The 238 Report
238 Studies on the Impact of Land Value Taxation
by Steven B. Cord
Dedicated to Allan Hutchinson of Australia and H. Bronson Cowan of Canada, who first devised and used the method for making possible empirical studies of the effects of land value taxation.
A tax on land values requires land to be put to productive use because it would make investment in capital and labor more profitable (they would be less taxed) and lesser uses would be outbid. By gradually decreasing taxes on production, production is enhanced.
Another advantage of land value taxation is that most taxpayers get significant tax reductions because they own little valuable taxable land; if they were taxed on their land ownership rather than on their income or sales, buildings, payroll, imports, etc., their taxes would be lower. Most taxpayers get little income from land ownership -- the really valuable taxable land is in our urban downtowns and in natural resources (such as oil wells or mines), neither of which do average taxpayers own.
But does actual practice support these two logical advantages? Fortunately, there's an extensive empirical record available to us for answering this question. While a 100% tax on land values to the exclusion of all other taxes has never been levied anywhere on the globe, various localities in the United States and abroad (particularly in Australia) have levied it, enabling us to study its effects.
Theoretical speculation should always seek empirical support. Since a tax on locations (hereinafter referred to as LVT -- for land value taxation) has been borne out in 238 empirical cases, existing tax policy should be affected.
A representative 74 of these studies have been reprinted in a new book, The Golden Key to Continuous Prosperity (available at 10528 Cross Fox Lane [E2], Columbia MD 21044, for $12, free s&h). This book contains additional information on this tax and how to levy it.
Many of these studies have been fully corroborated by independent sources. For instance, before Fortune Magazine ran its 1983 article supporting LVT, it sent its real estate editor, Gurney Breckenfeld, and his research assistant, Ed Baig, to visit the city halls that I had visited and found that the figures were exactly as I had reported them. (The magazine is to be praised for such careful research checking.)
Professor Nicolaus Tideman of Virginia Tech University and his assisting graduate student, Florenz Plassmann (now a professor in Binghamton) confirmed all my studies in Pennsylvania when they did their research in 1995. Their research was peer-reviewed and published in the Journal of Urban Economics (3/00, pp. 216-47).
A 1985 study by the prestigious Pennsylvania Economy League contained facts supporting the conclusions of these empirical studies (see p. 16 of their 1985 study). Later, the P.E.L. was instrumental in getting two cities (Clairton and DuBois, Pa.) to adopt a two-rate building-to-land shift in their property tax.
These studies are mainly based on government-issued building-permit statistics. For instance, the Australian Bureau of Statistics publishes an annual statistics manual (comparable to the U.S. Statistical Abstract) that contains building permits issued for every locality in the country. This has made it easy to research the effects of the various local tax systems used in Australia. I also used government building permits for my U.S. studies.
(1) The accountancy firm of Price, Waterhouse & Co. performed a study for H.U.D., which found that the abatement of building taxes was conducive to new construction (p. 4, reported in the summer 1975 issue of Incentive Taxation (hereafter referred to as IT). "Based upon the evidence collected it appears that the Fairhope Single Tax Corporation's practice of site value rental [equivalent to LVT] has been effective in that it has encouraged more intensive development of its property." (Page 8 of the PW study)
Just do it gradually, not as a single tax all at once; ask us how to do that.
(2) In the early 1970s, the General Council for Rating Reform of Australia (GCRR) reported that in Kilmore Shire, Victoria, the dollar value of construction and renovation increased 3.19 times in the three whole years immediately after it shifted from taxing both buildings and land income as compared the three whole years immediately before when it taxed both types of income (IT, summer 1975).
Local property-tax switches in Australia were made in April, so there was a year in which both systems applied.
(3) In Buninyong Shire (Victoria), the GCRR found that, comparing the three whole years immediately prior to the shift from taxing the income of both building and land to the first two whole years after the shift when only the land value was taxed, there was an average 5.9 increase in the annual dollar value of new construction and renovation (Ibid.; the Australian Bureau of Census was the ultimate source).
(4) In Orbost Shire (also Victoria), the GCRR compared the three whole years before the shift to taxing only land values to the year immediately after the shift. It found that the average annual construction and renovation increased 1.74 times (ultimate source: Australian Bureau of Census).
(5) Harry Gunnison Brown, a prominent American public-finance economist in his time, found that those localities in the states of South Australia and Victoria which taxed land values were markedly superior in new dwelling construction.
For instance, in the state of Victoria, "although at the 1921 census only 16 per cent of the state population was in the fourteen districts rating [taxing] land values, these districts accounted for 46 per cent of the total increase in dwellings for the State between the two census years [1921 and 1933]."
(6) Brown's figures on the Melbourne suburbs were even more striking. He found that those suburbs which are about five rail miles from Flinders Street in the center of Melbourne and which tax land values only had 50% more dwellings constructed per available acre in the 1928-1942 period than those which did not. Making a similar comparison for suburbs seven miles out, the LVT suburbs did 2.33 times better; LVT suburbs 9.5 miles out did twice as well (IT, 9/75).
(7) Melton Shire (Victoria) switched from taxing real-estate income to taxing only land values in 1973 (as the result of a poll of landowners only) and then saw the Australian-dollar value of its building permits increase 1.68 times in the first year after the switch as compared to the year previous (Land Values Research Group (LVRG), successor to GCRR -- IT 10/75. All of LVRG's studies are based on figures coming from the Australian Bureau of Census).
(8) The average 1954-61 population growth of rural LVT towns in Victoria was 21.8%, but for their non-LVT neighbors it was only 13.4%. Their 1955-63 dwelling construction was 38.3% higher (source: GCRR, using Victoria state govt. statistics).
(9) New York State taxpayers spent more than $400 million to build the New York Thruway, but land values along the route increased by considerably more than $400 million (Perry Prentice, vice-president of Time, Inc., in Architectural Forum -- IT 1-2/76)
(10) Life editorial (1965): "Since the [Toronto] subway was built the neighborhoods around the stations have experienced a small construction boom and land values have skyrocketed. A 100-square-foot plot purchased in 1947 for $22,000 sold ten years later for $257,000." This was reported in IT, 1-2/76.
Conclusion: if land values were taxed, the government could regain its expenditures on transportation.
(11) "The landowners on Staten Island in New York City pocketed a $700 million windfall because other taxpayers put up $350 million for the Verrazano Narrows Bridge; now their land is much more accessible than before. And one can wonder about the increase in land valuation on the Brooklyn side of the bridge." So wrote Perry Prentice in an article in The Commercial and Financial Chronicle, 8/22/68, as reported in IT, 1-2/76.
(12) In the seven years following the construction of New York City's IRT subway from 135th St. to Spuyten Duyvil, the rise in land value was $69.3 million. Subtracting the normal increase during the previous seven years -- $20.1 million -- left an increase of $49.2 million directly attributable to the opening of the line. But that section of the line cost only $41.8 million (Gilbert Tucker, The Self-Supporting City, quoting a City Club study). See IT, 1-2/76. Once again, LVT would re-coup public expenditures.
(13) According to one public official in New Jersey quoted by Gilbert Tucker in The Self-Supporting City, the opening of the George Washington Bridge in 1928 increased land values on just the New Jersey side by $300 million, or more than six times the original construction cost (IT, 1-2/76). If the land were taxed, the bridge wouldn't have cost producers anything.
