Some very bright people carry in their heads the idea that land represents roughly 20% to 25% of the value of a typical home. And while there is one situation in which that assumption may be pretty accurate, it is a fleeting moment in life of a structure!

There seems to be a rule of thumb which says that however much a builder pays for a piece of land, he will maximize his profits on the building project if he places on that site a house that will sell for about 4 times what he paid for the land. So far, so good.

But what happens next? Buildings, like cars, trucks, machinery, and most things manmade, depreciate over time. The Federal Reserve Board pegs the annual rate on single family homes at 1.5%. Land, however, tends to appreciate as a function of at least three factors:

• population increase (general and local);
• technological progress, and
• public spending on infrastructure and services.

As we do things right now, we permit the landholder to pocket that appreciation as his private treasure, and we finance public spending mostly through taxes on taxbases other than land value!

Is this any way to run a rational and just society? Hardly. Land Value Taxation is the remedy for this.

It is important to assess land for tax purposes often, especially on a rising market. (Landowners will see to it you do so on a falling market.) Land appreciates most years, while buildings depreciate physically every year. Lagging assessments therefore automatically overtax buildings relative to land.

New Hampshire Assemblyman Richard Noyes has circulated data on the effect of reassessment in NH. The land fraction of assessed value rises each time there is a reassessment. Keene, NH leads with frequent reassessments, a high fraction of land in the mix, and a strong track record attracting enterprise and jobs.

In California, where we used to have good assessment, we now have bad assessment legally mandated by Prop. 13. So long as land is unsold, and/or not newly improved, its assessment rise is capped at 2 percent a year, while market prices soar. Here is one example of the results. This year the Metro Water District of Southern California (MWD) condemned 410 acres for its new Domenigoni Reservoir to expand the system (to accommodate land speculators in the desert boonies). The jury hit them for $43 million, which works out to about $1.95 a square foot.

The question occurred to me, how does that square with the assessed value for property taxation? I asked Ted Gwartney, a professional appraiser with the Bank of America, to check the assessed value. It is about seven cents a square foot; The condemnation price, supposedly based on market value, is about 28 times the assessed value.

This is not the result of fractional assessment. In California we assess property at 100 percent when land changes ownership or there is a new building. Rather, this is the result of Prop. 13 and its prohibition of market reassessment until land sells.

I thought that was startling, but Mr. Gwartney's reaction was, "What else is new?" He, who works with such data every day, has a rule of thumb that market land value in California today is about eight times assessed value. That is important enough to repeat: our assessed land values are routinely at 1/8 of true land value. I wouldn't dare say that on my own authority, but Mr. Gwartney is here to confirm it. He is a veteran appraiser; for many years he was Director of Assessments for the entire Province of British Columbia.

Does this help you understand why California landowners are now so slow to adapt to new demands? In 1945 the assessors were building fires under landowners, so they sought new strategies to meet new circumstances. Today there remains a weak incentive to improve to improve property: tax collectors generally cost them money when they make improvements. Sit still, lie low, hire no one, hang on, produce nothing, and your holding costs are negligible.

A little of the old magic lingers. In October, 1995, a 225-acre parcel in Corona, the Chase Ranch, was sold to a builder, Coscan Davidson Homes, for building 967 units. The previous owners, "GGS," including a Japanese insurance firm, were "seeking a way out. They were behind in tax payments and GGS was losing its staying power,..." quoth Stephen Doyle, spokesman for the buyer. It is that "staying power" that stifles land use and production. Coscan wants to build immediately. Even so, though, they plan to take five years to build out the project - if everything goes well. This is the new, post-Prop. 13 meaning of "immediately."

In spite of extreme underassessment, the assessed value of taxable land in California is 40 percent of the total real estate value. Imagine what it would be if assessed values were real values, "marked-to-market,'' as the law used to stipulate. It would be over 70 percent, as in 1917. "Staying power" would go down; land use, jobs and production would rise.

