Philly 2035 Plan Includes Land Value Taxation

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Joshua Vincent points us to the Philly 2035 plan:

3.1.2 c) After full and fair valuation is in place, consider moving to a land-value based tax system to increase the cost of owning vacant land.

Makes sense. If properties are going to be assessed using selling prices, it’s going to be easier to figure out what the unimproved land values are worth, since you’ll have more up-to-date price information from vacant lot sales.

Here’s how they present the concept in the Plan:

3.1.2.c Definition | Land-ValueTax System (LVT): A land-value tax system taxes land at a higher rate than improvements to land such as structures. Property tax assessments on developments or improvements to land can be seen as a deterrent to development and an incentive to keep land vacant. Pittsburgh and Harrisburg both use a hybrid version of LVT.

If you want to learn more about land value taxation, you should come out to this event on Tuesday in Harrisburg. LVT is one of the smartest, most underused progressive policy ideas in the municipal government tool kit. If your town’s not using it, ask them why.

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3 Responses to Philly 2035 Plan Includes Land Value Taxation

  1. Karel Minor says:

    Except when this is extended into rural areas it seems to serve as a disincentive to open space and encourages development in rural and suburban communities. The georgists seem to think limited agricultural land is a good thing. Most of us outside cities do not. The parceling of two acre tracts from family farms to bleed out value and decrease land tax burden is the reason we provide tax incentives to land owners who decline to sell and develop. Am I missing something or is this merel;y a good thing for city mice?

    • Jon says:

      Rick Rybeck explains the economics in this paper pretty well. Basically it increases development pressure on land closest to existing infrastructure and public goods, and takes development pressure off rural areas. I like this plan for the city level, but if a County were to take it up, I’d want to see it paired with an urban growth boundary or a transferable development rights bank:

      Because land cannot move and higher land taxes reduce land prices, land owners cannot
      avoid a tax on land values or pass it on to space users. Thus, a land tax motivates landowners to
      generate income from which to pay the tax. The greatest economic imperative to develop land
      will exist where land values are highest, adjacent to existing infrastructure and amenities. At the
      same time, a reduction in the tax rate applied to building values makes that development more
      profitable. Areas distant from infrastructure will have low land values and taxes and, thus less
      economic motivation for development.

      Consequently, transforming the property tax on land and buildings into a value-capture tax
      on land values can encourage development adjacent to existing infrastructure. Because the
      demand for developed space is limited at any given time, the greater utilization of land adjacent
      to existing infrastructure will help reduce the demand for development in outlying areas.
      Reduced demand to develop outlying areas combined with a lack of nearby infrastructure will
      keep land values and taxes low, minimizing premature urbanization of rural areas.

  2. Karel Minor’s concerns are understandable and must be addressed. Logically speaking, open agricultural land must appear to be vacant land and therefore would suffer under a land value tax. True agricultural land however, consists of a fantastic investment in capital and labor by a farmer. This is why when land value taxation was jockeying for support with socialism in the early 1900s, many agricultural political parties pushed strongly for land value taxation.

    A national land value tax was implemented in Denmark at the insistence of their national farmers’ party. In Namibia today, land value taxation is specifically used to accomplish two things:
    1. Provide a fund for smallholding farmers to procure title to land.
    2. Loosen the hold of Dutch, South African, Belgian and German commercial landowners who use their land and efficiently into little benefit to a population still suffering from the ravages of apartheid.

    In Pennsylvania today, urban areas need land value taxation the most, and and the success of LVT would make cities more attractive, and building townhomes in cornfields less attractive. The Clean and Green preferential agricultural assessment already reduces property taxation for agricultural land to a very low amount indeed.

    Nevertheless, the Pennsylvania Farm Bureau forced an amendment to the law permitting boroughs to enact land value taxation in 1996 to treat agricultural land and buildings as both improvements . The organization that I serve (Center for the Study of Economics) works almost exclusively in urban settings; the idea being that if you save urban areas, you can then save rural areas by reducing development pressure. Research in Pennsylvania point effective LVT on farmers has been relatively scant (http://www.earthrights.net/docs/pa-farmers.html), but does not seem to be a deal breaker.

    Land value taxation on a broader scale, which includes agricultural suburban and urban land (the various states’ of him Australia for example), show that it can work when it’s a part of the political culture. The same exists in the state of Hawaii, which has differential tax rates on land and buildings including agricultural (http://www.economics.hawaii.edu/research/workingpapers/WP_09-15.pdf). LVT exists pretty much in urban political cultures in Pennsylvania. that is where I expect to stay for the foreseeable.