(14) Less than two years after the property owners of Wangaratta (in Victoria, Aus.) had voted 4-1 to adopt LVT only, the following headline appeared in the local newspaper: "Building 'Wave' Envelops Whole of Town." This occurred during a building recession in the surrounding area (IT, 9/75).
(15-30) IT (5-6-7/76) reported on random-sample studies in sixteen U.S. cities substantiating that most homeowners pay less with a two-rate building-to-land property-tax shift. In addition, all tenants (as tenants) paid less space-rent for their lodgings.
(31) Two years after adopting an LVT-only property tax, 1957 construction in Mildura City (351 miles northwest of Melbourne, Aus.) broke all records, "and at the present rate, the 1957 record will be broken this year" (source: researcher Elizabeth Read Brown in the American Journal of Econ. & Sociology (1/61, p. 12). See IT 9/76.
(32) "As a means of encouraging owners of sub-standard dwellings to install improvements, the City of New York adopted in 1936 a law granting property-tax exemption for five years upon the value added to existing buildings by improvements completed before October 1, 1938, provided the improvements did not increase the size of the building. Mayor LaGuardia estimated that renovation work in that year ran as high as $75,000,000..." (source: Harold S. Buttenheim, founding editor of the American City Magazine, as reported in IT 11/76).
(33) A Pittsburgh City Council study showed conclusively that a 1% earned income tax would hit the city's homeowners 3.59 times harder than an equivalent-in-revenue LVT increase. The same study also found that a two-rate LVT would down-tax 73.6% of homeowners (IT 12/76).
(34) Then there's Horsham, a city in rural Victoria, Aus. To quote from Progress (an Australian monthly magazine, 6/74, as cited in IT 12/76; ultimate source -- Australian govt. building-permit statistics):
"Horsham made the change to site value rating during the rural recession. For the three years before the un-taxing of buildings, the numbers and values of permits issued to private homebuilders had fallen drastically (from A$718,000 down to A$418,000 immediately before the change). The rot was stopped in the first year of untaxed buildings and the slow climb back commenced. For the year ended 30th June 1973, the numbers of privately built dwelling units approved rose to 94 and their value to A$1,153,000.
"This is almost double the numbers of approvals and almost triple their values of the last year of taxed buildings. Site value rating has done much to beat the rural recession in this area."
This ends our examination of the first bound volume of Incentive Taxation (there are nine such volumes). This first volume covers a period before many two-rate building-to-land shifts occurred in the United States. Therefore, in these early studies, IT had to rely primarily on statistics of the impact of a building-to-land tax shift in Australia.
(35) A Washington, D.C. study done in the 1970s shows that if the current property tax were shifted from land and building assessments to land assessments only, there would be these tax reductions: single-family homes = 18.1%, two-family homes = 20.9%, row houses = 14%, walkup apartments = 38.9%, elevator apartments = 22.5% (IT W/77).
(36) From 1921 to 1933, 7% of the municipalities in Victoria, Aus. taxed only land values, but they accounted for 46% of home construction. In the years 1947-54, the LVT municipalities had increased to 12%, but they accounted for 42% of the home construction. During 1954-58, 19% were using LVT, but they accounted for 62% of new home construction (source: building-permit issuance per LVRG). See 1T, 10/77.
(37) In 164 localities outside Melbourne, Aus., during the two-year period 1955/56 to 1957/58, there were 42 new factories, of which half were in the 17 localities using LVT-only. Not only that, but factory employment in these 17 LVT-only localities increased by 445 whereas in the remaining 147 localities, factory employment decreased by 361 (source: Aus. govt. statistics in "Public Charges Upon Land Values," a 1961 study of the GCLR). See IT, 10/77.
(38-49) Twelve studies in rural Victoria show that LVT-only towns averaged a construction-and-renovation growth of 29% as against their land-and-building-taxing neighbors' growth of a modest 2.6% in the same period of time (source: GCLR study of building-permits issued as reported in Progress, 3/75). LVT-only was adopted in each case as a result of a poll of only landowners (see IT, 10/77).
(50) Wellington, New Zealand taxed land values while Auckland did not. In 1965, Wellington had £219 in improvements for every £100 in land value while Auckland had only £143 in improvements per £100 in land value (source: N.Z. govt. statistics per GCLR). See IT, 10/77.
(51) LVT-only Sydney and building-taxing Melbourne in Australia could also be compared in this way. In 1965, Sydney had £222 in improvements for every £100 values whereas Melbourne had only £125 in improvements for every £100 in land values (source: GCLR, ABS -- Aus. govt. See IT, 10/77.)
"They held it as a lock-up investment. Tax rates were low.... Then in 1954, the year after we achieved city status, our rating system was changed from a rental basis [i.e., real-estate-income tax] to one based on unimproved land value [LVT]. This sent the tax rates up [on land values].... The land investors decided it was time to sell... We are now watching Marion's phenomenal expansion with pride." See IT, 10/77.
(53) After Camberwell, a suburb of Melbourne, Australia, adopted LVT-only in 1922, its development was meteoric. For twenty years, it headed the Victoria building-development figures both in numbers and values until displaced by Moorabin in 1946 after that city also changed to LVT-only. In addition, Camberwell exhibited another advantage of LVT-only -- it was fully in accord with ability-to-pay (source: Progress per LVRG, using Aus. govt. statistics; see chart in IT, 11/77).
(54) A 1965 study sponsored by the California General Assembly (prepared by Griffin, Hagen and Kruger) revealed that over 92% of the homeowners and renters in Fresno, CA would get tax reductions with a building-to-land tax shift. See IT 12/77.
(60) In November 1964, the property owners of South Melbourne voted in a switch to the LVT-only system. In the first six months of 1965, building values increased 2.4 times over what they had been in the four preceding six-month periods. The expenditures for alterations and additions to houses were 2.8 times the average in the four preceding six-month periods. The total value of construction permits for industrial buildings increased 3.3 times.
Not only that, but the growth in construction continued unabated in the ensuing years (source: Aus. govt. statistics per GCLR).
Many decades ago, South Melbourne had been a fashionable spot in the Melbourne area. Then it ran down, went to seed. After switching to LVT-only, it revived and became known as the "Cinderella City." An article headline in the Melbourne Herald (12/2/72) called its renaissance "The Kiss of Life." See IT, 1/78.
(61) The Local Government and Shires Association of Australia reported that "a survey made by the city of Sydney [LVT-only] in 1950, showed that the building taxation system would have penalized the factory owner, the house investor, the homeowner, and the small shopkeeper, to the benefit of the large business interests in close proximity to the City." See IT, 1/78.
(62) H. W. Eastwood (Chief Assessor in the 1970s of New South Wales Province, Aus.) strongly supported local land value taxation, primarily because re-assessments could more easily be made every two years. His testimony appears in the 1966 Royal Commission of Inquiry into Rating Valuation and Local Government Finance (section 4.25). See IT, 1/78.
(63) Landowners in rural Mildura -- pop. 11,000, 350 miles northwest of Melbourne in rural Victoria -- voted in LVT-only in August 1956 by a 3.6:1 margin. The value of building permits rose by one-third in 1957 and by another third in 1958 in the face of a 10% house-building recession in rural Victoria during those years (Progress 11/59 and Land & Liberty 4/57 and 3/58). See IT, 1/78.
