Environmentalists: For or Against Reforming the Property Tax?

By Jeffery Smith of Portland, Oregon. Jeffery describes himself as "a researcher, writer, and organizer in ecological economics (geonomics)." Learn more about his work at geonomics.org. Previously, Jeffery contributed "Tax land, not buildings".

Have you joined the ranks of the “property rightists”? Some environmentalists have. Without naming names, one even echoes their call to abolish the property tax.

Good intentions pave the way to a hot place. Where the property tax has been kept down – Dixie in America – or where it’s been capped, following California’s lead, small owners get crumbs while owners of high-value lots save millions; capping the property tax is a gold-plated gift to speculators and sprawl artists. Where there is no property tax or it’s poorly enforced – south of the US border – you see worse sins than sprawl, sins against both nature and humanity.

Take a deeper look at the property tax. It falls on both homes and land, two items quite different. One we did not create, cannot do without, cannot increase, and constantly bid up its value. Indeed, an owner can make more money by simply letting land lie vacant in the middle of bustling downtown then selling when prices peak. Note the wasted space next time you visit Portland.

That speculative act of withholding central land is what causes sprawl, not the property tax. Indeed that tax can even counter sprawl, not as currently constituted but by shifting the burden from buildings to land. Then when owners fix up their property, they’re not punished. When owners procrastinate or speculate, they’re prodded by the land tax to get busy and develop where development does good.

What happens when owners of prime lots build? They:

And they fill in cities. That’s what curbs sprawl. Stephen Reed, mayor of Harrisburg PA, gives credit to his town’s land tax for sparing its suburban farmland from development. A more compact city shortens trip distances and lets residents walk or ride bikes or buses, all of which reduces fuel consumption, smog, and emission of gases altering the Earth’s climate.

One substitute for taxing property has been to tax income. Yet the powerful have shot that pseudo-reform through with loopholes, leaving workers to pay the lion’s share. That generates the mentality of tax avoidance, not wealth creation, so investors seek shelters and don’t pursue enterprises like alternative energy. Further, it and the tax on sales are unnecessary complications to start-ups, such as a recycler or retrofitter, and both taxes diminish the discretionary income of taxpayers, fostering the mentality whereby one seeks cheapest price, not necessarily highest quality.

Calling for these “land dues” implies that Earth is here for us to share, that her worth is a bounty that belongs to us all. Arguing against the property tax, especially its land half, reinforces the worldview of dog-eat-dog, of squeezing all the money one can out of the land one owns. When the only way to profit from land is by owning it, then people must develop it, even prematurely, and you end up with laws like Measure 37. Developing every owned site to the max despoils, whereas the optimum is to develop the center intensely while keeping much space open throughout the region. Doing that is what maximizes the bottom line; a region with open space will be more livable and have higher taxable values than one with border-to-border development.

The other conventional way owners profit is to sell out and move on, rending the fabric of community. A benign way to recover land value is to share it; that is, to pay in land dues (or land taxes) to one’s society and to get back “rent” dividends, a bit like Aspen CO does or Alaska does with oil revenue. Most residents, owning land whose value is at the average or less, would come out ahead; owners of prime sites, typically the rich or out-of-towners, would pay more, so sharing is progressive.

Having owners pay for what they take, not for what they make, is but one benefit of geonomics. As newly enlightened environmentalists leave the ranks of the pro-property people, perhaps they can bring some of them along, to a tax policy that works right for both people and planet.

Comments

  • (Show?)

    Jeffrey -- This is a fascinating concept, to tax lands rather than buildings; and thus ensure that buildings are built on the land, rather than letting it sit fallow.

    A question about this:

    A benign way to recover land value is to share it; that is, to pay in land dues (or land taxes) to one’s society and to get back “rent” dividends, a bit like Aspen CO does or Alaska does with oil revenue. Most residents, owning land whose value is at the average or less, would come out ahead; owners of prime sites, typically the rich or out-of-towners, would pay more, so sharing is progressive.

    ...if this is done, it seems to me that you'd have folks buying up low-value land just to reap the dividends -- "dividend farming" as it were. Given that land values tend to be cheaper at the edges of a metropolitan area (though admittedly, not always), wouldn't this tend to encourage exactly the kind of sprawl that this tax idea otherwise discourages?

