Exempt Buildings from Real Estate Tax
Herbert Barry, III
[A letter submitted to the
Pittsburgh Post Gazette. Reprinted from GroundSwell,
Tax exemptions are granted for various worthy purposes, including
medical expenses and charitable contributions. Greater beneficial
effects can be obtained by exempting buildings from real estate tax.
Buildings are desirable products of human enterprise and labor. The
community benefits when a home, office, store, or factory is
constructed, improved, or repaired. Taxable real estate therefore
should be defined as a parcel of unimproved land, exempting the
improvements on it.
Most tax exemptions have the disadvantage of requiring higher tax
rates to replace the lost revenue. When buildings are tax exempt,
replacement of the revenue by a higher tax rate on land is
beneficial rather than detrimental for the community. Higher tax
rates on land make real estate more available at lower prices. Land
is a natural resource that should benefit the community and not
exclusively the lucky owner. Wealthy individuals and corporations
own more than their fair share of the most expensive and extensive
land. Much of their wealth is attributable to prevalently
insufficient assessment and taxation of their valuable land.
When revenue from tax exempt buildings is replaced by higher tax
rates on land, the tax is reduced for owners whose building has a
higher percentage of the total property value than the average for
all taxable properties. Most homeowners inhabit a well maintained
house on a small plot of land in a residential area that is not
highly expensive. Tax exemption of their home therefore will reduce
their property tax.
More than a dozen cities in Pennsylvania have lower tax rates on
buildings than on land. The lower rate on buildings constitutes a
partial but not complete tax exemption. Tax exemption of buildings
can and probably should be gradual, such as beginning with 25%
exemption. An important advantage of complete exemption of
buildings, both residential and commercial, is that the value of
buildings does not need to be assessed. The value of land can be
assessed more accurately, inexpensively, and without the need for
the assessor to intrude into buildings.
Tax exemption of buildings should be applied to farms and forests
in addition to cities. Land is much less valuable in areas with low
population density For many farmers, the value of their house, barn,
silo, and other structures greatly exceeds the value of their
fields. Higher tax rates on rural land would make more land
available at lower prices, thereby benefiting new farmers and
counteracting the tendency for large expanses of rural land to be
owned by wealthy individuals and corporations.
Real estate taxes are generally limited to local governments.
States and the federal government obtain revenues from taxes on
sales, income, capital gains, and estates of deceased wealthy
individuals. These taxes on products of human enterprise and labor
detract from desirable activities. The state and federal governments
can benefit the entire taxed population by substituting a tax on
unimproved land for the various detrimental taxes. The substitution
is feasible because the annual tax on land will remain much less
than the value for the owner. Land values are augmented by the
increased construction resulting from tax exemption of buildings.