(64) After Moorabin, the largest of the municipalities comprising Greater Melbourne, voted in LVT-only in 1946, its total value of all building permits jumped 21% and within three years they had jumped 141% (Moorabin Standard-News, 8/22/58). Especially remarkable was the growth in Cheltenham, which had been a particularly blighted section of Moorabin. See IT, 1/78.
(66) If eastern Americans fell through the earth, they would emerge near Perth, Western Australia (pop.400,000). The 17 largest localities in Western Australia taxed land values only; they experienced a 34.36% increase in the total number of dwellings between 6/30/71 and 6/30/76. The nine localities taxing real-estate income experienced a 0.02% decrease in the same time period (source: Progress, 11/77, p. 10). See IT, Sp./78.
(67) In the country districts of Western Australia, 36 localities taxed land values only; they experienced a 13.34% increase in the total number of dwellings between 6/30/71 and 6/30/76. The 69 localities partly taxing land values only and partly taxing land and buildings together (they use both systems simultaneously) experienced only a 1.53% increase. In other words, the more land was taxed and buildings un-taxed, the more new construction occurred.
It should be noted that the LVT-only localities were distributed rather widely throughout the country districts, as well as in the Perth suburbs. They were not concentrated in certain areas where development may have proceeded for such non-LVT reasons as geography, nearness to cities or new highways, etc. See IT, Sp/78.
(68) Richard Noyes, when editor of the Salem (N.H.) Observer, found that the group in his hometown whose property taxes would increase the most with a higher tax rate on land was composed of out-of-town land speculators. See IT, 7/78. Noyes later became a state legislator.
(69) Gary Carlson and Ralph Todd, economists working for the Omaha city government, found that 59% of the city's building owners would pay less if the property tax was two-rated (i.e., if the property tax was partially shifted from buildings to land values). See IT, 7/78.
(70-80) Studies showed that homeowners saved on property taxes with a two-rate building-to-land shift in nine of eleven cities. The cities were Fresno CA, all cities in Oregon, Bergen County (in N.J.), Pittsburgh, Erie, Harrisburg, and Allentown in Pa., Korumburra and South Melbourne in Australia. Homeowners paid slightly more in Farrell and Monessen, Pa. (but not Monessen today). See IT, 10/78.
But do keep in mind that all renters (qua renters) save with LVT.
(81-85) Five LVT-only localities in rural Victoria (Aus.) had 11.2% more construction and renovation during the years 1967-74 than occurred in their statistical districts (these neighbors were subject to the same economic influences). The five localities were Kerang Borough, Kerang Shire, Cohuna Shire, Horsham City, and Kilmore Shire (source: A.B.S., as quoted in Progress, 6/75, p. 8). See IT, 11/78.
(86) Buninyong (in rural Victoria) experienced a nearly five-fold building boom after it started taxing land values only instead of real-estate income (the latter tax fell mainly on the value of buildings). The surrounding localities increased their construction and renovation also, but by less than half as much (source: Progress, 11/75, p. 11, also 11/76, p. 10). See IT, 11/78.
(87) Most homeowners in Newtown, Victoria (Aus.) saved, some considerably, with LVT-only, and an examination of building permits showed that homeowners in Newtown improved their properties more than the homeowners of nearby real-estate-taxing Geelong and Geelong West (source: Progress, 10/69, pp. 9-10; see IT, 11/78).
(88) In 1979, Pittsburgh added 4.8% to its tax rate on land assessments and nothing to its tax rate on building assessments. A study performed under the direction of William Coyne, Finance Chairman of the City Council (later Congressman) found that the average homeowner paid $62 extra land tax, but the average wage earner would have paid $188 per year with a wage tax yielding the same amount of total revenue for the city (keep in mind that many families have two or more wage earners).
One of the "pay-mores" was Kaufman's Department Store, which paid $6,900 additional land value tax -- but Coyne figured this to be 0.0009% of their annual sales. See IT, 1-2/79.
They found that if the property-tax rate on buildings was reduced 25% and the tax rate on land values was increased to make up for the lost revenue, more farmers would get tax increases than tax reduction, especially those near the center city. But the changes were generally minor: for half the sample, the tax increases and decreases were less than $50; for a quarter of the sample, the changes were in the $50-$100 range.
The farmers that would have had tax increases generally had land near the growing town of Indiana (the county seat). Their land reflected potential urban development and was generally sold at speculated prices. See IT, 3-4/79.
(90) In North Dakota, farmers pay no property tax on farm buildings, and a survey by a high official of the N.D. League of Cities revealed that this has encouraged new farm construction (USN&WR, 4/3/78, p. 54). See IT, 3-4/79.
(93) A 1963 survey by the Land Values Research Group (their Rural Rating Study #5) revealed that in the rural areas of Victoria, an LVT-only shift would reduce taxes for 668 of the farms with houses (average reduction 22%) while increasing taxes for only 407 of the farms with houses (average increase 18%). As expected, 442 holdings without houses would experience tax increases of about 35%. See IT, 3-4/79.
(94) California Irrigation Districts -- in 1909, California law required that when new irrigation networks were built, they were to be financed by a tax on the affected land values only; all privately owned improvements were to be property-tax exempt. The theory was that since land values increased because of the publicly owned irrigation networks, the expense of those networks should be borne by the landowners.
The result was beneficial to the local farmers, particularly to the smaller ones. The irrigated valleys are among the most productive in the world, and in 1914 the Modesto Chamber of Commerce stated:
"As a result of the change many of the large ranches have been cut up and sold in small tracts. The new owners are cultivating these farms intensively. The population of both country and city has greatly increased...the new system of taxation has brought great prosperity to our district. Farmers are now encouraged to improve their property. Industry and thrift are no longer punished by an increase in taxes" (Congressional Research Service, "Property Taxation," p. 48). See IT, 3-4/79.
(95) According to a Pittsburgh City Planning Dept. study, if the city switched all property taxes off buildings onto land value, the 60-story U.S. Steel (now USX) skyscraper on Grant St. would save $750,000 in property taxes annually. See IT, 3-4/79.
(96) When Wangaratta, a small rural town, pop. 11,000, in Victoria, Aus., voted in LVT-only in 1956, there was an immediate upward leap in building permits issued -- they averaged £645,921 annually in the three years following the switch vs. £393,692 in the year previous. A veritable building wave enveloped the town.
Wangaratta's building-permit issuance was 5.24 times what it could expect if it had followed the general rural trend in the Victoria (source: Progress 5/59 and 11/59). See IT, 7-8/79.
(97) Professor Arthur Becker of the University of Wisconsin (Milwaukee) studied the impact of LVT in Milwaukee and found that commercial and industrial construction would be stimulated (see the article by economist Gary Carlson in the Nation's Cities magazine, 2/72; a summary of Becker's 13 advantages of LVT are listed in IT, 9-10/79.
pgh77(98) A rate increase on water use would cost the average Pittsburgh homeowner more than five times what a land tax increase raising the same revenue would cost that homeowner, according to a Pittsburgh City Council study of 1977. See IT, 11-12/79.
Prior to the introduction of LVT-only in 9/55, only 22% of the city's building permits were for construction in such neighborhoods, but in each of the five ensuing years, that percentage jumped first to 35% and then steadily moved up to 47% in 1960 (these percentages were of continually larger figures). Construction also boomed elsewhere in Malvern (source: Victoria Building and Construction Journal). See IT, 11-12/79.