Use the Building-Residual Method of Allocating Value

It is equally important to use the "Building-Residual Method" of allocating value between land and buildings. This means you value the land first, as though it were vacant, based on highest and best use. You subtract this land value from the total value of land-&-building as currently improved: the residual, if any, is building value.

Valuing one lot or parcel this way, you have information needed for valuing neighboring and other comparable parcels. Using a map with value contours, you can value a whole city this way with surprising ease and speed.

Using this method, I valued Milwaukee land in 1963 and 1967. The building-residual method nearly tripled the land values reported by the City Assessor, who was using the assessor's usual inconsistent mix of various other methods. How's that again? Did I say tripled? Yes, I really said "tripled." By his methods, buildings on the eve of demolition were carrying values higher than their sites; by the building-residual method these old buildings had no value at all, which of course is why they were being torn down. Besides depreciation and technological obsolescence, many buildings suffered severe "locational obsolescence," owing to shifting demand patterns. The land was re-usable, and had as much or more value without the extant buildings.

Using the building-residual method requires no change in present laws. It is within the latitude of assessing officials, who, in turn, respond to public opinion. The conscientious citizens' move is to educate and bring pressure, just as the old single-tax campaigners like Jackson Ralston did. In the process of "losing" they won over half of what they sought, just by taking a stand and making the effort.

Federal Income Taxes

One of assessors' greatest problems today is the strong pressures from owners who want to allocate as much value as possible to buildings that they may depreciate for federal income tax purposes. Here is where we must study how the parts form the big picture. Here is where federal and local tax policies intersect. Some Georgists have neglected or misunderstood the income-tax treatment of land income. Let us see how this works.

Congress and the IRS let one depreciate buildings, but not land, for income tax. This important distinction harks back to when the income tax was new, and Georgist Congressmen like Warren Worth Bailey, from Johnstown, PA and Henry George Jr., from Brooklyn were instrumental in shaping it.

When a building is new, the depreciable value is limited to the cost of construction. The non-depreciable land is the bare land value before construction. So far, so good. Over time, however, building owners have converted this into a tax shelter scheme. Owner A, the builder, writes off the building in a few years, much less than its economic life, and sells it to B. "A" pays a tax on the excess of sales price over "basis." The basis is reduced by all depreciation taken, so any excess depreciation is "recaptured" upon sale. It is defined by Congress as a "capital gain," and given the corresponding package of tax preferences:

• deferral of tax,
• lower rate,
• step-up of basis at time of death,
• tax-free exchanges, etc.

Thus far, any tax preference goes to A, the builder, and may be seen as a wellconsidered building incentive. Watch, however, what happens next. "A" sells to B and B depreciates the building all over again, from his purchase price. To do so, B must allocate the new "basis" - i.e., his purchase price - between depreciable building and non-depreciable land.

How shall B allocate the new basis? Enter the local tax assessor. Here is where local assessment intersects with Federal income tax policy. The IRS does not try to assess land and buildings. Instead, IRS instructions tell taxpayers they may use locally assessed values to allocate basis between depreciable buildings and non-depreciable land. The IRS accepts this allocation as conclusive. As a result, local owners of income property press their assessors to allocate as much value as possible to buildings, and as little as possible to land. This does not affect their local taxes, but lowers their federal taxes. It lets them depreciate land.

Local revenues are not immediately affected. Local assessors have little reason not to accommodate their constituents, local landowners, to help them depreciate land for federal and state income tax purposes. They have little reason to use the correct "building-residual'' method of allocating value, and a compelling reason to use the wrong method that understates land value. Thus they convert non-depreciable land value into depreciable building value. It is the modern version of "competitive underassessment." In the process, they also convert the local property tax from a land tax into a building tax.

After a while B sells to C, who in turn sells to D, so each building is depreciated many times. So is a large part of the land under it, tame after time, although it should not be depreciated at all. This is carried so far that real estate pays no federal or state income taxes at all.

The solution to this lies with the U.S. Congress. The need is to limit depreciation to one cycle only. It is a most urgent problem for both federal and local treasuries. We all have Congressmen. Write to them and raise their consciousness. They are brokers who respond to public opinion. It is we who are derelict.

