Buildings are assessed at market value, cost of reproduction, and depreciated value by aging. Taxing improvements heavily, as does the present property tax, discourages free enterprise from providing enough rehabilitated and rebuilt housing in older city areas. Individual building investment in declining older neighborhoods is devalued when an entire neighborhood has no incentive to renew itself with private funds.
In cities, studies have shown that presently two-thirds to three-fourths of the “property tax” falls on buildings and improvements. Remodeling, rehabbing, adding an extra family room or a garage punishes the property owner with a higher assessment and consequently a higher property tax. Small wonder older city housing is often not in the best shape when its upwardly mobile owner moves to the suburbs!
The other part of the fused property tax is the tax on land values. Unfortunately, the site under run-down housing is assessed as a residual of a deteriorating building. Therein is a major revenue source problem!
Urban site value is created by increased population bidding for sites to build homes, offices, shops, or factories. Zoning decreed by the local government also adds value to sites. Collectively, the community taxes itself to pay for municipal services (e.g. police, fire, etc.) and amenities (e.g. parks) and for cement infrastructure (sewer mains, etc.) Location value of any site is further influenced by the private investment of other individuals in the neighborhood or shopping district.
The present system of low taxes on the site value of urban land encourages underutilization and speculatively withholding of land sites from the market. Increasing taxes on unused (vacant lots) and underused (with obsolete buildings) sites is a prod for the owners to put these sites to productive use or sell them to others who will.
Site value taxation stimulates the city to redevelop and allows city services thus to be more economically administered and/or extended in a more compactly developed city. Almost all municipal costs — water supply, sewage disposal, garbage collection, street maintenance, school busing — are increased by distance.
Site value taxation is revenue neutral in providing funds for local budget needs. Heavier site value taxation takes back for the community the increase in value of land which the community created. A commensurate decrease in the property tax levied on buildings and improvements provides the incentive for private rehabilitation and rebuilding. The potential for revenue increases from site value taxation exists which, coupled with corresponding decreases in other forms of taxation — as benefits occur from economic growth (such as income taxes, sales taxes, etc.), preserves that neutrality.
|The nation is looking for tax reform that will reduce the national debt, encourage production, reduce unemployment and under-employment, and put our public finances on a business-like basis, providing sufficient revenue without indebting future generations.
The nation is looking for a method to provide low-cost housing and clean up urban slum areas without government housing subsidies.
The nation is looking for a way to reduce urban sprawl with its waste of farm land and its public cost for providing urban services and its private costs in time and fuel consumed in commuting.