(100) Anthony Pileggi, a student at Indiana University of Pennsylvania (now a lawyer in Columbia, Md.), studied the land assessments in the town of Indiana, Pa. (pop. 15,000). He found that 1.5% of the biggest landowners in Indiana paid 50.5% of the town's tax on land values, whereas in that year the 3% of the top income earners in the U.S. paid 30.6% of the federal income tax (source -- USSA).
He therefore concluded that the land value tax in Indiana was much more in accord with the ability-to-pay theory than is the federal income tax. See IT, 4/80.
But Pileggi could not know all the interlocking land ownerships in Indiana, as when a person might own land under a personal, family or corporate name. So he necessarily under-estimated the concentration of landownership in Indiana (which would be even greater in larger cities, where a greater proportion of citizens are non-landowning apartment tenants or office-building small-business tenants).
This concludes our excerpts from the second (of nine) bound volumes of Incentive Taxation. Eventually I induced 24 American jurisdictions to adopt a two-rate property-tax LVT, thereby making studies of the effects of LVT possible in America.
(102-104) Three Australian shires (equivalent to counties in America) -- Kilmore, Buninyong and Melton -- experienced spurts in construction and renovation after LVT-only adoption in 1971, 1972 and 1974 respectively.
For Kilmore, the average annual building-permit issuance of the four whole years after adoption exceeded the average annual building-permit issuance of its three whole years before adoption by 3.88 times.
For Buninyong, the average annual building-permit issuance of the three whole years after adoption exceeded the average annual building-permit issuance of its three whole years before adoption by 3.22 times.
For Melton, its average building-permit issuance of its one whole year after adoption almost doubled its average annual building-permit issuance of the three years before adoption.
But even more important was the comparison of these three LVT-only shires with what they could have expected had they experienced the same change in building-permit issuance as did their statistical districts; this counters the sometimes-heard criticism that the jurisdictions choosing LVT-only were already growing before they chose LVT-only and that LVT-only didn't cause growth but rather the growth caused the adoption of LVT-only.
Kilmore's new construction and renovation exceeded its statistical district by 54%, Buninyong by 97%, and Melton by 65% (Progress, 11/75, p. 11; see IT, Sp/80).
All the LVT-only localities in the entire state of Victoria which adopted LVT-only between 1955 and 1974 exhibited the same results.
During the same period of time, Melbourne saw its total value of dwelling approvals increase by only 42.7% (source: Progress, 9/79, p. 32; see IT, Sp./80).
metromelbourne(107) In the Melbourne metropolitan area, the 27 LVT-only cities showed an average inter-census growth for privately built dwellings of 12.9%, while the 15 cities that taxed real-estate income showed an average growth of only 2.8%.
"Inter-census" refers to the difference in private dwelling construction between the government census of 6/30/76 and the previous census of 6/30/71. These statistics are from Progress, 7/79, p. 8 and were based on a 17-page government report giving statistics for each of the 211 cities in Victoria. See IT, Sp/80.
(108) For the entire state of Victoria, the average growth rate was 15.2% for the LVT-only localities compared with a 10.9% average growth rate for the neighboring real-estate-income taxing localities.
Evidently, if you un-tax buildings and up-tax land, economic growth results.
(110) In Washington, D.C. a 1976 study authorized by the city council discovered that a two-rate building-to-land property-tax shift would cut taxes on the owners of residences by 14% to 38.9%. See IT, 10/80.
(111) A study I did revealed that Pittsburgh's 1980 near doubling of land tax rates (without any increase in building tax rates) cost the average homeowner an extra $35 a year, but if a wage tax increase raising the same revenue had been imposed, the average wage earner would have paid an extra $110 a year (and keep in mind that many families have more than one wage earner). See IT, 10/80.
(112) In the year following Pittsburgh's sizeable 1979 increase in land tax rates, new construction jumped 22% over the previous year as measured by the dollar value of building permits issued, despite a fall-off in construction and renovation in the surrounding four-county area and in the nation at large. I conducted this study for the I.U.P. Center for Local Tax Research.
The study also showed that vacant lot sales increased 16.5% in the first seven months after the land tax increase, indicating that the tax was putting pressure on inefficient landowners to develop their sites.
It would seem that cities should tax what they create -- i.e., land values -- before they taxes what individuals create -- i.e., buildings and wages.
(113) A 1980 study funded by the city of New Castle, Pa. found that seven vacant and two poorly developed sites in the downtown area would be developed and the owners would save $150,851 in taxes if LVT-only were adopted. If the county and school system also adopted LVT-only, the owners of those sites would then save about $243,750 in taxes. Of course, if these sites were developed, the city would get additional tax revenue. See IT, 12/80.
(114) I found that when McKeesport, Pa. adopted a two-rate building-to-land switch in its property tax, the average homeowner saved 15%. Low-income homeowners did even better because their land value was generally minuscule; they saved about 29%. A city study revealed that a wage tax would have cost the average homeowner much more than a property tax raising the same revenue. See IT, 12/80.
(115) The Center for Community Affairs (C.C.A.) at Indiana University of Pennsylvania found that after Pittsburgh increased its land tax rate, the number of building permits issued in Pittsburgh, Pa. increased markedly. See IT, 12/80.
(116) In another study, I.U.P.'s C.C.A. found that in the year following McKeesport, Pa.'s switch to LVT, its dollar value of building permits increased markedly over the previous non-LVT year. See IT, 12/80.
(118) A 1980 Washington, D.C. city-council study found that land values boomed all along the Metro subway line then under construction. Vacant land that sold for $6 to $8 per square foot rose to $15 to $20 despite sharply rising mortgage rates.
"Before Metro opened," noted local realtor Brenda Engeberg in the Washington Post, "an average three-bedroom home in Cheverly [before being serviced by the Metro] was selling for $45,000 to $50,000... Now most of them are selling for $70,000 and up."
Conclusion: Metro created those land value increases; if they were taxed, the Metro subway would have cost Washington producers nothing.
(119) "Assessment officials [in Australia] advocate the [land value tax] system strongly, stressing their belief that equity is much more easily achieved in the assessment of unimproved land than in the assessment of land and buildings together." (from a study by the U.S. Congressional Research Service, 2/12/71, p. 50). See IT, 2/81.
(120) An Incentive Taxation study revealed that the property tax on buildings in Philadelphia in 1980 taxed away 24% of expected building income. If this tax were replaced by LVT, then 0% of the building income would be taxed away. See IT, 2/81.
(122) A 1995 study in Falls Church, Va. conducted by Steven Cord showed that homeowners paid slightly more with LVT. Reason: the town contained almost only homeowners; there were almost no commercial properties or apartment buildings.
(123) Fairhope, Alabama was founded in 1894 as a Single Tax colony. In 1980 it had collected enough land rent to pay for more than half of the town's public revenues. It is an attractive town and has far outgrown its older and much-better-situated neighbors, Daphne (five miles away) and Battles Wharf (three miles away). See IT, 4/81.
(124) A study by the Appalachian Land Ownership Task Force and funded by the U.S. Appalachian Regional Commission found that 43% of the total land area in the 80 Appalachian counties was owned by absentee individuals and corporations, and not much taxed (IT, 5-6/81 per N.Y. Times, 4/5/81).