Priority #3. De-Balkanize Tax Enclaves

A. Rich and Poor

There are rich jurisdictions and poor. Professor Tideman's paper in this conference alludes to this matter in passing. Let us support his point with some numbers.

In California, you might think that farm counties like Tulare have a lot more taxable value per capita than cities, but au contraire. Tulare County reports assessed values per capita of $38,100; the whole State averages $60,000 per capita. Suburban Marin County weighs in with $95,400; urban Los Angeles County has $59,000; Orange County has $74,000.

You might also think that Tulare, being rural, has a lot higher fraction of land value in its mix, but again, not so. The Land Share of Real Estate Value (LSREV) in Tulare County is 28 percent, compared to a statewide mean of 40 percent, and 47 percent in Orange County. (This datum, and others of like kind, refute the conventional belief that farm counties are heavy on land in the mix. On this last point, I must respectfully take issue with my good old friend Gene Wunderlich, whose paper at this conference suggests that farm counties have higher land fractions. I wonder if he has perhaps conflated building values with pure land values? My data, from California State Board of Equalization, show lower land fractions in real estate in the purely rural counties of the San Joaquin Valley.) Grazing and mining counties like Inyo have high values of LSREV, but they are a small share of the farm economy. (lnyo County, lightly peopled but heavily cattled, has $136,000 per capita, with very few human capita (and its cattle are exempt from the California property tax). Major farm counties with intensive farms, like those of San Joaquin Valley, have low values of LSREV.

Within counties, disparities among cities and school districts are much greater. In Tulare County, one pathetic little povertyville, the City of Parlier, has just $10,000 of assessed value per capita. Here are some assessed values per capita from different California cities in the County of Los Angeles: Lynwood, $21,500; Beverly Hills, $294,000 (14 times Lynwood); City of Industry, $5,533,000 (257 times Lynwood).

This is why some critics call the property tax "regressive." It has given some plausibility to the otherwise bizarre claim that switching to a sales tax is less regressive than sticking with the property tax. Within each city a property tax is progressive, but when your data meld cities like poor little Parlier and Lynwood with Beverly Hills, you sometimes find poor people paying more of their income in property taxes than rich people, and getting less for it. Switching just the local property tax to land ex buildings will do little or nothing to correct such disparities, and therefore make little progress toward overall social justice, and the wide support that will evoke. There is, in fact, a natural cap on local property tax rates imposed by local particularism: the City Council of Beverly Hills will not raise taxes in Beverly Hills for the benefit of voters in Parlier.

To avoid such regressivity we must work out some formula for power equalization. The most straightforward formula is simply a statewide land tax. On this I must again applaud Dick Noyes in NH - not for what he says, but what he does. What he says is that the genius of NH is its local control of revenues; what he does is initiate bills for a statewide land tax.

There are many other tax enclaves and exemptions by which much property stays off the tax rolls. I have a long list, with about 35 items. Here I'll just focus on two: timber and oil. ... Read the whole article.

• rising acreages mean there are fewer farms overall.
• Rising labor prices per farm mean aspiring farmers who lack prior wealth can no longer buy in. 
• Rising Gini Ratios mean acreage is less equally shared among a given number of farms.
• Higher quality land is moving into bigger farms. "Gamma" is the top bracket acre value divided by the mean acre value, and it is rising. The Gamma data are confirmed by rising shares of cropland and irrigated land in vast farms. Rising price to cash flow (P/C) ratios reflect a higher land share of real estate value (LSREV), and they mean it is harder for a newcomer to acquire any farm acres. The combination means the agricultural ladder has been pulled up. Entry is nearly impossible for farmers lacking outside finance; exit and latifundiazation proceed apace. These changes accompanied and followed a 40 percent drop in farm property taxes. 

It is true that in most jurisdictions land is underassessed, and Musgrave's numbers were reasonable in their day as a statement of what assessors were doing. As noted, however, maladministration should be blamed on administrators, not on the property tax per se. And Musgrave omitted three important points.

