax approach the land value is taxed and the home improvements are taxed at a lower rate. So for example the land value tax would be at 25.67 and the tax on the home improvements would be at 3.78. Usually the ratio for the split-tax is around 6 to 1.

Land Value

Proponents in addition to the economic efficiency like to point out that the land value tax system also provides incentives for home improvements, which overall would increase the development and property values of neighborhoods. Back in 2000 economists Plassmann and Tidemann studied a variety of Pennsylvania neighborhoods and found a direct relationship which positively influenced the tax differential between building permits and land improvements.

marguilies property taxes and trentons policies comic
Property Tax

The elimination of the property tax system would have multiple speed bumps though, mostly because of the importance the tax plays out in local government revenue and budgets. Most local governments’ single greatest source of income pulls from property tax. In fact over one-third of local governments account property tax as their main source of revenue. Opponents argue that the land value system encourages overdevelopment and will needlessly increase the burden on local resources.

Pilot Programs

Even with the opposition raising concerns local governments are starting to sign into law the Land Value tax system. These governments will be seen as a pilot program and will be heavily monitored by both sides of the argument. Either way the success or failure of future programs rest on the shoulders of these local governments pulling off a win for Land Value Tax.

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