The biggest four landowners in the region controlled more acreage than in Rhode Island. IT (5-6/81) concluded: "If they [the residents] wish to give the land rent to absentee corporations, they should not berate the recipients. The fault is theirs. They are sitting on great natural riches, yet they languish in poverty because they allow strangers to take these riches away."
(125) In Columbia, 3% of the population own 60% of the arable land. In Venezuela, 1.7% own 74.5%. In Chile, 2.2% own 75% (from John Gunther's Inside South America, 1967). In the United States, less than 3% own 95% of the private land area (U.S.D.A. study by Gene Wunderlich). See IT, 5-6/81.
(126) Of eight finalists in the Premier Town Contest held in the state of Victoria, Australia in 1976, seven were LVT-only (the eventual winner was LVT-only). Only about 62% of the towns in Victoria (of about 90 altogether) were LVT-only.
(127-129) Three studies sponsored by the Danforth Foundation, the city of St. Louis, the Milwaukee Central Area Study (3/73), and the H.R. Subcommittee on the City, recommended at least partial LVT. See IT, Summer 1981.
(130) The League of Women Voters of New Castle, Pa. found that the majority of New Castle residents would pay less property tax with LVT. See IT, 9/81. Reason: most residents had little land-rent income.
(131) A 1980 study by William Coyne, councilman and chair of the Finance Committee, using Pittsburgh City Planning Department figures, found that unincorporated properties (almost entirely residential) had a building-to-land ratio of 3.3059:l compared to the city's 2.7779:1. This indicates that most Pittsburgh homeowners saved with LVT. See IT, 9/81.
As for tenants, they all would save because less building tax would be passed on to them (and in the long run, they pay no land tax at all; read any basic economics textbook on this).
(132) A study by Allan Hutchinson found that in Kilmore Shire (Victoria, Aus.), construction grew 104% in the four years prior to the LVT switch (1967-1970), then 179% in the four years thereafter (1972-1975; 1971 was a transition year, taxing non-LVT for nine months and LVT for three months, so it wasn't counted).
Even more importantly, Kilmore Shire far out-constructed the towns in its statistical district (which were subject to the same economic growth influences). Like all his other studies quoted here, Hutchinson's study was based on original data: building permits in an Australian government publication. See IT, 10/81.
(133) LVT-only suburbs in Melbourne, Aus. had 59.3% fewer properties in tax arrears than the non-LVT suburbs (from Hutchinson's 1/7/81 letter to Steven Cord, citing the A.B.S. -- Australian Bureau of Statistics). See IT, 10/81. This issue also contains a picture of Hutchinson.
(134-135) Assessment officials in both Pittsburgh and Scranton, Pa. reported that after these cities shifted some of their local property taxes off buildings onto land, there were no significant changes in assessment appeals. See IT, 10/81.
(136) A New Castle, Pa. study conducted in 1980 by the mayor's office found that 218 of the city's homeowners out of 279 (78.14%) sampled at random saved with a building-to-land property-tax shift. See IT, 10/81.
(137) Building permits in McKeesport, Pa. increased 98% in 1980 as compared to the average of the three years prior to its two-rate LVT adoption (1977-79), whereas in adjacent Duquesne, the increase was only 12% and in nearby Clairton there was a decrease of 44%.
In January-August 1981, McKeesport's registered a 70% increase; Duquesne registered an 84% decrease; no comparable figures were available for Clairton. Both Duquesne and Clairton later adopted two-rate LVT. See IT 11/81, 12/81.
(138) In New Zealand in the late 1950s, ten large LVT-only cities had slightly less defaults than three large non-LVT-only cities, thereby indicating that exempting buildings from local taxation does not increase tax defaults (source: H. Bronson Cowan in a 1961 report published by the Canadian Federation of Mayors & Municipalities, p. 31). See IT, 12/81.
(139) Urban Land Institute Research Monograph #4 endorsed LVT and called it "the golden key to urban renewal -- to the automatic regeneration of the city, and not at public expense" (p. 28). See IT, 12/81.
(140) In 1981, Pittsburgh city council was considering a mercantile tax increase that would have cost the Gimbel's department store an estimated $60,000 a year, whereas a land tax increase raising the same revenue would have cost Gimbel's only $8,987 more (also, the $60,000 mercantile tax would have been passed on as higher prices to the shoppers at Gimbel's, but not the $8,987). See IT, 1-2/82.
(141) According to a 1977 Pittsburgh City Planning Department study based on U.S. Census figures, most of the wards having below-average citywide family incomes would get decreases with a building-to-land property tax shift. See IT, 1-2/82.
(142) Every U.S. state has laws that require agricultural land to be assessed at the lower agricultural-use value rather than at the higher market value. But according to a USDA Economic Research Service study (reported in IT, 1-2/82), these laws have not preserved agricultural land from development and give little tax relief to low-income farmers; the chief beneficiaries have been the largest farmers and land speculators.
But a higher tax on land values would attain the desirable goals.
(143) A study entitled "State Taxation and Economic Development" of the U.S. Council of State Planning Agencies found that a land value tax facilitates the desirable consolidation of smaller sites; there were other benefits. See IT, 1-2/82.
(144) According to a study published in Land Economics (11/71), 21% of the land area in 13 prominent U.S. cities was vacant yet buildable upon. Our cities are porous. Presumably, the people who would have lived on that vacant land or on partially developed land are sprawling instead on nearby suburban and rural land. Only LVT can combat urban sprawl into the clean-and-green countryside. See IT, 3-4/82.
(145) Buninyong is a rural shire 73 miles west of Melbourne. It was once famous as a rich gold mining center but its fortunes declined when the mines played out. In 1972, the local taxpayers, mostly farmers and cattlemen, voted out the old property tax system and replace it with LVT-only. It levied no other taxes.
In its first six years of full LVT-only (1973-78), Buninyong's annual construction and renovation was 10.54 times more than the annual construction and renovation of the three years before it switched to LVT-only. In 1975 and 1976, there was a serious recession in the rural Victoria building industry, but it did not affect Buninyong. See IT, 3-4/82, based on a Progress study (6/79, p. 3) of A.B.S. statistics, series catalog # 8703.2.
(146) Researcher Daniel Sullivan found that when McKeesport, Pa. adopted two-rate LVT, the property tax for the average homeowner was 15% less than it might have been without the two-rate LVT shift. He found it to be 29% less for working-class homeowners. See IT, 5-6/82.
(147) Only eleven miles separate Wilkes-Barre and Scranton; both are nestled in the hills of northeastern Pennsylvania. Wilkes-Barre had been the recipient of massive federal aid, a veritable flood of federal dollars, but not Scranton. But in 1980, Scranton almost doubled its tax rate on land assessments (leaving its building tax rate untouched); in addition, it exempted all newly constructed commercial and industrial improvements from the property tax for ten years.
The result was that Scranton's building permits increased 22% in 1980-81 as compared to 1977-79, but Wilkes-Barre suffered a 44% loss in building permits issued during the same periods of time (Steven Cord study as reported in IT, Summer/1982).
(148) A 1982 Incentive Taxation study found that the average wage earner in Philadelphia paid $806 in an annual wage tax, but would pay only $407 with a land value tax raising the same revenue. See IT, summer/1982.