• One, the share of land in real estate tends to rise with value of holdings.(29) So nonshiftability of the property tax rises with wealth.
• Two, the share of land in real estate is lowest in owner-occupied residences, where the shifting assumption has no effect on progressivity. 71c Land share is highest, normally over half, in commerce, where the assumption is critical. In Milwaukee, 40% of all retail land space is in gas stations! The property tax on downtown and other retail landowners with wide parking lots in good locations is one of the most progressive imaginable, but Musgravian assumptions convert it into a regressive sales tax.
• Three, taxes on land actually have some positive effect on supply. They are not simply neutral, but apply leverage prompting earlier and more intensive use of land. To assume non-shifting understates their impact on landowners. They weaken his market position vis-a-vis non-owners, making them doubly progressive. This is a fortiori true of mineral bearing lands. Here, property tax critics often forecast panic liquidation if rates rise. They overdraw the point, but there is a point there, and it is in the reverse of forward shifting.  ... read the whole article

It is a common belief that property tax relief is "good for farmers." It certainly raises the private share of economic rent. That in turn raises the investment grade of farmland and encourages its purchase as a store of value, a place to park slack money. This may be at odds, however, with using it as a vehicle for enterprise and an outlet for workmanship. Lower farm property taxes are associated with lower ratios of capital to land, and labor to land, both over time and among states. They are also associated with bigger mean farm size and less equal distribution of farm sizes.

In the sections that follow, I first document the rise of inequality in the distribution of farmland that followed a sharp drop in farm property tax rates after 1930. Then I show, by cross-sectional analysis, a positive relationship between higher property tax rates and more intensive use of farmland, which in turn is associated with more equal distribution of farmland. Conversely, I find property tax relief associated with underuse and underimprovement of land.

• rising acreages mean there are fewer farms overall.
• Rising labor prices per farm mean aspiring farmers who lack prior wealth can no longer buy in.
• Rising Gini Ratios mean acreage is less equally shared among a given number of farms.
• Rising Gamma factors mean the higher quality land is moving into bigger farms.
• The Gamma data are confirmed by rising shares of cropland and irrigated land in vast farms.
• Rising P/C ratios reflect a higher LSREV, and they mean it is harder for a newcomer to acquire any farm acres.

The combination means the agricultural ladder has been pulled up. Entry is nearly impossible for farmers lacking outside finance; exit and latifundiazation proceed apace. These changes accompanied and followed a 40 percent drop in farm property tax rates.  ...

THE LESSER IMPROVEMENT OF BIGGER FARMS

A result of rising concentration is the separation of land from capital. With some exaggeration, American latifundia are now lands without buildings, but buildings cluster on smaller farms, many without enough land. This implies at least three points.

• First, building wealth is more equally distributed than land wealth.
• Second, the property tax would be more progressive if changed to a pure land tax, exempting buildings.
• Third, many latifundia are not being used to their potential, while capital on some small farms is undercomplemented with land. I support the case first using national data, and then by comparing states.

The yield per acre of most crops stays level or rises with harvested acres per farm. At the same time, sales per dollar of real estate fall somewhat. (21) The most likely reason is that the quality of harvested land rises with quantity. There is, to be sure, a trade-off between quality and quantity, but there is also a bond. Whoever can afford more can afford better. Which effect is stronger? The question must be resolved by data.  ...

The 1940 Census of Agriculture was the last to separate $L from $B, overall. In 1940 the building share of real estate value ($B/[$L+B], or BSREV) was .69 in the lowest acreage bracket, .31 for all farms, and .12 for farms of 1,000 acres and over. (36)

(36) 1940 Census of Agriculture, Vol. 3:80. An earlier insightful article on the subject is D. Weeks, "Factors Affecting Selling Prices of Land in the 11th Federal Farm Loan District," Hilgardia 3, no. 17 (1929):459-542.