    Or does your concept not go so far as to include a dividend that's more than the taxes - in order to avoid "dividend farming"?

    An intriguing idea, though, to be sure.

  • Land Lover (unverified)
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    Kari~

    With respect for your intellectual curiosity, I disagree.

    Jeffrey Smith's ideas are not the least bit intreaguing.

    Nor, as he teases in his first paragraph, are they a part of any dialog within the environmental movement.

    In fact, changing the basis of property taxes and the valuation of property is not a part of any dialog. Call it a monolog if you like. Technically speaking it's more of a missive.

    The political reality is that it's far more important to anyone concerned with protecting the beauty or Oregon's open spaces and preventing big developers from profiting at public expense than any comment for or against the ivory-tower navel-gaving of the pensive Mr. Smith, is this simple question:

    What will you be doing this fall to campaign in support of the Legislature's referral of the Measure 37 rewrite?

    For more information about that campaign go to the 1000 Friends of Oregon webpage.

    http://www.friends.org/issues/M37/index.html

  • David G (unverified)
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    Jeff may be trying to be a little coy here. As I am sure he knows, the single land tax idea is not new with him. Henry George, a 19th century economist is its most noteworthy proponent. You can look him up, or Georgism, on Wikipedia to get more information about Henry George's ideas on land taxes.

    I've always found the single land-value tax idea interesting and sensible, but it has always been a non-starter in political circles. One of the "advantages" to our multi source tax system is that no one really knows how much in total taxes they are paying - because taxes are everywhere. It is also easy to create the illusion that "some other bad guy" is really the one who is -or should- be paying taxes. I don't think our politicos will be willing to give up the shell game "advantages" of our current jumbled tax system.

    I am old enough to have seen several generations of "Georgist" advocates. Each new generation repackages itself with the latest trends as they see them. Now, with Jeff, Georgists have adopted environmentalism. Nice try and good luck to you! But I am afraid there is another old saying which still applies to the single land tax idea: This dog just won't hunt!

  • (Show?)

    So this is a guest column about switching from improvement taxation to land taxation, from an author whose previous submission was a column about switching from improvement taxation to land taxation?

    Can I just go back and reprint my comment to that one in this one?

  • Russell (unverified)
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    Tax land instead of buildings?? That's great, but vacant land doesn't attract masses to the area. The problem with the current property tax situation is that it's up to the property owners to increase taxes on themselves. Developers develop and then leave the bill of increased population with the population, both current and future. And people tend not to enjoy voting for a tax increase, no matter the reason. We need to tax those developers that create a need for more schools, for more police and emergency response teams. We need to tax those developers that build and attract more traffic, without using a portion of their profits to widen freeways and major thoroughfares. I believe that the Oregon legislature is already working on a bill that would allow for a school tax, based on square footage: Senate Bill 1036 --> http://www.leg.state.or.us/07reg/measpdf/sb1000.dir/sb1036.intro.pdf (I'm not as computer savvy as some of you, so excuse my lack of a hyperlink)

    This is a great start, but we need to have legislation that enables the state to impose excise taxes on homebuilders and developers to fund ODOT, police, fire, et al. The most recent housing boom has wrecked the pockets of some Oregonians; we need to tell them to PAY for the costs associated with the economic growth that they've taken a profit from.

  • Gil Johnson (unverified)
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    Well, Jeff's idea is definitely straight out of Henry George and he isn't the first one to make the connection between land value and sprawl. In fact, Mary Frances Smith, the sister of George Smith of Geo. Smith Warehouse and a prominent Georgist in San Francisco, argued the same idea in the early 1980s.

    Makes sense in a way. If you develop land now, you end up paying more in property taxes. If you sit on it, you don't. If land were taxed instead of improvements, there would be a financial incentive to develop the property, since it wouldn't cost any more in taxes.

    There is, however, what I call the "Houston Effect." That's when various developers keep buying the same parcels of land over and over again, to put up even larger buildings. Friend of mine moved there in the early 80s when Houston was booming. His boss pointed out the window of one of the top floors of the company's headquarters to another building. That structure had been build within the past year, but was going to be torn down the next week for another building. May this kind of thing only occurs in Texas, but I don't see how it would be beneficial for the environment.