A deed-transfer tax would cost the average homebuyer between $211 and $250, but an LVT raising the same revenue would cost only $1.19 a year (assuming the same revenue for both).
An earned income tax would cost any household earning $3,000 or more (at least 90% of the Clairtonites at that time), more than an LVT (equivalent in revenue).
Occupational Privilege Tax vs. LVT -- For the average household, LVT raising the same revenue as the $10 tax, costs $4. The savings is even more for households having more than one worker.
Per Capita Tax vs. LVT -- The average homeowner wins again with LVT, $10 reduced to $1.14 assuming the same revenue to be raised by both. (More is saved if the cost of tax collection is considered.) Also, keep in mind that the average household had many taxable capitas.
Residence Tax vs. LVT -- The average homeowner wins again with LVT, $5 to $1.14 (same revenue for both).
Mercantile and Business Privilege Tax vs. LVT -- The mercantile tax costs the average homeowner $1.48 a year and the business privilege tax costs the average home- owner $14.33 a year compared to an LVT cost of $1 (assuming the same revenue for both). Also, the mercantile and business privilege taxes harmed the business climate in Clairton while the LVT would improve it.
(150) Congressman William Coyne found that after Pittsburgh's land tax rate was nearly doubled in 1979, vacant lot sales rose 17%, "suggesting that the new tax made it uncomfortable to just sit on valuable urban space." See IT, 9-10/82.
(151) An Incentive Taxation examination of Pittsburgh's building permits revealed that when the city's land tax rate greatly increased in 1979, its building-permit issuance jumped 14% as compared to the 1977-78 average, and then jumped 312% in 1980 (in that year, all new construction, but not the underlying land value, was granted a three-year property-tax exemption).
In 1981, new construction and renovation exceeded the 1977-8 averages by an astounding 590% despite the decline in Pittsburgh's steel industry. Nationwide office-building starts increased much less in those years (see IT, 10-11/82).
(153) In 1982, Harrisburg, Pa.'s immense retail-and-hotel complex called Strawberry Square save $112,857 a year in property taxes because of the city's two-rate LVT (the savings are greater now because the city has shifted more of its property tax on buildings to land). See IT, 10-11/82.
(154-174) Homeowners saved big with LVT in these 21+ cities: Meadville, Harrisburg, Lancaster, Erie, Pittsburgh (all in Pa.), San Diego, La Mesa, San Marcos, Chula Vista, Delmar, Escondido, Oceanside, Fresno (all in Cal.), Omaha (Neb.), Port Credit (Ontario), Washington, D.C., Southfield (Mich.), all cities and the county in Bergen County (N.J.), South Melbourne and Korumburra (Aus.), Whitsable (England), and Edmonton (Canada). See IT, 5-6-7/76 and 10/78.
(175-187) Homeowners also saved big in McKeesport, Easton (both in Pa.), New York City, Grand Island, West Seneca (all in N.Y.S.), Des Moines (Iowa), San Diego County (Cal.), St. Louis (Mo.), and could save big in five municipalities in Tasmania (Aus.) with LVT (see IT, 11-12/82, which also reported that there were 70 cities on Long Island where the homeowners would pay less with LVT -- probably true, but the information was not adequately verified).
(188-189) Homeowners saved in Allentown and Butler (both in Pa.) when surveys were taken in those cities.
(190) U.S. Rep. Bill Coyne: building permits issued in Pittsburgh for new housing rose 15% after the land tax was increased in 1979, while for the same time period they dropped 19% in the rest of the metropolitan area outside Pittsburgh. See IT, 4/83.
(191) More government building-permit research from Allan Hutchinson: 19 LVT-only road districts in the state of Western Australia experienced a 38% increase in owner-occupied dwellings from 1929 to 1938 (depression years), whereas 27 non-LVT rural road districts in that state experienced only a 6.6% increase during the same time.
(192) In the state of South Australia from 1929 to 1938, none of the 14 LVT-only rural road districts experienced a decrease in occupied dwellings, but 16 of the 53 non-LVT rural road districts in that state experienced decreases (per Allan Hutchinson).
(193) A study by Yu Hung Hong for the Lincoln Institute of Land Policy (LILP) revealed that 39% of the "land-value increments" were collected by the government of Hong Kong between 1970 and 1991 from land leased in the 1970s. As it happens, Hong Kong enjoys prosperity and low taxes on production (Andelson, LVT Around the World, p. 343). LVT is preferable to government land-renting, but the two are economically equivalent.
(194) Singapore is another Asian economic success story. 76% of its land was state-owned in 1985 (Ibid., p. 345). In 1994, land-leasing revenue exceeded income-tax revenue (Ibid., p 348). In 1996, residential properties paid a 4% tax rate on land rental value (Ibid., p. 346), nothing on building value.
(195) The Pennsylvania Economy League, a prestigious Pennsylvania public-policy research organization, in 1988 urged the financially strapped city of Clairton, an industrial suburb of Pittsburgh, to adopt a two-rate land-oriented property tax as part of its recovery plan (p.27). It later urged DuBois, Pa. to adopt two-rate LVT. Both cities took their advice and prospered.
(196) After Pittsburgh jumped its land tax rate in 1979 and again in 1980 (without increasing its building tax rate at all), its nonresidential new construction (in dollar value, adjusted for inflation) for the four years following was 3.57 times greater than for the four years previous (P.E.L. report, 1985, p. 16).
(197) Professor Kenneth M. Lusht, Chairman of the Real Estate Department at the Pennsylvania State University and a prominent U.S. real-estate research economist, conducted an analysis of 53 Melbourne (Aus.) municipalities in 1992. Almost half of these were LVT-only. He concluded:
"There is evidence that the use of the site value tax [ed.: the full land rent was far from being taxed] stimulates development and that the advantage persists in the long run, though somewhat eroded. The results also suggest that the level of the property tax in Melbourne, which is similar to levels in typical US cities, is sufficiently high to affect behavior.
"The site value tax was a consistently significant predictor, with most specifications showing 40-60 percent more stock per acre in SV-taxing LGAs [site value-taxing local govt. authorities]."
(198) In 1982, Philadelphia's City Council imposed a 29% property tax on building income. The effective tax rate on building assessments was 3.83% and the interest rate at the beginning of the fiscal year was 13.3%, meaning that in 1982 the actual tax rate on building income had become about 29% (3.83%/13.3% = about 29%).
Such a high tax rate on building income amounted to confiscation, but a higher tax rate on land assessments could have avoid that. See IT, 5/83.
In addition, a large percentage of farmland is mortgaged, so that economically Ohio farmland (probably elsewhere also) is only partly owned by the farmers tilling it. Banks, via mortgages, would seem to own most of the farmland in the U.S.
(201) Fortune Magazine, 7/73: "In the past 15 years the average price of land in the U.S. has risen at a rate of about 7% a year. Over the same period the consumer price index rose at an average rate of 2.7%."
(202) In 2003, the mayor of the city of Harrisburg, Pa., Stephen Reed, urged the city of Philadelphia to adopt the two-rate [two-tier] LVT-oriented property tax, which he said had been so successful in Harrisburg:
"The two-tier system encourages the highest and best use of land and rewards those who properly maintain or invest in buildings. One of the effects of the split-rate tax [LVT-oriented] is to benefit the lower-income homeowner and small business owner who struggle more than any others to make ends meet and to keep and maintain their homes and businesses.