AELOS (1988) gives no comparable comprehensive data, but it does give two series that test the point and have the advantage of disaggregation. One is for "owner-operators" and one for "landlords with debt." For the owner-operators, ranked by acres per farm, BSREV was .63 for farms under 10 acres; .29 for all farms; and .12 for farms of 2,000 acres and over. (37) Building values are much more equally distributed among these farms than land values. ...

CONCLUSION

One may at least firmly conclude that large farm units are less improved and less peopled than small and medium-sized farms. There are two possible interpretations. One is that big farms are more efficient, getting more from less, but that is refuted by their getting less output per $L. The other is that Veblen was right, many of them are oversized stores of value, held first to park slack money and only secondly to produce food and fiber, and complement the owner's workmanship. The Florida 9 [the high LSREV states] may represent a home grown rural "third world" of large, underutilized landholdings that preempt the best land and force median farmers onto small farms on low-grade land.

The issue cannot be settled in a few words, but the implications for tax policy are the same either way. If large units are more efficient, they can bear heavier taxes. If they are less efficient, heavier PTRs will induce them to release surplus land for others, which will tend at the margins to equalize factor proportions, moving more states from the Florida toward the Wisconsin model. Read the whole article

Mason Gaffney:  Sounding the Revenue Potential of Land: Fifteen Lost Elements

• Wilks, H. Mark, 1964. Rating of Site Values: Report on a Pilot Survey at Whitstable, abr. ed. (London: Rating and Valuation Association), p.14
• Wendt, Paul, Dynamics of Central City Land Values, Research Report 18 (Berkeley, Calif.: Real Estate Research Program, University of California, 1961), pp.40, 42
• Cowan, Bronson, 1958. A Graphic Summary of Municipal Improvement and Finance, International Research Commission on Real Estate Taxation (New York: Harper and Bros., 1958), passim.
• Griffenhagen Kroeger, Inc., "The Effects of Tax Exemption for Improvements and/or Personality," mimeographed (San Francisco (?): Assembly Interim Subcommittee on Tax Exemption, California Legislature, November 1962), pp.25 40
• Schwartz, Eli, and James Wert, An Analysis of the Potential Effects of a Movement Toward a Land Based Property Tax (Albany, N.Y.: Economic Education League, 1958), pp.19, 23
• Gaffney, Mason, 1970. “Adequacy Of Land As A Tax Base.” Published in Daniel Holland (ed.), The Assessment of Land Value. Madison: University of Wisconsin Press, pp.157-212, esp. Table 9.3

 The universal state and local revenue problem today is whether we must cap tax rates to avoid driving business away. It is exemplified by Governor Pete Wilson of the suffering State of California. He keeps repeating we must make a hard choice: cut taxes and public services, or drive out business and jobs. (When a public figure gives you two choices you know they're both bad, and he wants one of them.)

 The unique, remarkable quality of a property tax based on land ex buildings is that you may raise the rate with no fear of driving away business, construction, people, jobs, or capital! You certainly will not drive away the land. However high the tax rate, not one square foot of it will put on a track shoe and hop out of town. The only bad thing to say about this tax's incentive effects is that it stimulates revitalization, and makes jobs. If some people think that is bad, maybe this attitude is the problem. ...

 "Hold on again," I have heard, "how much revenue can land yield by itself?" It is my job to address that. I assure you it can yield more than local governments need. I have already pointed out you can raise the rate to any level without fear of driving away jobs, capital, people, or building. That is a remarkable quality in a tax, especially one as progressive as the land tax. I will also support the point in several other ways.

 The taxable capacity of land is camouflaged in our times by a consistent modern tendency to underassess it, relative to buildings. There are several studies in point. The most general one is the quinquennial Report of the U.S. Census of Governments. It actually understates the tendency a lot, by omitting the class of land most underassessed, that is, raw acreage in and near cities.

 There is great latitude in the assessment process. This latitude is now used to lower the fraction of the property tax base that is listed as land value, and raise the fraction that is listed as building value. It could just as well be used the other way, and used to be in many cities, whenever assessors were getting that message through the election returns. This would have roughly the same effect as going to a two-rate system on a more formal basis -- except, obviously, that the formal basis is more permanent, reliable, and generally respectable.  

