The following article is a summary of my April 2021 article "City Governments Could Make Revenue-Sourcing and Land Use More Efficient by Taxing Vacant Lots and Abandoned Properties".
Waukegan is the county seat of Lake County, Illinois. Lake County is among the top twenty counties nationwide, in terms of the highest levels of property taxes per person, and residents are fed up.
It’s time to get serious about reducing property tax rates and their impact on
our lives. We can do this by reforming property taxes, to tax land at a higher
rate than buildings. Also, by rethinking why we choose particular sources of
revenue to fund our government.
Everything on Earth that has monetary value, falls into one of three
categories: the factors of production of land, labor, and capital. Land is
special and unique, and different from labor and capital, because humans did not
create the land. And also, because it tends to stay put, which makes it easier
to tax than labor and capital (which move around).
All labor and capital rests upon the land; like all
the buying and selling that we do, and trade, and earning income, investing,
and constructing buildings. If we tax land hoarding and land speculation
adequately, then taxes on productive economic behaviors that harm nobody, will
no longer be necessary. Additionally, the price on land will become more
affordable, which will make it less expensive to mix labor and capital upon the
land. Which helps everybody.
This was the idea of 19th-century American social reformer Henry George, whose school of thought has come to be known as Georgism. The Georgist land tax plan is called L.V.T., which stands for Land Value Taxation. It is a plan to reduce property taxes by taxing unimproved land value instead of improvements. Improvements include the value of the buildings and other economic activity occurring on top of the land, which is essentially all profitable human activity.
Georgists want this activity – this movement of labor and capital – to be as free, and unhindered by unnecessary taxes, as possible, in order to give both the rich and poor a fair shot to earn wealth through their own productivity (rather than through inheritance of landed estates, leveraging their assets for profit, or receiving the assistance of monopolies).
Georgist Economist Mason Gaffney estimates that 1/3 of the economy is tied up in untaxed land revenue. Gaffney and economist Scott Baker have observed that – with a $21 trillion G.D.P. for the United States, and a combined cost of all levels of government of about $7 trillion – all governments in the country could be fully funded, if only we taxed unimproved land value adequately.
Land Value Taxation has been tried, to considerable success, in Singapore, Finland, Denmark, Estonia, and several towns in Pennsylvania, Maryland, and Alabama. Land Value Taxation has been shown to reduce the number of abandoned homes and vacant lots, reduce unemployment, and reverse the stagnation of productivity. More localities implementing L.V.T. could also help reduce pollution, urban sprawl, deficits, and double taxation.
But why do so few people know about Land Value Taxation, if it does so much good? Because there’s a lot of temptation to tax income, sales, and investments. Some politicians seem to want to tax everything that moves. But we should be taxing behaviors because they harm somebody, not just because they exist.
There’s no telling how much money the public could save, if it stopped thinking in terms of “this tax is good because of what it funds”, and instead started thinking in terms of “this tax is good because it will reduce and penalize a behavior that harms the public”. If we tax production too much, people will reduce their level of productivity, to avoid the tax. But if we tax waste and disuse of land, the only way to avoid the tax is to avoid the behaviors (i.e., hoarding land, and allowing it to fall into disrepair). If taxes have to punish us, then this should at least be on purpose.
Given Waukegan’s 89,000-person population, and $21,000-per-person annual income, Waukegan’s G.D.P. is about $1.9 billion. If Mason Gaffney’s one-third estimate applies, then that means that roughly $633 million should be available in untaxed land rents, to fund city government. However, only a small fraction of that value will need to be taxed; less than one-sixth of that, in fact.
I recommend that the Waukegan city government expand the city’s vacant lots registry fund, and use its lien power, to create a registry of vacant lots, blighted lands, and abandoned homes and construction projects. I recommend that all current taxes on income, sales, improvements to property, intergovernmental taxes, and dues from government employees – which currently comprise just under 60% of the city’s revenues – be gradually phased out, by 25% per year for four years. I recommend that those revenues be gradually replaced, by a 4% tax on unimproved land value in the first year, followed by an 8% tax the next year, then 12%, and finally 16%, at which point the city would be taking in approximately $100 million per year from land value dues.
This will allow the city government to be fully funded, while alleviating the negative impact which taxation has on productivity. Additionally, Land Value Taxation will ensure that taxes impact the owners of land, rather than the renters of property; this will leave residents free to improve their homes without fear of having their taxes increased. The community will beautify itself; all government has to do is collect the land tax and balance budgets, and then stand back and watch.
If taxes on income, investments, and sales went away, then taxing land could even result in reduced political conflict and antipathy (particularly over the topic of taxes and what a fair tax code looks like). Anger about over-taxation and overregulation would subside.
There’s no telling how much it would help solve the national debt crisis and sovereign debt crisis, to balance government budgets, restore productivity to the country, and reduce the need for local governments to depend on higher level of governments for funding.
I urge the mayor and aldermen to educate themselves about Land Value Taxation, so the city can move towards a tax code that allows business to thrive (but never at the expense of the environment or the public).
Written and Published on April 14th, 2021
Expanded with Images on April 15th, 2021
Expanded with Images on April 15th, 2021
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