16 - Understanding our Political Economy - case for the taxation of l

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Lesson 16 - The case for the taxation of land rental values

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Understanding our Political Economy LESSON SIXTEEN The Case for the Taxation of Land’s Rental Value

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Two-Rate Property Tax Reform

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Introduce a gradual increase in the rate of taxation applied to assessed land values Simultaneously reducing the rate applied to assessed improvement values Introduce the changes, if possible, in each taxing jurisdiction (i.e., municipal, county and school district Either revenue neutral or to raise additional needed revenue Keep assessments updated based on current market data

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John K. Tener

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Savings: $300 Increase : $300 Increase: $150 No change

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The Benefits of Shifting Taxes onto Land Values

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C. Lowell Harriss

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“Heavy taxation of new buildings must stand as a tragically apt example of mankind creating needless obstacles for itself. Cities which urgently need to replace obsolete, decayed, degrading buildings nevertheless put powerful tax impediments in the way of progress. …”

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“At present an owner can keep a resource [land] created by nature (plus governmental outlays for community facilities) from being used, or used to best advantage. The higher land tax would reduce such possibilities.” C. Lowell Harriss. “Property Tax Reform: More Progress, Less Poverty,” a lecture delivered at DePauw University, Greencastle, Indiana, 1970

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If the land-to-total property value is under 50%, the tax shift to land value would result in a lower tax bill Under-improved land parcels would tend to experience higher tax bills Assessment inaccuracies need to be corrected to achieve real tax equity.

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LAND AVAILABLE FOR HOMES, BUSINESSES, OR OTHER PRODUCTIVE USES. ASKING PRICE: $ ZERO Annual community charge will be equal to location rental value. All improvements are exempt from taxation. All income generated is exempt from taxation.

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Low-rise buildings on very valuable downtown locations will pay higher property taxes, as will vacant lots and surface parking lots Properties that include significant excess land are also likely to pay more Conversely, buildings that reflect the highest, best use of the location will often experience significant drops in their property tax bill.

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IS OUR FAILURE TO PUBLICLY CAPTURE THE RENTAL VALUE OF OUR LANDS

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Nicolaus Tideman, Professor of Economics, Virginia Polytechnic Institute

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“A very important effect of taxing land is the opportunity it provides for removing non-neutral taxes such as those on improvements. This is highly stimulative of development. A related stimulative opportunity that is created by taxing land is the opportunity to provide services such as water, sewerage and electricity at marginal cost.”

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Mason Gaffney, Professor of Economics, University of California, Riverside

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“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. ...”

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“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.”

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END OF LESSON SIXTEEN

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