I have here data ... I worked up in Milwaukee from 1969 data indicating that, if land were assessed correctly, the land fraction of the real estate tax base would be over twice what the City Assessor reported. His fraction was 31%; it should have been 70%.  

How does one come to so startling a finding? Wisconsin is not a backward state. It prides itself on the high quality of its public administration. What I did was study sites on the eve of demolition. When you buy an old junker to tear down and replace with a new building, you (the market) are obviously recognizing that the building has no residual value. All the value is then in the land. However, in Milwaukee in 1969 the Assessor was saying the building was worth about three times as much as the land, just before tear-down. That is a good way to measure to what extent land is underassessed.

 Try that in Manhattan. When the visitor first gapes at its skyline from afar, it looks like one big modern high-rise. If you poke around on foot much, though, you soon realize those are the exception. Most of the lots are covered with obsolete junk, some of it tumbledown, commanding rents mainly for their location value.

 Check the Empire State Building. Old as it is, it is still nearly the tallest building in the world. As to its site, it is in a so-so reach of 5th Avenue (34th Street), many blocks from the 100% location (57th Street, I would guess). Even so, when the site and the building sold in separate transactions a few years ago, the site represented 1/3 of the total value. What does that say about the land fraction on neighboring parcels, covered only with the remains of ordinary old structures? What does that say about the land fraction nearer the 100% location?

... retailing has a higher land fraction than any other major land use (except vacant, golf courses, cemeteries, parking lots, etc.). That is because location is more critical to retailers than other businesses. You can tell this by their high rate of tear-downs and remodeling. ...

 Cities and districts around Vancouver and Victoria are ranked, in Table 1, according to the land value per property (single-family residences). These range from nearly $700,000 each in the "University Endowment Lands" district (very posh), to around $40,000 each in the "Victoria Rural" district (more modest). The last column, LSREV (Land Share of Real Estate Value), shows the land value (L) as a share of the total value (B+L).

 The average house (ex land) in the posh UEL jurisdiction is worth 2.8 times the average in the Victoria Rural jurisdiction ($173.1/$61.9). The average land parcel (ex building) in the UEL is worth 17.5 times the average in the Victoria Rural jurisdiction ($692.5/$39.6).

 Now do us both a favor, please. Pause and savor that comparison. Let it linger, as though you were testing a slow sip of wine from Fredonia's famous grapes. Roll it on your tongue, mull sensually over its aroma and bouquet, and, getting back to business, mull cerebrally over its full import. The house that shelters the very rich family is worth 2.8 times the house of the modest family; but the land under the house of the very rich is worth 17.5 times the land of the modest. Seventeen and one half times as much! Again, it is lot value, more than building value, that divides the rich from the poor. Seldom will you find an economic rule more strongly supported by data. It's just a matter of presenting the data so as to test and bring out the rule.

An American counterpart of Vancouver's "University Endowment Lands" is Beverly Hills, California, where land value composes some 80% of residential values, and the mean parcel is worth something like a million dollars. Beverly Hills, with its great wealth and mansions, is known as "Tear-down City." Every year many a grand old palace that once sheltered some renowned matinee idol, and rang to scandalous parties, is torn down to salvage its site for the next, grander one. In a land boom, such as crested in 1989, half the city goes to the brink of demolition and replacement.

 What do those data tell us? The rich as a rule do not live next to the poor. Rather, they cluster in neighborhoods with much higher lot values. The poor seek shelter first, and go where it is affordable. The rich put a high premium on location, neighborhood, views, and grounds, resulting in higher land fractions in their real estate. Mansions are visible evidences of wealth, impressing viewers powerfully; land values are invisible. The perceptual bias is to underrate the invisible, if you are not regularly in the real estate market. In the numbers, however, land and buildings are equally visible, and their message is clear. It is land value more than house value that divides the rich from the poor. Ergo, a tax shift from buildings to land is a shift from the poor to the rich, even though the houses of the rich are exempted. It makes the property tax more progressive. ...