  • Dickey47 (unverified)
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    Not sure why a person in a 900 sq ft house should pay the same exact taxes as a person in a 6000 sq ft house next door. Same lot size, right next door. 900 sq ft person has room for green space, trees, and a smaller carbon foot print (materials, heating, etc).

    I could see a combo of land with a very simplified square foot per number of households? That way the apartment pays less per household, and there is a higher premium on single family dwelling but an even larger fee on McMansions?

  • Jeff Smith (unverified)
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    Thanks to all for your responses.

    Kari, "dividend farming" - good phrase. You should be in advertising. Anyway, lots of country folk complain about depopulation. Getting a dividend could balance that out. Your dividend would go further in the country, where your land dues (land taxes) would be smaller.

    As for developers trying to avoid a land tax by building where land taxes are low - they'd be low for a reason - the site value there is low, the demand there is low, the possibility to make profit by building there is low. So, no, in reality, rational developers (oxymoron?) don't go there - and don't mind. Sure, they'd pay a higher tax for raw land but they'd also pay a smaller mortgage.

    LL, GB Shaw, an early Georgist, noted "if you're not a socialist when you're 20, you have no heart; if you're still a socialist when you're 40, you have no head." Point is, you need not sacrifice one for the other. Balance your self-proclaimed love with an open mind and see what's worked.

    Just because a tree falls when no one's around doesn't mean it makes no noise. Just because you're on the ecological economics sidelines does not mean there's no dialog. We've even had bills here in Oregon, which thanks to you not understanding the concept and not backing it, didn't get too far. But dozens of "green" have advanced the tax shift and it's much further along in Europe.

    As for you creating big developers then self-righteously tilting windmills at them - that's a flawed knee-jerk reaction. More sensibly, don't create big developers in the first place. What makes them big? You letting them have land value. Don't.

    As for M 37, it's a symptom of popular support and faith in land speculation. Even a repeal of M 37 would be no more than a temporary victory. The only permanent solution is to convince people of the wrongness of speculating in land and the correctness - both for efficiency and equity - of sharing the worth of Mother Earth. Please get on board and echo that call.

    David G, it's funny how people so comfortably say what they think even if it's not true. See our website for the reform's progress. And I was a land-lover long before I'd heard of George. More environmentalists need to hear of him or learn some modern ecologcial economics or at least have an open mind.

    Russell, the need for making developers pay their way, whether by tax or SDC, does not exclude the need to recover the socially-generated value of land and share it. Both are necessary. The land tax is necessary to suck development into the center. The SDCs are necessary to constrain whatever tendency to sprawl that may be leftover.

    Gil Johnson, while one can't speak to every specific example in Houston, the reason to re-use the same site over and over is to avoid bringing new sites into use over and over. Build intensely in the center, then you'd only build non-intensely on the fringe.

    Dickey 47, the reason to charge the same for lots of the same size and same distance from the center, regardless of different size buildings being on them, is that the charge is a compensation, from user to everyone else for excluding them from a parcel of nature. What they do on the site is their business, as long as they don't harm person or planet. You might prefer space to structure, another owner might prefer structure to space. No harm, no foul. But in reality, you find that most preferences tend to cluster together. Eventho' when I lived in San Diego in the 1980s, downtown had a lot with a chicken farm and another with only an out house. Those weren't exactly the higheset and best use - the owner was speculating, causing sprawl, while most environmentalists complained but remained ignorant of the underlying causes.

    Earth needs better from those who purport to love her.

  • (Show?)

    Let's take a new tack: Jeff, one of the logical precepts of taxation is that the tax should reflect a need for revenue to suit a specific purpose, one that becomes necessary usually as the result of some activity upon the entity to be taxed. In other words, we tax smokers because they cost us money in health care. We tax gas because driving a car costs us money in pollution remediation, etc.

    A primary reason we tax improved property is that the improvement carries certain societal costs. A building costs more to protect by the fire and police services than a vacant lot. And a bigger building costs more than a smaller one. Highly developed properties require utility and transportation infrastructure, where lesser developed lots may not.

    Do you see my point? There is a direct linkage between putting an improvement on land, and the costs to society for maintaining and securing that improvement as a useful part of the area. If you simply tax land, all landowners bear the total cost, and those with no improvements will pay a disproportionate share. Moreover, it places no disincentive to large scale improvement; you can build a parking deck on your acre and pay just as much as the guy with green space on his--despite the fact that the parking deck owner is reaping huge profits but not paying any more into the system that supports his ability to reap those profits.

