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Property Tax Relief

A lot of local candidates and state candidates get elected on platforms of "property tax relief." Targeted property tax relief is sometimes used as an incentive to attract corporations that promise to be good corporate citizens or create jobs. Targeted property tax relief is used to encourage the development of downtown areas that are blighted, relieving the developer and the purchaser of downtown properties from paying property taxes for 10 or so years.

But platforms calling for property tax relief seldom talk about reducing spending in an amount equal to the property tax relief, so they are either talking about property tax relief for some small group, to be paid for by other groups of property owners, or they are talking about increasing other taxes: taxes on sales, or on wages. When we tax sales, we burden the poor and we decrease the deman for the products we tax. When we tax wages, we discourage job creation and steal from those who work the product of their labor.

But when we tax land value, we collect for the commons a portion of the value of land. That value doesn't result from anything the individual landholder does, but from factors beyond his reach: population growth, natural amenities, common investment in infrastructure and services.



Mason Gaffney: The Taxable Capacity of Land
Making the property tax more progressive is not just equitable, it raises its revenue capacity. That is because visible damage to the poor and marginal puts a cap on any tax. You can't squeeze blood out of a turnip, and if you try you'll look like the Sheriff of Nottingham. A land tax won't drive the poor from their humble huts, because it exempts the huts, and the sites have low tax valuations. It may tax a few off valuable land, if their poor huts are there and they own the land. However, if they own such land, are they really poor?

 They may be "land-poor:" a few folks always are. They have non-cash assets, but are illiquid. "Illiquid" may be just a euphemism for "holding out for more" -- there is always a market at a price. Even so their plight, genuine or affected, traditionally evokes sympathy and support. We must address it.

 California, although backward in many ways, has addressed it effectively. In our special improvement districts (SIDs), State law allows the SID to contract with the landowner as follows. You don't have to pay your annual charge in cash. If you choose not to, we take an equity in your property, charging a modest rate of interest. Our equity accumulates over time. When you die, we sell the property and take our share; your estate gets the rest. Should our equity reach 100% during your lifetime, you stay there for the duration, tax free.

 Objectively, it looks like a good deal for the taxpayer. They can't come out behind, even if they die soon; if they live long, they come out ahead. The instructive result is that very few people take this apparently advantageous option. UCLA's Donald Shoup has published several works on the program. One way or another, they manage to pay on time. Perhaps it attracts the attention of potential heirs, in a compelling way, but somehow the cash comes forth. While intending only to relieve distress, the program seems to have called a great bluff. The lachrymose plea of the cash-poor widow is unanswerable in debate, without appearing callous, doctrinaire, and jackbooted. Meantime wealthy interests, thoroughly undistressed, hide behind the widow's skirt and get their way.

 We also hear, sometimes, that "it's never been done," or it's only been done by our drab neighbor Pennsylvania, for whom familiarity may have bred contempt? Only "far kine have long horns." Or, whatever progress ensued there was happening anyway. We are destiny's tots in the grip of cosmic forces. We rise and fall with the tide. We cannot control Fate; relax and accept what the gods dish out. Fatalism: it's a sure recipe for milling around ineffectually while life passes us by.  ...   Read the whole article

Wyn Achenbaum: Eminent Domain and Government Giveaways
... But if the properties had been reassessed on a regular basis, with market-based values assigned first to the land and the residual being assigned to the existing buildings, the homeowners themselves would have been in a position to make their own rational decisions on whether it was worth it to them to continue to occupy extremely valuable land (and pay the taxes on it), or more to their advantage to accept an offer from someone who was prepared to put it to a higher and better use, and take that equity and buy elsewhere.

I am sympathetic to those who want to occupy their homes forever, but if those homes are located on land that is valuable (because of its views or water access or transportation services, for example) or becomes valuable because of surrounding development, it seems fair that they compensate the rest of us for holding up progress, for continuing to occupy as single-family residences, land which it is now time to develop into something that produces good results for the entire community.

Most of us know of an older home, or perhaps a diner, or something else that was a highly appropriate use for its site -- and typical of the neighborhood -- 50 years ago, which stubbornly remains in the middle of a neighborhood which has been redeveloped with taller commercial buildings. The home or diner is something everyone else has to walk around, drive around. If that site were well developed, it could prevent the premature development of far less desirable sites on the fringe of town -- an acre downtown well developed, can save 10 or so acres on the fringe.

Should we protect the right of elderly people to stay in their homes, at the expense of the rest of the community? Should we protect the right of a young person who shares that home to stay there for an entire lifetime, at the expense of the community? I'm comfortable with the idea of allowing the elderly person to defer payment of the property taxes, with interest-bearing debt accruing against the property until it is sold or transferred. It seems to me to be an acceptable tradeoff, even if it creates potholes in the redevelopment. But his heirs should not inherit it until the lien is satisfied, which will usually mean that at last it will be developed consistent with the neighborhood.

But unless the properties are regularly and correctly assessed, land first and buildings as the residual, we won't have the signals which tell us when it might be time to move on. ... read the entire article



 

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