Differences among city tax bases are actually, however, extreme. One desperate little farm town in Fresno County, Parlier, has just $10,000 of assessed value per head. Here are some assessed values per head from different California cities in The County of Los Angeles:

• Lynwood, $21,500;
• Beverly Hills, $294,000 (13 times Lynwood);
• City of Industry, $5,533,000 (257 times Lynwood, and 553 times Parlier) .

Destitute Slab City (Unincorp.) in Riverside County has no land values at all. (It is an abandoned military base between a bombing range and the fragrant southern end of the Salton Sea, with rotting algae and dying fish.) One would not expect much support in The City of Industry for a proposal to share land as common property with the transients who park in Slab City, which has no public services except a species of public schooling, nor would we expect the transients to stay in or return to Slab City if they could park on the streets of Beverly Hills, camp in its parks, attend its schools, and beg or "work for food" on Rodeo Drive.

This is why some critics have called the property tax "regressive." Balkanization of the property tax gives some plausibility to the otherwise bizarre claim that switching to a sales tax is less regressive than sticking with a property tax. Within each city the property tax is progressive, but when your data meld cities like poor little Parlier and Lynwood with Beverly Hills you sometimes find poor people paying more of their income in property taxes than rich people, and getting less for it.

Then there are resource tax enclaves. Hydrocarbons and hardrock minerals are unevenly distributed, geographically. McLure tells us that the Siberian oblast of Tyumen, with 2% of Russia's people, yields 65% of Russia's oil. There are similar regional disparities worldwide.

Rich farm counties are not, generally, resource tax-enclaves (except by comparison with poor farm counties). The "rural" counties today with high values per head are resort counties, like Vilas and Walworth in Wisconsin, with their prized lake frontages; or "exurban" counties like Napa in California; or Berkshire in Massachusetts. In California, you might think that fruitful farming counties like Tulare have a lot more taxable real estate value per head than urban ones. Such is a durable belief, but it is wrong.

• Tulare County reports assessed values per head of $38,100.
• The whole state averages $60,000 per head.
• Suburban Marin County weighs in with $95,400;
• urban Los Angeles County has $59,000;
• Orange County has $74,000.

You might also think that Tulare, being rural, has a lot higher fraction of land value in its mix, but again, not so. The Land Share of Real Estate Value (LSREV) in Tulare County is 28%, compared to a statewide mean of 40%, and 47% in Orange County. Grazing and mining counties like Inyo have high values of LSREV, but they are a small share of the farm economy. Counties with intensive working farms, like those of the San Joaquin Valley, have low values of LSREV.... read the whole article

Bill Batt: Comment on Parts of the NYS Legislative Tax Study Commission's 1985 study “Who Pays New York Taxes?”

Except in the implicit recognition involved in their analysis of shifting, the distinction between land and improvements was opaque. This is a remarkable oversight, because improvements typically depreciate at the rate of 0.5 to 1.5 percent annually; only land values appreciate.9 And in view of the fact that assessments in New York localities have historically been very infrequent, one can understand how the land values are in reality a far higher proportion of parcel value than assessments would suggest.10 This means that in a period of seven years, for example, a property parcel could easily increase in price by 50 percent, far more if recent real estate market history is to be illustrative. Moreover real estate prices varied greatly in their rates of change during this time span; upstate New York was largely stable, but downstate localities experienced huge booms and busts. ...

Little justification exists for taxing buildings, or improvements of any sort, so this question is easily disposed of. The practice is explained largely as a matter of historical inertia. Only in the recent century or two have buildings represented any significant capital value; prior to the rise of major cities, the value of real property lay essentially in land. American cities today typically record aggregate assessed land values – at least when the valuations are well-done – at about 40% to 60% of total taxable value, that is, of land and buildings taken together.31 Skyscrapers reflect enormous capital investment, and this expenditure is warranted because of the enormous value of locational sites. Each site gets its market price from the fact that the total neighborhood context creates an attractive market presence and ambience. By taxing buildings, however, we impose a penalty on their optimum development as well as on the incentives for their maintenance. Moreover, taxes on buildings take away from whatever burden would otherwise be imposed on sites, with the result that incentives for their highest and best use is weakened. Lastly, the technical and administrative challenges of properly assessing the value of improvements is daunting, particularly since they must be depreciated for tax and accounting purposes, evaluated for potential replacement, and so on. In fact most costs associated with administration of property taxation and appeal litigation involve disputes over the valuation of structures, not land values.