"It also has the residual effect of keeping rents lower than they otherwise would be for persons in lower income homes and apartments. It rewards productivity and investment, in contrast to the single tax rate system which penalizes both."
(203) An April 2003 study by CSE of the entire Pittsburgh assessment roll revealed that 59.8% of poor homeowners (defined as having a family income below $30,000/yr.) save with a two-rate building-to-land tax shift.
(204) Researcher Philip Finkelstein examined the assessment roll of New York City in the early 1970s and found that 55% of single-family homeowners in the city would save with LVT; 65% of the 2-family owners would save. His research was published by Praeger in 1975. Utilities were the biggest benefiters; presumably this would result in lower bills for utility users.
(205) An anti-LVT testifier asserted before a California legislative committee that he found that homeowners in Oakland, California paid slightly more with LVT (but he offered no exact figures or documentation, and by chance I later examined the assessment register and found they paid slightly less).
He compared 1959 building assessments to 1979 building assessments and found that the one-rate towns (taxing land and buildings the same) increased their total assessments by 486%, but the two-rate towns (taxing land more than buildings) experienced a 561% increase and the 46 towns that taxed only land assessments experienced an 850% increase. Inflation affected all these figures, but note that the more a town taxed land values, the faster it grew.
Further substantiation from the same study: the eight towns that switched from one-rate to two-rate increased their building assessments by 748%, but the 15 towns that switched to land-taxing-only increased by 996% (see IT 9/83).
A later Dunkley study of a different time comparison yielded similar figures.
(207) In a letter to Steven Cord dated 2/26/83, Dunkley reported that LVT default "is almost unknown here in South Africa." See IT, 9/83. There seems to be no reason why the down-taxing of buildings would cause tax default.
(208) Scranton, Pa. almost doubled its LVT rate in 1980, leaving its tax rate on building assessments untouched. In the three years after the switch, building permits issued increased 23% over the three years before the switch, whereas during the same periods, nearby Wilkes-Barre's building permits decreased 47% (eleven miles separates the two cities, and Wilkes-Barre had been the recipient of a flood of federal grants).
Steven Cord conducted the research by visiting the city hall of both cities where the building records were kept. See IT, 10/83.
(209) After Seymour Shire in rural Victoria, Aus. switched to LVT-only in September 1981, it experienced an unprecedented building boom, even though construction throughout Victoria slumped to a 20-year low (as reported by government statistics). Source: Progress magazine, 12/82-1/83, as reported in IT, 9/83.
(210) Although Pittsburgh was enmeshed in a recession in 1982 (especially in its declining steel industry), its new construction and renovation was 2 1/2 times greater than the average of the three years prior to its 1979 and 1980 land-tax-rate increases (source: city statistics). See IT, 11/83.
(211) McKeesport, Pa. made a major building-to-land tax switch in 1980. Its building-permit issuance in the three following years increased by 38% over the three years before, whereas its close neighbors, Clairton and Duquesne, experienced a decrease of 28% and 20% respectively. All three cities were steel-based. See IT, 11/83.
In 1980 both Clairton and Duquesne were one-rate, though they later switched to two-rate, like McKeesport.
(This ends our examination of the second bound volume of Incentive Taxation. We have eight more volumes to examine.)
(212) Economics professors at Drexel University (Phila.) found that 78% of Philadelphia's property owners would save money if the LVT proposal by the city controller, Jonathan Seidel, was adopted. The Drexel report was funded by the Greater Phila. Assn. of Realtors, Phila. BOMA, the Phila. Chamber of Commerce, and others. (source: Phila. Business Journal, 5/2-8/03).
(213) In August 1972, the voters in Orbost Shire (in rural Victoria, Aus.) switched to LVT-only. The three-years-after period had 48.9% more construction than in the three-years-before (Progress magazine [Melbourne], 10/77, p. 7; see IT 6/84).
While it may sometime seem to many Americans that Australians are walking around upside down, that is not so; they are very much like Americans. Builders throughout the world build more if they are un-taxed; landowners will develop their sites more if land is up-taxed, which also results in more and better buildings.
(214) After the Orbost Shire Sewerage Authority switched to LVT-only during 1973, its 1974-1976 building-permit issuance increased by 78% as compared to 1970-1972. See IT, 6/84, citing Progress magazine, 6/75, p. 8).
(215) Kilmore Shire (in rural Victoria, Aus.) issued 24% more building permits annually than what might have been expected had Kilmore Shire exhibited the same rate of construction change as its comparable neighbors (IT, 6/84; source -- Progress, 6/75, p. 8, using govt. statistics).
(216) Government statistics show that Australia's three states with the most LVT increased their agricultural acreage, 1938/39 (depression years) as compared to 1929/30, while the three states with the least LVT experienced a decrease in agricultural acreage during the same period. The more these states had LVT, the greater their agricultural-acreage increase (see IT, 6/84, citing Allan Hutchinson's Public Charges Upon Land Values, 1961). It would seem that LVT is good for farmers.
(217) An empirical study of the Melbourne (Australia) area disclosed that from 1921 to 1940, suburban municipalities using LVT built 2.12 times more houses per building-available acres than similar neighborhoods taxing real-estate income -- "similar" means adjusting for size, distance from the center of Melbourne, and residential-industrial mix (Progress magazine, 9/64, p. 5, by G. A. Forster).
(218) I performed a study of suburban-and-agricultural White Township, Pa. in 1984 and found that the average homeowner would pay a land tax that would be 31.1% of his or her wage tax, assuming that both taxes would raise the same revenue. The land-tax saving would be much greater for those households with more than one wage earner. See IT, 12/84.
(219) Fairhope, Alabama paid some of its municipal expenses with the equivalent of a land value tax. It grew faster than its older and better-situated neighbors, Daphne and Point Clear. See IT, 12/84.
(220) Pittsburgh, Pa. increased its land tax rate, but not its building tax rate, in 1979 and then again in 1980. Its 1979 building-permit issuance was 14% greater in 1979 than in the previous years of 1977 and 1978, but in 1980 it was 312% greater and in 1981, 590% greater (despite a sharp steel slump). See IT, 12/84.
The 312% and 590% figures were boosted because of public expenditures (mostly on a convention center, since torn down). As for private construction, it greatly increased (source: city statistics on public and private building-permits issued).
(221) In 1976, the Land Use Taxation Study Committee of the Indiana legislature concluded: "Property tax should be restructured so that the tax is levied on land and not the buildings and other improvements to the land." See IT, 12/84.
(222) After reviewing the Assessment Register in Scranton, Pa., Austin Burke, president of the Chamber of Commerce, reported: "We've experienced positive development from this [LVT]...We would rather have a land-only tax phased in over several years." See IT, 12/84.
(223) A 3% tax rate on building assessments is equivalent to a 30% excise tax on building profits, given an interest rate of 10% (IT). Such a tax would seem to discourage new construction and renovation. An LVT could do away with that tax altogether.
(224-233) Generally, a building-to-land shift in the local property tax in the U.S. would reduce the property tax on factories. Reductions would occur in ten localities surveyed (two outside the U.S.): Erie County, N.Y., Des Moines, Iowa, Easton, Pa., Wellington, N.Z., Sydney, Aus., Nassau County, L.I., N.Y., Philadelphia, Pa., Milwaukee, Wisc., Erie, Pa., and Altoona, Pa. See IT, 1/85.
