Tax Land Instead of Property

I was walking north on 5th street the other day looking at the state of the neighborhood and it occurred to me that maybe it would make sense to tax land values rather than policy values. That would encourage people to put their parcels to use, rather than endlessly sitting on vacant properties hoping for a better deal tomorrow. Ryan Avent happens to have found a relevant paper, Junge, Jason and David Levinson, “Financing transportation with land value taxes: Effects on development intensity.”

A significant portion of local transportation funding comes from the property tax. The tax is conventionally assessed on both land and buildings, but transportation increases only the value of the land. A more direct, efficient way to fund transportation projects is to tax land at a higher rate than buildings. The lower tax on buildings would allow owners to retain more of the profits of their investment in construction, and have the expected side effect of increased development intensity. A partial equilibrium simulation is created for three sample cities to determine the magnitude of the intensity increase for both residential and nonresidential development if various levels of split rate property taxes were enacted.

It’s important, as a matter of governance, for progressives to spend more time thinking harder about the efficiency of different tax regimes. Tax issues are politically sensitive, obviously, but even in political terms the proof to a large extent is in the pudding. “Big government,” schemes, no matter how controversial, tend to become accepted when they work. But part of making them work is financing them intelligently. This seems like a better way to finance upgrades in our public infrastructure.