  • pedro (unverified)
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    torrid,

    the way around that is a split rate tax on property, one (lower rate) tax on the improvement value, and one (higher rate) tax on the land value. or a flat a rate fee on the parcel, on top of property taxes just to inhibit speculation.

    i'm kind of fond of the idea, from a historical perspective, but i have a hard time seeing it play out in reality. first, you have to deal with the fact that our monetary system is largely based on creating real economic assets from mortgages, many (if not most) of which are for real estate. the privatization of the socially created land value is built into this system, which is also aided by pork laden highway bills which serve to create new land value where little existed before--all of which is dependent on cheap gas. it's hard to see a local tax tweak really chipping away at such an entrenched federal system.

    i don't get why there's so much hostility to this idea, here and on that other thread, especially with the rent dividend, it seems pretty progressive. unless the hostility is to the tone of the post? or people who know the author from other discussion boards?

  • (Show?)

    lots of country folk complain about depopulation. Getting a dividend could balance that out. Your dividend would go further in the country, where your land dues (land taxes) would be smaller.

    Depopulation?!?!?!

    In other words, YES: a dividend system would cause sprawl.

    I'm still intrigued by the idea of segregating land taxes from building taxes, but surely a refundable dividend is a bad idea.

  • pedro (unverified)
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    fyi, kari, it looks to me like the refundable dividend goes to every citizen, not just property owning citizens. that's how the permanent fund in alaska works, anyway. in that respect, it should have zero effect on sprawl.

  • (Show?)

    the parking deck owner is reaping huge profits but not paying any more into the system that supports his ability to reap those profits.

    That's what we have now...and why some downtown Portland lots remain undeveloped today. They're cash cows, and the property taxes they pay have no relationship to the value that's there.

  • howard (unverified)
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    Jeff,

    As usuual you have hit the nail on its proverbial head. Despite some of the misspelled and close-minded responses above, two tier valuation has reaped tremendous rewards for municipalities across the globe that have adopted it. Keep on truckin' friend...you have many like-minded advocates and many open-minded citizens that see the light.

  • (Show?)
    That's what we have now...and why some downtown Portland lots remain undeveloped today. They're cash cows, and the property taxes they pay have no relationship to the value that's there.

    But they have the proper relationship to the burden on society that necessitates taxation in the first place, is my point.

  • Jeff Smith (unverified)
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    Thanks all for the feedback.

    Torridj, you make a good case for sin justiftying sin taxes. Another valid use is society recovering socially-generated values, values which usually find themselves attached to locations.

    If a tax on buildings were gauged by its "burnability" and went only to the fire dept, that might make sense, too. But don't gauge the tax by building size, since huge ones hardly ever burn up. This line of reasoning is turning taxes into user-fees, which could work.

    Vacant lots do actually increase public costs by forcing infrastructure and fire protection etc beyond itself, farther out - it's a huge burden. So taxing location very much is proportional to costs imposed on others. Some jurisdictions actually do charge a "displaced development" fee, a bit like an impervious surface fee for forcing more runoff into public sewers.

    As for green space vs garages, do we let individual owners make all land use decisions or do we as society make some, too? A green space ought to be owned by the public and perhaps not pay a land tax. But if you want fewer garages, look at the demand side. Make them less profitable, get cars out of the city. Do that by in-fill, which is what taxing land does.

    Pedro, for what taxing land does in reality, check our site; some case summaries there.

    You're right, most individual debt is mortgage, like 80% I read.

    You're right, subsidies are bad. Historically, most are gifts to developers, like the highway one you cited. It's easier to argue for an end to subsidies if we argue for a Citizens Dividend in their stead.

    The hostility is human. Once I stood on a sidewalk admiring the paintings set up by artists, some of which were those patterns which, if you stare long enough, reveal 3D figures otherwise invisible. Some guy (always a guy) couldn't see them and hopped up and down, steaming mad, calling everyone else who could see them either crazy or liars - was hilarious!