(234) Researcher Robert Willis of Des Moines, Iowa found that if the state subsidy to local school systems was replaced by an LVT, the average homeowner would pay $550 less in total taxes. See IT, 1/85.
(236) A study by the assessment division of the city of Schenectady, N.Y. showed that single-family homeowners would pay very slightly more with a building-to-land tax shift, but two and three-family homes would receive substantial tax cuts.
In the long run, apartment houses owners would save big in the short run (big building on moderately priced residential land), but in the long run, their tenants would pay less because there'll be less building taxes to be passed on to them and the land tax is never passed on to them. See IT, 1/85.
(237) "A recent study estimated the market value of this spectrum [a section of the airwaves] at $770 billion" (Norman Ornstein and Michael Calabrese in the Washington Post, 8/12/03, A13). A 10% tax on that (equivalent to a land tax) could yield annual revenue of about $77 billion and would ensure efficient use of the spectrum.
(238) The Best Study of Them All: Pittsburgh had been taxing land assessments more than building assessments ever since 1915, but for the year 2001 and thereafter, it reverted to taxing both types of assessments at the same rate.
Why did the city do that? This question is irrelevant to our current concerns, but let us consider it briefly anyway: the well-to-do voters in Pittsburgh were suddenly aroused to fever pitch as never before about their property tax because their new land assessments (instituted by the county) were suddenly increased overnight by five-to-eight times -- an absolute political no-no (most county elected officials lost the next election).
These well-to-do voters thought they would pay less if they got the land tax rate brought down to the building tax rate, not realizing that this would require a precipitous increase in their building tax rate (also an increase in property taxes for most Pittsburghers). They were completely unaware of the many pro-LVT studies in Pittsburgh and elsewhere, so they pressured their city council to reduce the land tax rate.
After it rescinded its land tax, Pittsburgh suffered a 19.57% decline (adjusted for inflation) in private new construction in the three years after rescission as compared to the three years before, even though during the same time period, the value of all construction nationwide, also as measured by building permits, increased 7.7% (also inflation-adjusted).
Examining and evaluating all 13,457 of Pittsburgh's building permits for the six-year period took about 200 hours. The full details of the study are reported in Incentive Taxation, 5/04.
Later, a computer examination of the entire Pittsburgh assessment roll found that 54% of all homeowners paid more property tax with the rescission. As for tenants per se, they all would eventually have to pay more space-rent because the increased building tax would be passed on to them (but not the land value tax in the long run, (as explained by any basic economics textbook).? Since big cities have many tenants (both residential and business) their citizenry would particularly benefit from the taxation of land values.
The Pittsburghers hurt themselves, à la Samson, but this LVT rescission has actually been a blessing in disguise because it enables us to examine the effect on construction of a land-to-building tax switch.
Much more evidence for LVT could be cited, but enough is sufficient. Isn't it common sense to expect that if you don't tax buildings, there will be more buildings and they'll be less expensive, but if you up-tax land, land-sites will be less expensive and more fully used? Don't tax anything that's produced. Don't let preconceived notions trump logic and hard evidence. Base your opinions on incontrovertible evidence.
Can we not infer from all these empirical studies that the more we replace taxes on produced goods and services with a land value tax, the better off we'll be? If a little land value taxation works well, won't a lot work better?
If only a few examples of LVT could be cited, nothing would be proven, but 238? (And there are many more.) Doubters would seem to have the duty to present empirical evidence.
We stop here because 238 studies, even when briefly summarized, will try the patience of even the most assiduous reader. But know there are many other studies (including unpublished studies in my files), all based on original sources, all arriving at either of two conclusions: (1) a building-to-land shift promotes the economy and (2) it lightens the tax burden of most voters.
But are these studies valid? Specifically, could other factors have been the main cause of economic growth? Here follows a discussion of their validity:
1) Logic maintains that if we tax buildings, fewer will be built and they'll be more expensive because their price will have to include the tax, but if we tax land more, we'll encourage its fuller use and lower its price -- you'll surely pay less for a land-site if it is taxed, and land-sites would have to be productively used in order to generate enough income to pay the tax.
Economic growth has always followed the switch to land value taxation, and most people will pay lower taxes since they have little land income. Successfully combating worldwide poverty isn't possible unless land is adequately taxed.
3) Economic growth always followed a building-to-land switch in all cases. If only five or six cases could have been cited, or maybe eight, other factors could possibly explain the growth, but surely not in so many cases.
2) Original Sources -- All these studies are based on original data -- building permits issued and kept on file, usually by local governments. When someone wants to build something, they must take out a carefully reviewed building permit. The actual construction costs are carefully investigated. Governments everywhere (including the U.S. Census Bureau) use building permits to measure new construction.
The very best evidence: 63 of the 238 studies compared the economic growth of the land-taxing localities to neighboring non-LVT localities subject to the same economic influences (or in some cases to national averages). The land-taxing localities always exceeded that of their neighbors (or the nation).
I compared the building permits issued in the three years after the land-value switch to the three years before precisely because I wanted to eliminate other possible factors (longer periods might introduce other factors and shorter periods might not allow enough time for new construction to begin). Whenever I could, I compared the building permits issued in my two-rate cities with neighboring one-rate-but-otherwise-comparable cities; the two-rate cities always out-constructed their neighbors.
5) Peer-Reviewed -- Two of these researchers authored a peer-reviewed article published in the Journal of Urban Economics (3/00). All my conclusions reached when the research was done were completely corroborated.
6) No contradicting empirical studies -- I assiduously reviewed as much of the scholarly land-tax literature as I could and found no contradicting empirical studies. None. Objections were rare and never empirical. It would seem that these 238 empirical studies pass the test of scholarly validity.
Perhaps this question has crossed your mind: "If LVT is so good, why hasn't it been more widely adopted?" Well, if you do nothing after reading this tremendous mass of empirical evidence, then you have the answer.
A 100% tax on land values replacing all other taxes must not be immediately adopted, no matter how valid and beneficial it may be, because some taxpayers will be suddenly faced with a much higher tax bill and might even face bankruptcy; politically speaking, they might even successfully oppose LVT. Politics requires that they have time to adjust to the new tax dispensation.
Although the introduction of a land value tax should be gradual, that is easier said than done. Logically, the first tax to be gradually replaced is the local property tax on building assessments. We can gradually replace it with a two-rate property tax (higher tax rate on land assessments coupled with a lower tax rate on building assessments) but such a tax necessitates knowing two simple formulas for figuring out the new building and land tax rates.
If the current property tax rate is low, then the property tax on buildings can be replaced by a land value tax in one year, or two; determining that is a political question. Other local taxes could then be gradually replaced -- how gradual is to be determined by political as well as economic considerations.
In order to facilitate the gradual transition to a land value tax, it is necessary to know some 30+ implementations and alleviations. One example: property tax increases resulting from a rate change (not assessment change) could be limited to 3% over the previous year (5% for commercial property).
Either we tax production or we tax locations. These 238 empirical studies, and there are many more, clearly indicate that it is better to tax locations rather than production, since no one can produce locations. If these 238 studies are ignored, depression and dictatorship will be in our future.
Such ignorance would seem to be like driving a car by pressing on the gas and brake pedals at the same time.
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