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Two Neighboring Lots

Picture two lots, of similar size, facing onto the same street in the central business district. One has a fence around it and a well-mowed lawn. The adjoining one has a multi-story building on it. How much is each piece of land worth? A Georgist would tell you that the two pieces of land are of equal value, but one is being put to its highest and best use, and the other probably is not.

But if you check the assessment rolls for your town, you may find that those two pieces of land bear very different assessments. Most likely, the lot that is being well used is going to be assessed much higher than the neighboring lot. Which means that the owner who has put his land to good use (creating jobs, a place to live or work for people) is being penalized for his industry, while the owner who sits and waits is being rewarded by a lower assessment.

Wait. It gets worse! In 49 states (the exception being Pennsylvania), the millage rates on land and on buildings are identical. So in addition to paying more taxes on an identical piece of land, the fellow who is using his land well is also paying at the same rate on the building! Why on earth should a logical society do that?

The alternative?

  • First, get the assessments right. Value the land first. Then value the entire property; the difference is the depreciated value of the current improvement.
  • Second, reduce the millage rate on the buildings, and increase the millage rate on the land. (You'll need to get the enabling legislation first in the other 49 states, but this change is worth the effort!)
What will happen?

First, the taxpayers, even large commercial ones, are far less likely to challenge their assessments because their assessments will be based first on land values, which are roughly comparable to those of the surrounding properties.

Second, the land value will begin to play a larger and larger role in determining the tax bill for the individual property. In the case of commercial properties, this replaces the income approach which tends to penalize the successful entrepreneur and reward the speculator. In older residential neighborhoods and commercial districts, this may send signals to owners of underdeveloped properties or those where the buildings are approaching obsolescence that it is time to consider redeveloping the sites.

Third, instead of being forced to seek land on the fringe of town, those who want to locate a business will be able to afford a site downtown. The downtown will become more densely developed, putting the existing infrastructure to better use and preventing the need to extend sewers, water, electricity, cable TV and all the services the town provides into additional sprawl neighborhoods. People will not have to commute as far, business will improve, jobs will be created, housing will be created.

What's wrong with this? Only that the joy goes out of land speculation.

 

William F. Buckley, Jr.  Henry George and the Single Tax  (on C-SPAN's Book Notes)

The effect of this would be that if you have a parking lot and the Empire State Building next to it, the tax on the parking lot should be the same as the tax on the Empire State Building, because you shouldn't encourage land speculation.

Henry George: The Land for the People (1889 speech)
That is what we propose by what we call the single tax. We propose to abolish all taxes for revenue. In place of all the taxes that are now levied, to impose one single tax, and that a tax upon the value of land. Mark me, upon the value of land alone -- not upon the value of improvements, not upon the value of what the exercise of labor has done to make land valuable, that belongs to the individual; but upon the value of the land itself, irrespective of the improvements, so that an acre of land that has not been improved will pay as much tax as an acre of like land that has been improved. So that in a town a house site on which there is no building shall be called upon to pay just as much tax as a house site on which there is a house.   Read the whole speech

Henry George: Thou Shalt Not Steal  (1887 speech)
What we propose to do is to divide up the rent that comes from land; and that is a very easy thing.

We need not disturb anybody in possession, we need not interfere with anybody’s building or anybody’s improvement. We only need to remit taxes on all improvements, on all forms of wealth, and put the tax on the value of the land, exclusive of the improvements, so that the dog-in-the-manger who is holding a piece of vacant land will have to pay the same amount of tax for it as land of similar value with a building or other improvements upon it. In that way we would treat the whole land of such a community as being the common estate of the whole people of the community. ...  read the whole article

Charles B. Fillebrown: A Catechism of Natural Taxation, from Principles of Natural Taxation (1917)

Q44. Why, on similar lots of land, should one man with a $10,000 building be taxed as much as another with a $100,000 building?
A. Because the value of the privilege of occupancy and use is the same in both cases.

... read the whole article

Bill Batt: How Our Towns Got That Way   (1996 speech)
Failure to recapture publicly-created land rents through the tax mechanism provided the incentive to speculators to buy land, not to use it in production but to hold it for the rise. In this way, choice parcels remain undeveloped or underdeveloped relative to the full extent that their values warrant and development occurs instead in remote areas where opportunity for profit is more immediate. The result was low density development what we know as sprawl.

To some people this may be counter-intuitive. It may not be obvious that increasing taxes on a parcel of land will foster its improvement. Consider, however, the possibility that there are two parcels of land in roughly the same location and of equal size. You own a vacant parcel and another next to it has a twenty-story building. If only the land-value is taxed you will be paying the same tax revenue as your neighbor. What are you likely to do with your parcel? If you are rational, you will either build a twenty-story building or else sell the land to someone who will. In this way improvements tend to be clustered in high-land-value areas except where it is prohibited, perhaps for a park. ... read the whole article

Louis Post: Outlines of Louis F. Post's Lectures, with Illustrative Notes and Charts (1894) — Appendix: FAQ

Q56. Rich man with large mansion; poor widow with small house on same sized lot adjoining. The two pay the same tax. Is that right?
A. There is no reason in justice why the community should not charge poor widows as much for monopolizing valuable land as it charges rich men. In either case it confers a special privilege and should be paid what the privilege is worth. The question is seldom asked in good faith. Poor widows who live on lots adjoining large mansions are not numerous, and when they exist they are simply land-grabbers. In our sympathy for these widows, let us not forget the vast armies of widows who not only do not live next to mansions, but have no place in the whole wide world upon which to rest. ... read the book

see also Bill Batt: How the Railroads Got Us On the Wrong Economic Track

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