    Kari, dividend yields sprawl? It hasn't in Aspen or Alaska (while the absence of a land tax has). And is it really sprawl when people who grew up in the country don't move to the city or decide to move back? Calling that sprawl might confuse people, and confusing people is my province. No, the dividend is needed for both efficiency and equity. It lets people refuse lousy jobs, raising wages. And the worth of Earth belongs to us all. Doing politics without a moral base is what leaves so many people cold, unmoved. The ethical argument could rally more people.

    Frank and Howard, thanks for the kind words and clear thoughts.

    Bottom line, land has value, especially downtown land. Who gets? If you leave the present answer in place - the owner and lender gets it - you create problems you can not other wise solve. You either let Earth's worth flow to owners, lenders, and other insiders, or let government corral it and spend it however they want, or throw it in the sea, or share it. To spare Earth's beauty, you must share her bounty, her monetary value. There really is no other way.

  • (Show?)
    about the 2006 campaign against Senator Gordon Smith

    There was a campaign last year against Gordon Smith and nobody told me about it?

    (wry grin)

  • (Show?)

    Doh.. somehow posted the above in the wrong thread (had two open at the same time).

  • Kris (unverified)
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    It's sad to see a 1k Friends person miss the point: M37's myopic focus on "takings" ignores the windfall profits many developers, whether on the fringe reaping land value booms or those laughing to the bank on zoning changes, virtually steal from the citizenry as "givings." Until we rightfully reclaim the public's share of land value increases - economic rent - we'll never have an ethical nor adequate system of public finance.

    Rather than just speculate on where parking lots would get built under higher land taxes and, under a revenue neutral phase-in, lower taxes on improvements, why not ask what has happened in places like Scranton, PA, Pittsburgh, Harrisburg, and Queensland, Australia? Most residences would see a small decrease in property tax burden, depending on proximity to developed zones where higher land values exist. The largest burden would fall on land extensive uses: big box retail, car lots, auto-served business. Industrial and multi-family residential would experience reduced tax burden. What's clear is that the 50-50 property tax screams sprawl...just look around! Here's a study, which I co-authored, commissioned by Metro, of Metro commercial corridors under higher land taxes: http://www.lincolninst.edu/pubs/pub-detail.asp?id=1068. It concludes that a split-rate tax would encourage mixed use development in these areas. The Lincoln Inst. of Land Policy, where Blumenauer has served on a board committee, publishes similar research, FYI.

  • Observer (unverified)
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    Why is it "environmentalists" seldom have any land of their own, and so are compelled to want to regulate the way others use their land? Most of the services paid for by property taxes in Oregon have little relation to the size of the buildings or plot of land, and more on the responsibility (or lack thereof) of the people that live there.

  • Ed Dodson (unverified)
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    Jeff Smith and I come from very different experiences and backgrounds, but we (and others) have at some point in our intellectual lives been introduced to the writings of Henry George and other political economists. What makes these early thinkers unique is there detailed examination of land markets and their challenges to the origins and history of land tenure systems. There are a few people who were born into families headed by adults devoted to the promulgation of Henry George's remedy for poverty. Most others who have come to share the perspectives contained in Henry George's writings have done so after already forming contrary views about what is needed to achieve progressive changes.

    The core of Henry George's set of principles is this: that access to the earth and all natural resources is the equal birthright of all persons, equally. The challenge is how to construct socio-political arrangements and institutions that secure and protect this birthright.

    George concluded after long years of study that the only course of action that held the potential to end poverty in the world was to end the monopolization of rent -- whether by private interests or by the state.

    Those of us who are working to end (or at least lessen) the damage human behavior exacts on the earth's capacity to sustain life will, I suggest, benefit by acquiring a better understanding of the principles examined by the 18th and 19th century political economists, Henry George, in particular.

    By calling for a pro-rata citizens dividend, Jeff Smith expresses his concern that government is not always (or often) the agent of the common interest, nor a wise steward of our natural heritage. Thus, turning over a society's rent fund to government via taxation holds serious dangers. However, collecting the fund is essential if we are to achieve the objective of sustainable exploitation of the earth.

    What makes me so sure that Henry George was correct? My entire working life has been in the field of affordable housing and community revitalization. This work forced me to study the operation of land markets and how public policies advance or thwart the objectives of creating affordable, mixed-income communities. My work eventually led me to study the economic literature on taxation policies, and to the writings of Henry George on the subject. George is not an easy read, but the reward is well worth the effort. At least, it was for me.

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