Land value taxation, on the other hand, overcomes all these obstacles. Locations are the beneficiaries of community services whether they are improved or not. As has been forcefully argued by this writer and others elsewhere,32 a tax on land value conforms to all the textbook principles of sound tax theory. Some further considerations are worth reviewing, however, when looking at ground rent as a flow rather than as a “present value” stock. The technical ability to trace changes in the market prices of sites – or as can also be understood, the variable flow of ground rent to those sites – by the application of GIS (geographic information systems) real-time recording of sales transactions invites wholesale changes in the maintenance of cadastral data. The transmittal of sales records as typically received in the offices of local governments for purposes of title registration over to Assessors’ offices allows for the possibility of a running real-time mapping of market values. Given also that GIS algorithms can now calculate the land value proportions reasonably accurately, this means that “landvaluescapes” are easily created in ways analogous to maps that portray other common geographic features. These landvaluescapes reflect the flow of ground rent through local or regional economies, and can also be used to identify the areas of greatest market vitality and enterprise. The flow of economic rent can easily be taxed in ways that overcomes the mistaken notion that it is a stock. Just as income is recognized as a flow of money, rent too can (and should) be understood as such.

The question still begs to be answered, “why tax land?” And what happens when we don’t tax land? Henry George answered this more than a century ago more forcefully and clearly, perhaps, than anyone has since. He recognized full well that the economic surplus not expended by human hands or minds in the production of capital wealth gravitates to land. Particular land sites come to reflect the value of their strategic location for market exchanges by assuming a price for their monopoly use. Regardless whether those who acquire title to such sites use them to the full extent of their potential, the flow of rent to such locations is commensurate with their full capacity. This is why John Stuart Mill more than a century ago observed that, “Landlords grow richer in their sleep without working, risking or economizing. The increase in the value of land, arising as it does from the efforts of an entire community, should belong to the community and not to the individual who might hold title.”33 Absent its recovery by taxation this rent becomes a “free lunch” to opportunistically situated titleholders. When offered for sale, the projected rental value is capitalized in the present value for purposes of attaching a market price and sold as a commodity. Yet simple justice calls for the recovery in taxes what is the community’s creation. Moreover, the failure to recover the land rent connected to sites makes it necessary to tax productive activities in our economy, and this leads to economic and technical inefficiency known as “deadweight loss.”34 It means that the economy performs suboptimally.

Land, and by this Henry George meant any natural factor of production not created by human hands or minds, is ours only to use, not to buy or sell as a commodity. In the equally immortal words of Jefferson a century earlier, “The earth belongs in usufruct to the living; . . . [It is] given as a common stock for men to labor and live on.”35 This passage likely needs a bit of parsing for the modern reader. The word usufruct, understood since Roman times, has almost passed from use today. It means “the right to use the property of another so long as its value is not diminished.”36 Note also that Jefferson regarded the earth as a “common stock;” not allotted to individuals with possessory titles. Only the phrase “to the living” might be subject to challenge by forward-looking environmentalists who, taking an idea from Native American cultures, argue that “we do not inherit the earth from our ancestors; we borrow it from our children.” The presumption that real property titles are acquired legitimately is a claim that does not withstand scrutiny; rather all such titles owe their origin ultimately to force or fraud.37

If we own the land sites that we occupy only in usufruct, and the rent that derives from those sites is due to community enterprise, it is not a large logical leap to argue that the community’s recovery of that rent should be the proper source of taxation. This is the Georgist argument: that the recapture of land rent is the proper – indeed the natural – source of taxation.38 ... read the whole commentary